Our Supply Chain
Agriculture Seed Base
Our seed and seedling research and development efforts are designed for the continuous improvement of the RA yield and size of our stevia plants (larger plants means more RA per plant and greater leaf tonnage yield per acre). Additional activities include commercial plant development and commercial plot testing of new seed and seedling strains. We have invested heavily in intellectual property in the area of plant breeding. One of the patents granted in 2010 relates to the proprietary breeding methodology of stevia plants that we have developed and protect our high-grade stevia plant strains. We have a number of patent applications pending with the State Intellectual Property Office in China. These patents relate to our stevia breeding and processing technologies.
In addition, two patent applications for GLG stevia plant varieties were been accepted by the State Intellectual Property Bureau of the People’s Republic of China in 2010. GLG’s stevia agricultural research and development team, led by Chief Agricultural Scientist Qibin Wang, received acceptance of its patent applications for two significantly competitive stevia plant strains, Huinong 2 (“H2”) and Huinong 3 (“H3”), which the GLG team developed through natural propagation. The two strains contain higher levels of rebaudioside A, the sweetest component of the stevia plant leaf and the primary glycoside used to meet market demand for stevia sweeteners.
The GLG H2 and H3 strains contain 66% and 76% rebaudioside A levels in the raw plant leaf, respectively. The naturally bred strains are a significant achievement for the GLG team as the average stevia leaf on the global market contains a significantly lower percentage of rebaudioside A. Higher yields enable not only improved land and resource utilization, but also reduce the cost of production. Further, the two varieties are larger in plant mass, yielding in excess of 22% more leaf per acre. GLG planted both H2 and H3 leaf in 2011 and both seeds grew successfully. The H3 plants have approximately 76% RA in the plant leaf, which is 26% higher than the first generation (H1) seeds and will produce 46% more leaf per acre than the earlier H1 plants.
As an additional form of intellectual property protection, we have succeeded in the production of seed and seedling strains that cannot be used to grow other plants with high RA yielding stevia leaf (second generation plants grown from the seeds of our high yielding plants will only produce common stevia leaf with an average RA yield). Each year, farmers must sign new contracts with us to receive the high quality seedlings for the ensuing year’s planting season. Because the plant strains cannot be used to recreate our high content RA stevia leaf, we protect the genetic characteristics of our proprietary high quality and high yielding stevia plants and maintain control and security of our high quality leaf supply.
Our seed base operations are designed for the propagation and growth of proprietary high RA content seed and seedlings to ensure sufficient seeds and seedlings are available for planting each year. Through our seed base operation, we will continue to control the development of breeding programs designed to produce improved strains of stevia that we believe will result in continually higher RA yield in our stevia leaf. These seeds are used in our growing areas located in 10 growing regions in China that has achieved national diversification of our stevia growing regions in China.
Huinong Four (“H4”) is on track to be commercially available for distribution to its contract farmers for the 2012 stevia growing season. The H4 proprietary strain results show a 16% increase in leaf yield over the H3 plants, while maintaining a similar 76% RA content. The H4 seeds will play an important role, as parents, in the advancement of the Company’s next generation of seeds – the H6 strain. The GLG Agricultural R&D team has also developed a new Huinong Five (“H5”) plant strain in 2011, which has a seed capable of producing a high amount of stevioside (STV). The H5 plant strain’s STV content of approximately 70% makes it the highest STV seed available in the world today, with a leaf yield between the H2 and H3 strains. H5 will help GLG further reduce its production costs of its BlendSure™ line of products.
Sources, Pricing and Availability of Raw Materials
We believe one of our strongest competitive advantages lies in our relationships with the local Chinese provincial and central government agencies, which have allowed us to secure exclusive agreements in three of China’s largest stevia growing areas. Our manufacturing operations are located in Dongtai, Jiangsu Province, Mingguang, Anhui Province and Qingdao, Shandong Province. We have ten-year agreements with the governments in Dongtai and Mingguang and a non-binding 20-year agreement with the government in Juancheng. During the term of these agreements, we will have a right of first refusal to purchase all stevia grown in these cities and we will be the only company allowed to process stevia in these cities. We purchase our stevia leaf directly from local farmers in China. In recent years, the purchase of stevia leaf in China has been a process involving many buyers in the fields negotiating with thousands of farmers. This method to acquire the thousands of metric tons of necessary leaf is costly, involving a bidding process which resulted in higher prices and, in many cases, a poorer and lower RA yielding leaf.
The ability to exercise control over all aspects of our raw materials from the development of the high RA yielding seed, plants, planting, growth and harvest to final extraction is expected to result in a consistent, reliable quantity of high quality stevia leaf, at attractive prices. We also employ a recognized quality standard in our leaf purchases to ensure that the lowest content of moisture and foreign material are present in the raw stevia leaf purchased from farmers. The 2008 stevia harvest was the first year we employed these standards during the stevia leaf purchase process. The result was an improvement of quality of leaf purchased in 2008 through 2011 in terms of moisture and foreign material relative to the previous year’s leaf purchase. We are confident that our procurement practices applied consistently since 2009 have resulted in local farmers adapting to this quality standard throughout our growing regions.
We are also continually developing additional growing areas in China and experimenting with our new strains to evaluate their adaptability in varying regions.