Climate-Induced Innovation in China’s Crop Seed Industry: Evidence from Firm-Level Data

This paper examines how the private sector in a middle-income country like China adapts to extreme heat through seed breeding innovation. While most existing research has focused on abiotic stress, such as drought and heat, we extend the analytical framework to include biotic stresses, specifically crop pest and disease exposure, a critical but often overlooked dimension of climate adaptation. We construct novel firm-level, crop-specific exposure measures of extreme heat and crop pests/diseases to investigate how both climate-related abiotic and biotic stressors influence the development of heat/drought-tolerant (HDT) and pest/disease-resistant (PDR) varieties at the firm level. Our results show that Chinese seed firms actively respond to climate pressures, increasing HDT varieties by 2.6% and PDR varieties by 9% for an additional harmful extreme heat degree-day, with significant variations across crops. Maize exhibits comprehensive adaptation across both HDT and PDR, rice focuses on PDR traits, while wheat shows limited responsiveness due to biological complexity and weaker market incentives. Breeding innovation responsiveness is stronger among private firms compared to state-owned enterprises and is most pronounced under the independent innovation model relative to inter-firm collaboration and private-public partnership models. We identify three key pathways driving these responses: increased farmer demand for climate-resilient seeds, heightened pest and disease pressures induced by extreme heat, and government policy signals, proxied by official communications addressing climate- and pest/disease-related issues. Furthermore, the adoption of improved varieties significantly mitigates crop yield loss caused by extreme heat exposure and pest/disease prevalence--PDR varieties reduce pest-related yield losses by 363.72 tons in rice and by 1,342.27 tons in maize. However, adoption and mitigation effects in wheat remain limited due to biological and market constraints. These findings offer valuable policy insights for enhancing agricultural climate resilience.