A Study On The Integration Of China's Seed Industry

Industrial integration is a natural outcome of market development. Understanding the key features of different stages of industrial development and the internal logic of industrial integration is critical not only to the development of a market-friendly industrial policy in the macro level, but also to the rise of competitive firms in the wave of industrial integration in the micro level. In some of China's sectors, industrial integration has become the dominant strategy in the emerging environment of industrial upgrading and business expansion. When competing with other firms, leaders that are better positioned in industrial integration are likely to take over substantial proportions of market share from their competitors, and enjoy greater growth potentials. The development of the seed industry in China is not exceptional. Based on the motivation discussed above, following the literature of industrial integration, this study constructs an analytical framework to examine the path of integration for the seed industry.Seed is a base on which agricultural technologies and other inputs can be efficiently applied. Particularly, seed is a product of knowledge and technology. The nature of seed and the fact that China is in transition together imply that the integration of the seed industry in China must be different from either the integration of seed industry in developed countries, or domestic integration experiences in other industries. This study conducts the following systematic investigation on the integration of the seed industry in China.In order to understand the specialty of the seed industry, we start from generic aspect of industrial integration. One of the important contributions that this study has made is that, based on a detailed review of the current literature on industrial integration, and the stage-specific characteristics, we develop an analytical framework to empirically test the determinants of industrial integration and existence of economies of scale in China's industrial integration. We then apply this framework to the beer industry that had experienced a dramatic consolidation in the past decade. After controlling for government interventions and the nonlinearity between the number of firms and average firm profits in each province, we found that the integration in the beer industry started from 1998. The empirical results are important for us to understand the integration in the seed industry.The international experiences in the integration of the seed industry do shed a light on the path of integration in China's seed industry. Many developed countries have implied that the integration among seed breeding, production and adoption is the core of integration in the seed industry. After carefully taking into account of the constraints of China's seed industry in general, and the possibility that the costs due to small-scale farmers and differentials in climate may offset the benefits of the economies of scale, this study concludes that in the current stage China should not adopt an aggressive integration strategy to consolidate the seed industry, a process that took those developed countries several decades to accomplish. It is desirable, however, to expand the market share of leading firms at this moment by limited horizontal integration, while vertical integration should be selective and aiming at product differentiation.We then examine the current status of market integration and mergers and acquisitions of seed companies. We employ detailed information to test the degree of market integration...