Sprinkle, sprinkle, little star
Updated: 2011-10-28 09:29
By Meng Jing (China Daily)
"We've noticed an addition of nearly 400 production lines for drip irrigation systems from the second half of last year until now. Before July 2010, the whole country has around 150 production lines," says Xu Fuchu, secretary-general of the association's irrigation and drainage division.
"To be honest, the industry is heating up so quickly that I'm worrying about a (potential) bubble," she says.
But with major market potential and government support, few investors are considering any risks in their investments into the industry. Companies, both domestic and international, have been increasing production capacity so that they won't be left behind.
Guansu Dayu Water-saving Group, one of two listed irrigation companies in China, has tripled its production capacity through fund raised from its initial public offering in 2009.
Men Qi, vice-chief executive officer of Guansu Dayu, says domestic irrigation companies have certain advantages because of their low prices.
Men, who has more than a decade of work experience at NETAFIM and at John Deere Water, joined the company about half a year ago.
He is optimistic about the future of domestic irrigation companies, adding that is part of the reason he joined Dayu. "Our sales revenue is 340 million yuan last year, which is expected to reach 500 million yuan this year. In terms of sales and market share, we certainly get ahead, compared with international competitors," he says.
According to irrigation.com.cn, the official website of the Irrigation and Drainage Branch of China Association of Water Enterprises, the average cost of irrigation systems per mu is around 800 yuan.
Despite the claim of offering high-quality products to high-end customers, international companies are aware of the necessity of opening manufacturing facilities in China and lowering their prices by producing locally.
Pedhatzur-Wiedhopf says all of the equipment that his company sells in China are imported from Israel, but that the strategy is changing with plans to open a local factory in China next year.
"We will invest around $10 million and the factory is scheduled to operate in early 2013 and will lower the price of our products by 20 percent to 25 percent," he says.
Irrifrance has a similar expansion plan. It is opening two factories in China by 2013. The French company has invested more than 100 million yuan and has opened two production bases in China since 2009.
"We plan to open another two factories by 2013 that will enable our production capacity to jump from 2,000 machines a year now to 6,000 to 10,000 machines a year," Irrifrance's Karim Al-Wadi says.
He says that 70 percent of its machinery components were produced after the plants in China began operating in 2009. Because of the plants, the company has reduced product prices by 20 percent to 30 percent.
"We aim to producing 90 percent of the components locally in the coming year and I think the price of our machines will be cut down by another 5 percent," he says.
But Xu Fuchu says it will not be easy for international companies, even if they lower their prices.
"The technology gap between domestic companies and international companies has been shrinking over the past decade. With more domestic companies and investment jumping into irrigation industry, there is a possibility that some domestic company will emerge as a major player from the fierce competition," she says.