SHIHEZI, CHINA — 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 meter-tall rice stalks amid the dry landscape is a glimpse of the potential of the drip irrigation technology that 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 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 technology aims to use water more efficiently by precisely applying it directly to plants, rather than indiscriminately flooding a field.
Huang said the company, which is publicly listed on the Hong Kong Stock Exchange, is ready both 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.
The company, for example, was invited by Liaoning province to participate in the design and engineering of a 10,000-acre drip irrigation project there, he said. "It means we are well-known and it means they welcome us to build this kind of factory," Huang 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.
While Tianye says the drip irrigation market has been growing in China — and the company's sales were up 17 percent in 2011 — profit in 2012 tumbled in the face of tougher competition.
For the nine months ended Sept. 30, sales dropped 9 percent to 518.9 million Chinese yuan (US$82.3 million), and profit was down 62 percent to 6.6 million yuan (US$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 122nd 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 1,000 cubic meters of renewable water supply per person per year, according to the Hong Kong-based non-profit 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 over 50 percent and boost incomes of farmers up to 60 percent, the company claims.
But it 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 and education, 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 0.2 yuan per meter, about 20 percent of the price of drip equipment in developed markets like the United States, 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 initially 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 it makes its own equipment for automating its tape winding machines, not typical in China.
The company has several Battenfeld-Cincinnati extruders to make the larger PVC pipe that serves as the main lines of its drip systems.
It bought patents from a firm in the United States for composite dripper technology, and it is focused on innovation to expand markets for drip equipment.
The lush rice field by the plant, for example, is the result of eight years' research to tailor drip irrigation to the conditions of China's staple crop. It's now ready to be commercialized. Such locally driven innovation is key for Tianye, he said.
"We have advantages not only on the price but also on the technology," Huang said. "We learned this technology from the world markets, but we made a lot of modifications to let it fit the local market."