Origin Agritech Limited (NASDAQ: SEED) (“Origin” or the “Company”), a vertically–integrated supplier of hybrid and genetically-modified crop seeds, announces plans to establish a joint venture company in Xinjiang for seed production and distribution. The venture will be with a prominent local, state-owned partner, Xinjiang Jinbo Seed. Facing increased demand for certain seed varieties, the company expects to spend up to US$ 15 million in investment for a 51.0% ownership stake to build an additional state-of-the-art center to produce, process, package, and sell high quality seed products for the domestic China market. With the completion of new facility, Origin will double the seed conditioning and production capacity. Furthermore, the joint venture will open up marketing channels to distribute Origin hybrid products to the northwest region in China. These additional sales are incremental to Origin’s existing sales while possessing the same gross margins. Origin will possess the exclusive joint venture partnership with this local partner in Xinjiang.
Xinjiang, is an emerging area in China, possesses 17% of the total land acreage of mainland China. The adjacent region also possesses distinct advantages in high quality land for the production of seed. Given the large farm size in the direct area, the farms possess modern mechanization and advanced irrigation systems. Initial production is scheduled to start by December 2011 at the central production facility, with a stepwise ramp-up to the full facility by August 2012. The proposed location will become final pending local approvals. Upon full operation the facility is designed to allow 50,000 tons of seed production capacity.
“Origin is experiencing strong domestic demand in certain seed products because of its technical leadership and we need to increase our production capacity and flexibility,” said President and Chief Executive Officer Liang Yuan, adding that the plant will “diversify the company’s production base to meet the needs of a changing cost structure and enhance the company’s consistent seed quality, in addition to expanding our sales and marketing base in the region.”