Monsanto exec sees China becoming reliant on corn imports

Chinese agriculture is in transition, with homegrown genetic modification techniques and "digital agriculture" on the way.

U.S.-based Monsanto, the world's biggest supplier of seeds, has been at the forefront of global farming innovations. In 2016, Monsanto agreed to accept an acquisition offer from Bayer, the big German conglomerate that is already a big player in agricultural chemicals.

The acquisition has left many wondering what Monsanto's future operations will look like.

Yong Gao, president of Monsanto China, visited Japan recently. Gao, who also serves as Monsanto's director of corporate engagement for Asia and Africa, said the company will see a sharp increase in research and development spending in the wake of the Bayer deal. He also said China will become dependent on imported corn as its production declines.

Monsanto's top executive in China spoke to The Nikkei about the global situation surrounding genetically modified crops and Monsanto's business outlook for Asia, especially China.

Q: Soybean and corn harvests are growing dramatically in the U.S. and South America. What is your view on this?

A: Thanks to the introduction of technologies such as genetic modification, the U.S.'s corn yield has quintupled, compared with the 1940s. In addition, such technologies have also reduced the use of pesticides and other agricultural chemicals and increased producers' income. The application of digital agriculture, which uses data science, is also progressing. Farmers must make 40 decisions between planting and harvesting each year. In some cases, a planting date difference of only a week causes a difference of as much as several percentage points in a harvest. We have established observation bases at 3 million locations in the U.S. to collect data on things such as weather and soil and offer the best solutions to farmers. For example, a satellite system allows us to identify specific parts of vast stretches of farmland that are dry or prone to attacks by diseases and pests.

Q: How do you assess the current state of Asian agriculture?

A: Unlike in North America, where there are many large-scale farmers, Asia has a high percentage of small-scale farmers. Soil and other conditions vary from country to country in Asia. Therefore, different approaches are needed in different countries. There are some regions, such as Japan and China, where we have not been able to get into the seed business.

But in Australia, New Zealand and Southeast Asia, we are offering crop services that are suitable for each. Meanwhile, enough data is not yet available for digital agriculture. But smartphones are widely used in Asia, and we think we can provide information to small-scale farmers. In fact, we are releasing weather and other data through smartphones for free in India.

Q: Monsanto agreed to accept Bayer's acquisition proposal in 2016. What is your take on this?

A: R&D spending in the agricultural industry is relatively small. Even the combined R&D spending of five major companies in the world is less than that of Toyota Motor. While IT and automobile companies invest a lot of money on innovations, the agricultural sector has lagged behind. Through our partnership with Bayer, we expect to cut costs by $1 billion. We also expect annual R&D spending to rise to $2.7 billion from the current $1.5 billion. We want to further ramp up R&D spending in the future.

Q: Agricultural reforms are now under way in China, the world's biggest food-consuming country. What impact will they have?

A: China is currently moving ahead with agricultural reforms. For example, the Chinese government has purchased corn from domestic farmers at prices higher than on the international market to protect them. As a result, China's corn inventories have swollen rapidly in the past several years. Foreign corn is cheaper, so domestic companies are reluctant to use domestic corn. The Chinese government is encouraging corn growers to shift to soybeans and peanuts. But as for soybeans, China cannot become completely self-sufficient as it already imports as much as 83 million tons a year. With arable land in the country being limited, priority will be given to planting Chinese staples such as rice and wheat rather than soybeans. I think China's soybean imports will continue to increase over the next several years. Meanwhile, China will become dependent on imported corn in the future as domestic production declines. According to one estimate, China's annual corn imports will reach 10 million to 20 million tons. China may emerge as a potential competitor to Japan (as a corn importer) as Japan already imports roughly the same amount of corn.

Q: Could you tell me about Chinese people's awareness of genetically modified crops?

A: Chinese consumers' awareness varies from person to person. The internet and social networks have become widely used in the past seven to eight years, and bad information about genetically modified crops has gone viral. Some people who had previously had no negative feelings toward genetically modified crops have been affected by what they have seen online and changed their attitudes. Meanwhile, research on genetic modification is progressing in China. China has now become the world's second-largest country after the U.S. in terms of research scale. But China wants to focus on its own development of the technology and bans foreign companies, including Monsanto, from developing genetically modified crops. It is unclear when China will change this policy.

Q: What is the Chinese government's stance?

A: In the past several years, China has released an annual "No. 1 central document" -- which sets out important policies -- with a focus on agriculture. There has been one change recently. The document has started referring to genetically modified crops. The Chinese government's stance is that advanced technologies will help resolve problems like environmental pollution and food security.

Also, China's farm ministry released a document recently making clear its policy of aiming for the commercial cultivation of genetically modified corn and soybeans. As for digital agriculture, there are now startups in the field. The Chinese government apparently recognizes that digital agriculture is needed for sustainability.