China firm sees market in water scarcity

By Steve Toloken
Staff Reporter / Asia Bureau Chief

Published: January 14, 2013 6:00 am ET

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As plastics executive Huang Yao Xin drives a visitor through the harsh desert landscape around his company’s extrusion factory in northwest China, he turns a corner to show off a lush, green field of rice.

The field is irrigated with plastic tubing and components from Huang’s company, Xinjiang Tianye Water Savings Co. Ltd.

For Huang, the oasis of yard-tall rice stalks amid the dry landscape is a glimpse of the potential of the drip irrigation equipment Tianye manufactures.

The Chinese government sees drip irrigation as one part of a serious effort to use less water, grow more food and raise incomes of farmers, said Huang, Tianye’s group vice president and senior engineer.

That’s prompting Tianye, which claims to be the largest maker of drip irrigation equipment in the country, to plan its first expansion outside the administrative region of Xinjiang. It’s opening a new factory in northeast China this year and is considering another in South China, Huang said in an interview at Tianye’s headquarters in Shihezi.

Drip irrigation aims to use water more efficiently by precisely applying it directly to plants, rather than indiscriminately flooding a field.

Huang said the firm, which is publicly listed on the Hong Kong Stock Exchange, is ready to expand in China and to search for partners for international markets, although its immediate focus has been within China.

The new factory is tapping a 38 billion yuan (US$6 billion) government program for water conservation in the northeast and Inner Mongolia, he said.

For example, the company was invited by officials of Liaoning province to participate in the design and engineering of a 10,000-acre drip irrigation project there, he said.

There is also interest in drip technology in southern provinces like Guangxi for sugar cane and other crops, and the company is considering establishing a factory in that region, according to Huang.

“There is a shortage of sugar in China, so using drip irrigation can increase the yield a lot,” he said.

The drip irrigation market has been growing in China and the company’s sales were up 17 percent in 2011, according to Tianye, but profit in 2012 tumbled in the face of tougher competition.

For the nine months ended Sept. 30, sales dropped 9 percent to US$82.3 million, and profit was down 62 percent to $1.05 million.

“As the [Chinese] government increasingly emphasizes … water-saving irrigation technology, the number of companies entering into the market has increased dramatically,” the company said. “Meanwhile, the extreme increase of labor costs and transportation costs results in the group’s revenue failing to meet the expectation.”

Water supply is a serious concern in China. The country ranks No. 122 out of 175 countries worldwide in water resources per person, and its four largest agricultural provinces — Shandong, Henan, Hebei and Jiangsu — are below the World Bank’s “water poverty level” of about 264,000 gallons of renewable water supply per person per year, according to the Hong Kong-based nonprofit China Water Risk.

Still, even with those needs, making products that farmers can afford is a major challenge for drip irrigation, Tianye said.

The technology itself has a lot of benefits, Huang claims. For rice, it can save 40 percent of water compared with traditional irrigation, increase crop yield more than 50 percent and boost incomes of farmers up to 60 percent, the company claims. But the equipment has to be sold to them on its economic benefits, as water is generally priced very low, Huang said.

Being successful in the market also requires extensive after-sales service, an area that has tripped up some foreign drip irrigation firms that have tried to get into China, Huang said.

Tianye’s basic line of equipment sells for about 3 cents per yard, about 20 percent of the price of drip equipment in developed markets like the U.S., although the drip lines used in China are simpler, Huang said.

Cost demands of China’s farmers create intense pressure to innovate, he said.

Tianye first bought drip technology from foreign companies, but it has since modified equipment and materials for China.

It developed its own material formulations, for example, with higher recycled-plastic content, and makes its own equipment for automating its tape winding machines, not typical in China.

Tianye has several Battenfeld-Cincinnati extruders to make larger PVC pipe for the main lines of its drip systems. It also bought patents from a U.S. firm for composite dripper technology.

The firm is focused on innovation to expand markets for drip equipment. “We learned this technology from the world markets, but we made a lot of modifications to let it fit the local market,” Huang said.

The lush rice field by the plant is the result of eight years of research to tailor drip irrigation to conditions of China’s staple crop and is now ready to be commercialized, he said.


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China firm sees market in water scarcity

By Steve Toloken
Staff Reporter / Asia Bureau Chief

Published: January 14, 2013 6:00 am ET

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