CICC released a research report stating that implementing the "storing grain in land and storing grain in technology" strategy, smart agricultural equipment serves as a key lever, with "machine-for-labor" substitution now entering a critical opportunity period. As agricultural labor force decreases and land transfers drive industry demand growth, policy has elevated smart agriculture and intelligent agricultural machinery to new strategic heights. Smart agricultural equipment leaders, rooted in China's national and agricultural conditions and backed by mature leading technology, more practical agricultural services, and more complete ecosystems, have entered the fast lane. The firm is optimistic about smart agricultural equipment leaders driving the "machine-for-labor" revolution and recommends Zhejiang Top Cloud-Agri Technology Co., Ltd. (301556.SZ).
CICC's main viewpoints are as follows:
**Smart Agricultural Equipment as Core Lever for Food Security, Industry and Policy Opportunities Converge**
1) To ensure food security, storing grain in land provides the foundation while storing grain in technology contributes flexibility: The 2025 Central Document No.1 lists "intelligent agricultural machinery and smart agriculture" under "new quality productive forces in agriculture," with smart agricultural equipment being the core lever.
2) Smart agricultural machinery and agricultural drones as core tracks: Smart tractors and harvesters both have significant room for technological upgrades; agricultural drones are Chinese-style agricultural machinery that fits China's "large country, small farmers" and "high proportion of short-stalk crops" agricultural characteristics. In 2024, China's agricultural machinery and agricultural drone market size reached approximately 300 billion yuan and 2.9 billion yuan respectively.
**Urbanization, Technological Breakthroughs, and Policy Support Make "Machine-for-Labor" Substitution Inevitable**
1) Demographics: Rural labor force reduction with rising costs and declining equipment costs mark the industrialization inflection point for machine-labor substitution. China's mechanization rate is lowest in the "management" segment of "plowing, planting, managing, and harvesting." CICC estimates that plant protection drones could help China save over 100 billion yuan in annual pesticide application costs.
2) Technology: Traditional agricultural machinery is transitioning toward larger scale, higher-end, and intelligent operations. In 2024, penetration rates for high-horsepower, power-shift, and intelligent tractors in China reached 10.7%, 3.7%, and 3.8% respectively.
3) Policy: Agricultural machinery subsidy policies are tilting toward premium equipment. In 2024, China's agricultural machinery purchase subsidies rebounded to a historical high of 24.6 billion yuan, with a CAGR of 10% from 2020-2024.
**Rooted in China's National and Agricultural Conditions, Smart Agricultural Equipment Leaders Build Technology Foundation, Cultivate Services, and Connect Ecosystems**
Creating an integrated ground-air-space smart agriculture ecosystem: High technical barriers, deep service moats, and strong ecosystem stickiness. In 2024, the CR3 ratios for agricultural drones, smart agricultural machinery, and agricultural machinery in China were 88%, 71%, and 48% respectively.
**Companies:**
1) XAG Technology: Agricultural drone leader, with 1H25 revenue/net profit margin of 740 million yuan/17.5%.
2) Zhejiang Top Cloud-Agri Technology Co., Ltd.: Smart agriculture leader, with 2024 revenue/net profit margin of 490 million yuan/25%.
3) John Deere: Global smart agricultural machinery leader, with 2024 revenue of $51.7 billion and net profit margin of 22%.
**Risk Factors:** R&D innovation falling short of expectations, low grain prices, intensified industry competition.
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