Ag Exports To China

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Agricultural Product Export Opportunities in China

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Large Land Acreage• China has a significant

amount of arable land; 14.86%.

• 1.2% permanent crops.

• A tremendous 545,960 acres of land is irrigated – one of the largest areas in the world.

Why China?


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Growing Rural Economy• China’s GDP is also at an all-time high – $24.6 billion in

2007, up 11.4% from 2006. • China has tripled their R&D into improving agriculture

techniques over the past 20 years. • HSBC recently opened a branch location in a predominantly

rural area with the intention of loaning money to rural Chinese citizens.

• Chinese government to consolidate the land into larger farms, pushing farmers into cities.

Why China?


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Lack of Mechanized Agricultural Products• Demand for Tractors and Combines products are low right

now; $9 billion in imports from US in 2007 with growth of only 38% for Tractors and only 1.4% for Combines from 2006 to 2007.

• Chinese agricultural exports account for less than one-quarter of one percent of the total market value.

• Product saturation in the market is not the issue - there are over 900,000 tractors in China, which is fives times fewer than in the US, despite having twice the irrigated land base.

Why China?


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Need to Improve Agricultural Techniques• Antiquated harvesting

techniques play a significant role in this problem.

• Statistics show that of the total arable land, 40% is victim to soil erosion and an additional 15% is contaminated with heavy metals.

Why China?


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Small Sales Presence of Corporate Partners (Caterpillar, Case, AGCO and Deere)• The number one importer of tractors to

China is AGCO, according to their annual report (2008).

• However, they are struggling. While they have a short-term strategy for growth, AGCO is taking a long-term view. They have no choice; they sold fewer than ten tractors to the market in 2007.

Why China?


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Reasonable shipping charge:• It would cost us $3,717.54

per container to ship to China.

• Using door-to-door service to ship product from Fargo to Minneapolis.

• Using custom broker services as that will help clear customs in China.

Why China?

DESCRIPTION RATE QTY. AMOUNT

Freight $2,300.00 1 $2,300.00

BAF Charges $120.00 1 $120.00

Warfage $2.90 $27.64

Bill Of Lading $50.00

Drayage $785.00 1 $785.00

Fuel Surcharge $109.90

Customs Fee $275.00

Shipper's Declaration

$50.00

Total US $3,717.54


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Potential interest in used product• Only large “state farms” have any kind of modern

agricultural equipment.• One Tractor, one Combine, and one Sprayer for

every 10,000 acres.

Why China?


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Tariff and Taxes• China charges 17% total duty. This

includes pay 4 percent for duty (Under Most Favored Nation status) and 13 percent value added tax (VAT). Assuming cost of $27,000, the VAT is $4,590.

• Additionally, small Businesses are subject to VAT at the rate of 6 percent. VAT is applied on CIF + duty.

Potential Barriers to China?

DESCRIPTION RATE AMOUNT

Equipment Cost $ 27,000.00

Duty Tax (MFN) 4% $ 1,080.00

Used Equip Tariff 13% $ 3,510.00

Total Tax and Tariff $ 31,590.00


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Inconsistent government policy/procedures • Government will one day allow for free passage of

product, but might not the next day.• Corruption is rampant, but government is cracking

down.• Right now, Government owns land, but is implementing

a “land trading” system.• Government subsidizes farmers to purchase farm

implement products with China as country of origin.



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Long-term commitment• Market is very young and need

is there.• China is not a “fast buck”

opportunity.• Doing business is very different

than from US. • A firm needs to take time and

be committed long-term.



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Antiquated Spray Equipment• Several factors impact this

high usage, including a lack of understanding from farmers about agro-chemical usage and using inefficient equipment.

• The Agricultural Sprayer is 4X faster than standard sprayer and up to 50% more effective.

Product: Agricultural Sprayer

1999 JD 4700 Sprayer


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China’s Dependence on Agro-Chemicals• China imported $337 million in fertilizers and $40.40

million in pesticides from the U.S. • Overall, pesticides account for more imports as a total

percentage of imports than steel or copper.


While China stopped exports on agro-chemicals, they also tripled their imports of these chemicals in the first nine months of 2007.


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Recognized Need for Fewer Chemicals• Farmers still rely on smaller, less

efficient sprayers to apply their fertilizer.

• These sprayers apply fertilizer at an average rate of 179 pounds of fertilizer per acre (this is the highest rate in the world).



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Pricing Strategy• Loss Leader strategy.• Current mechanized Chinese sprayer equipment on

market $8,000 (new).• Heavy marketing – Demos, trade shows and traditional

ad channels.

Agricultural Sprayer Marketing Overview

DESCRIPTION RATE QTY. AMOUNT

1999 JD 4700 - 3150 HRS 1 $ 27,000.00

Shipping 1 $ 3,717.54

Duty Tax (MFN) 4% $ 1,080.00

Tariff 13% $ 3,510.00

Total Cost $ 35,307.54


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Distribution Strategy• China allows foreign companies to become export

trading companies (called foreign investment enterprises or FIEs).

• FIEs allows for companies to import products free from some government controls. These are required to be established prior to distributing products. This requires registration and RMB 1 million in capitalization in order to obtain an import license.



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Distribution Strategy• China requires forming of another firm, called a

foreign investment commercial enterprise – FICE.• Should employ a dedicated agent and local sales

representatives. • The demanding market development strategy will

require intensive human resources.



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Finance options

• U.S. Trade and Development Agency.

• U.S. Export-Import Bank.

• U.S. Small Business Administration.

Agricultural Sprayer: Alternate Finance Options


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Legal Issues• Strict certification processes. • Not many safety documentation considerations. • No Conformite Europeenne (CE Marking).

Agricultural Sprayer: Alternate Finance Options


2020

• Plan visit to China and develop an agent relationship.• Confirm pricing and product features findings.• Begin process for forming FIE and FICE. • Locate an experienced master agent and local sales reps.

Next Steps…


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• Since 2003, we’ve brought together powerful insights, innovative strategy, and strong leadership to help create value for our clients.

• With over 50 years combined experience, we know the pitfalls and hidden treasures in business so we can offer you the best possible value.


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