Yongye International Responds to Misconceptions in Recent Article

Product Efficacy – The author states that humic acid and fulvic acid-based fertilizers do not improve plant growth, citing a study conducted at UC Davis on the application of humic acid to soil in California.

In fact, the Yongye's Shengmingsu plant nutrient product combines fulvic acid with a variety of other plant nutrients in a patented formula (patent number: ZL200610131953.7) that has been demonstrated to have a significant impact on the yield and quality of a wide variety of agricultural products in China. An important fact is that compared to its North American counterpart, Chinese soil has been over farmed for many years, with much depleted soil quality.

The benefits of fulvic acid-based plant nutrients applied directly to the plants have been supported by academic literature, including an article by Dr. Robert Petit of Texas A&M University http://www.calciumproducts.com/articles/Dr._Pettit_Humate.pdf that states: "Humic acids (HAs) and fulvic acids (FAs) are excellent foliar fertilizer carriers and activators. Application of humic acids (HAs) or fulvic acids (FAs) in combination with trace elements and other plant nutrients, as foliar sprays, can improve the growth of plant foliage, roots, and fruits."

The Chinese government's Inner Mongolia Autonomous Region Scientific and Technology Bureau (IMARSTB), thoroughly reviewed scientific and economic data provided by the Company and reached the opinion that our liquid plant product effectively increases agricultural output, improves the utilization rate of fertilizer, enhances a plant's resistance to disease and has a lighter weight and higher bio-activity than the other products it tested. In addition, the IMARSTB concluded that large scale experimentation has proven that our product can increase overall yields of staple crops, such as wheat and rice, by 10-20%, and of vegetables by 15-30%, respectively, while also improving product quality.  The copy of the IMARSTB test certificate is available from Yongye's corporate website at http://www.yongyeintl.com/R&D.html.  

The efficacy of our product has been confirmed by large scale tests held at Chinese government farms. Shengmingsu has won top awards for consecutive years at one of China's top agricultural trade shows, the China Yangling Agricultural Hi-Tech Fair. Yongye also possesses the Fertilizer License certified by China's Ministry of Agriculture.

Branded Stores and Employee Headcount

The author noted that Yongye's employee headcount has grown much more slowly than our revenues in the past two years and questioned the rapid expansion of our branded store network to over 24,000 stores at the end of 2010, up from just over 9,000 at the end of 2009.

One of the greatest strengths of Yongye's scalable business model is that we effectively utilize a network of approximately 800 provincial and county-level distributors to recruit and manage independently-owned Yongye branded stores. This has enabled Yongye, supported by our national and provincial level branding efforts for Shengmingsu, to rapidly expand our sales coverage into new areas of China with a low level of capital investment and relatively modest sales force. All of our branded stores are existing agriculture stores in rural villages. As such, no stores need to be "opened." These are existing stores recruited to join our distribution network. In addition to selling Yongye's products, these stores also carry other agriculture products such as seeds, pesticides, and fertilizers. The store recruiting work is primarily driven by thousands of staff from our various levels of distributors.

Our team manages the relationships with 25 provincial and regional level distributors, who are our direct customers, while benefiting from established sales channel with thousands of employees across China of these organizations and 745 county level distributors. Yongye's business model has proven to be profitable for all our business partners, including the distributors and store owners, and most importantly for the farmers who have been able to raise their incomes using our products. In addition, we are not in a labor intensive industry and our manufacturing process is highly automated, which has enabled us to increase production volumes rapidly with relatively modest growth in manufacturing staff.

Corporate Structure

The author notes that Yongye employs holding companies in the British Virgin Islands (BVI) and Hong Kong as part of our overseas corporate structure, implying that this is unusually complex.

In fact, a review of the corporate structure of Chinese companies that have listed in the U.S. capital markets will show that the vast majority of these companies have a similar corporate structure using a BVI holding company and that this is widely recommended by the leading law firms and investment banks that advise Chinese companies. Yongye's corporate structure is substantially less complex than many peer companies.

Accounts Receivable and Cash Flow

The author notes that Yongye's accounts receivable have grown rapidly over the last several years and implies that our receivables policies are lax relative to industry norms.

In fact, a review of Yongye's historical financials would reveal the very important distinction that Yongye's receivables have been well managed and are of high quality. We have not had any bad debt for the past three years. Due to the seasonal nature of the agricultural industry, Yongye's accounts receivable reach a peak in the second and third quarter of each calendar year, and then decline dramatically in the fourth quarter as we collect cash from our distributors. This pattern has been consistent for the past three years in our financials.

On a full year basis, our Days Sales Outstanding (DSO) was 18 days and 17 days for year 2008 and 2009 respectively. This compares very favorably with industry peers. We also made good progress managing the seasonal pressure in collection. In the third quarter of 2010, our DSO decreased to 82 days from 126 days for the same period in 2009.  As we recently announced, Yongye expects to report positive cash flow from operations for the full year of 2010, which we view as a major accomplishment given that our sales approximately doubled in the year. This was driven by an expected 66% decline in our accounts receivable from $75.6 million at the end of the third quarter to an estimated $25.7 million at the end of the fourth quarter 2010.

Yongye's auditor is KPMG and the Company is among the very few small cap Chinese companies with 2008 and 2009 financial results audited by a "Big Four" accounting firm.

"Given the remarkable growth in Yongye's business scale and profitability over the past three years, we can understand how some investors who are unfamiliar with our business operations and the strong market recognition of Yongye's products could be skeptical of our accomplishments," said Wu Zishen, Yongye's Chairman and CEO. "We welcome every opportunity to share the details of our business model with current and potential shareholders, a model which has been awarded with the 'Best Practice Award of the Harvard Business Review' by Harvard Business Review China Edition and numerous other recognitions within China. We also suggest investors to search in Google or Baidu our product or company name in Chinese, where you will find many info on our success stories being reported across China in various media."

About Yongye International

Yongye International is a leading agricultural nutrient company headquartered in Beijing, with its production facilities located in Hohhot, Inner Mongolia, China. Yongye produces and markets two lines of organic nutrient products: a liquid nutrient product which is sprayed on plants and a powder nutrient product which is added to animal feed. Both products are sold under the brand name "Shengmingsu," which means "life essential" in Chinese. The Company's patented technologies and formulas allow it to create products that increase crop yields and improve the health of livestock. The Company sells its products primarily to provincial or regional level distributors, who then channel those products to a carefully selected network of over 24,000 independently owned, Yongye branded stores or directly to rural farmers and government farms in China. For more information, please visit the Company's website at http://www.yongyeintl.com.

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