July 12, 2011

Monsanto, Sinochem to enhance relationship

Chemicals conglomerate Sinochem Corp. is in advanced talks with Monsanto Co. to strengthen their relationship extensively, people aware of the discussions said, a critical signal of China's increasing appetite for US crops and biotechnology.

The two companies have been in talks for months, the people said. It was unclear what form an agreement might take, though arrangements could include a large joint venture, the sale of a minority stake or Sinochem assuming a larger role marketing Monsanto products in China.

Discussions have been difficult, the people said, because of economic and political sensitivities of moving the companies closer together. "You have to be very cautious and careful in these situations," one of the people familiar with the matter said. "It is all very sensitive."

A Sinochem spokesman said he was not aware of a deal involving Monsanto and declined further comment. Monsanto also declined to comment.

With a market value of US$40 billion, Monsanto dominates crop biotechnology, a 15-year-old market the St. Louis company essentially created.

Monsanto has at least one of its patented genes in about 90% of all the soy grown in the US and in about 80% of US corn. Farmers pay a big premium for seeds containing such genes because they equip plants to, for example, tolerate exposure to Monsanto's popular Roundup herbicide or produce their own insecticides.

Beijing-based Sinochem has a similar role in China, where it is the nation's largest importer and distributor of fertiliser and a large seed producer. Begun as a state-owned enterprise in 1950, the government-owned company today has more than US$50 billion in annual revenue with operations that include real estate and finance. But Sinochem's primary role is to help ensure food security in the world's most populous nation, which increasingly means expanding internationally to procure supply lines and technology to feed 1.34 billion.

Monsanto has had a hybrid-corn-seed joint venture with Sinochem's China National Seed since 2001. But Monsanto, which agreed in 2008 to pump an additional US$84 million into the venture, is a minority partner. A senior Monsanto executive complained last year that the Chinese government was continuing to ban foreign companies from investing in agricultural biotechnology in China.

Chinese companies have been eager to develop close ties to US agricultural companies. China's Cofco Ltd. owns a 4.2% stake in US pork processor Smithfield Foods Inc. DuPont Co.'s seed unit has corn-breeding joint ventures in China.

Sinochem has made no secret of its desire to strengthen its agricultural technology, saying in its 2010 annual report, "We are committed to developing ourselves into China's largest and the world's leading provider of agricultural inputs and services."