After spending
the past decade and more than $200 billion acquiring mines and oilfields fromAustralia to Argentina,China’s attention is turning to food.
The world’s
most populous nation is confronting a harsh reality: For every additional
bushel of wheat or pound of beef the world produces, China will need almost
half of that to keep its citizens fed.
And in a
recognition that it can’t produce enough crops and meat domestically, mainland
Chinese and Hong Kong-listed firms spent $12.3 billion abroad on takeovers and
investments in food, drink or agriculture last year, the most in at least a
decade, data compiled by Bloomberg show.
Those purchases
included the largest Chinese takeover of a U.S. company when Shuanghui
International Holdings Ltd. bought Smithfield Foods Inc. for $7 billion
including debt. They are likely to be followed by overseas forays into beef,
sheep meat and grain assets, according to the National Australia Bank Ltd.
“These deals
have been bound to happen, and I’m actually surprised it didn’t happen sooner,”
said Paul Conway, vice chairman of Cargill Inc., one of the four companies that
now dominate world food trade. “China will be more integrated into the global
commodities system on the agriculture side than they have ever been.”
During China’s
explosive economic growth of recent decades, it’s been a pattern of the
government to use state-owned enterprises as national champions to lead a
charge into strategic industries.
This is what
happened with energy security when PetroChina Co. (857) went on a global decade-long $40
billion plus spending spree to acquire oil assets.
Cofco’s
Role
China’s
emerging champion in food security is Cofco Corp., which controls 90 percent of
China’s wheat imports and has made two acquisitions this year.
It bought
controlling stakes in Dutch trader Nidera Holdings BV and Noble
Group Ltd. (NOBL)’s agribusiness in the space of two months, paying about $2.8
billion in total.
With Noble’s
agribusiness Cofco gained grain elevators in Argentina and sugar mills in Brazil, as well as oilseed
crushing plants in China, Ukraine and South Africa. The Nidera purchase gives Cofco a strong platform to produce
grain in Brazil, Argentina and central Europe, the Chinese firm said
Feb. 28.
Cofco will be
“a powerful global agricultural trader and able to procure directly around the
world,” Fitch Ratings Ltd. said in an April 3 report.
Food
Rivals
The numbers
show why. China has 21 percent of the world’s population with just 9 percent of
its arable land, and an even lesser percentage of fresh water, according to
Jefferies Group LLC. Rising incomes are driving demand for more protein-rich
food, while domestic output is close to its limits, Abhijit Attavar, an analyst
with Jefferies in Singapore, said in an
April 15 report.
In the task of
feeding China, Cofco will have plenty of competition.
Archer-Daniels-Midland
Co. (ADM), Bunge Ltd. and Cargill of the U.S., as well as France’s Louis
Dreyfus Holding BV -- known collectively as the A-B-C-Ds -- control more than
70 percent of global grain trade, according to Tokyo-based Continental Rice
Corp.
Others sensing
big opportunities in food include Japan’s Mitsui
& Co. (8031) The trading house has built
a farming and trading network almost from scratch since 2007 and can tap assets
on five continents.
Japan’s trading
houses have ventured into assets as diverse as Brazil soybean plantations to
Thai shrimp farms and U.S. corn silos. The world’s biggest oil trader Vitol
Group last year expanded into grains trading by setting up a Singapore desk.
Feeding
China
“We’re seeing
that driven by SOEs, private enterprises and indeed trading companies from
other countries all looking to create supply chains that go from Australia into
China and indeed from the Americas and into China as well,” said Patrick
Vizzone, regional head of food & agribusiness at National Australia Bank.
Vizzone, who
also sits on the board of Cofco unit China
Agri-Industries Holdings Ltd. (606), said he sees
the potential for Chinese ventures and acquisitions in the grains, oilseeds,
mutton and beef industries.
There may be
bigger options too.
Margarita
Louis-Dreyfus, chairman of her namesake company, has said the commodities unit
will be reorganized to prepare itself for a possible stake sale or an initial
public offering. That won’t happen in the immediate future, but the company
wants to be ready, she said in April.
‘Archaic
Fear’
Cofco has no
comment on acquisitions, a woman in the company’s media relations office, who
asked not to be identified citing company policy, said by phone. Yin Jianhao,
Cofco’s official spokesman, didn’t answer four calls to his mobile phone.
“Food security must include imports and
without that the global food system doesn’t work,” said Franz Fischler, former
EU commissioner of agriculture. “The idea of self sufficiency is almost an
archaic fear and China is realizing this.”
Cofco was
formed through a series of mergers of state food and animal husbandry companies
in the 1950s and is now China’s biggest food company with 60,000 employees.
Chairman Ning Gaoning holds an MBA from the University
of Pittsburgh and also serves as Cofco’s
Communist Party Secretary.
China’s
Biggest
Today, the
company operates China’s biggest grain storage facilities and owns ports that
can process 100 million tons of grain a year.
Outside food,
Cofco runs commercial and residential property, tourist resorts, hotels, and
financial services that include a commodity futures brokerage, a regional bank,
and an insurance venture with London-based Aviva
Plc. (AV/) It has seven listed units.
“Many Chinese
SOEs are very uncomfortable with the going out policies and operating in
environments they’re not familiar with,” Cargill’s Conway said, referring to
China’s efforts to invest overseas. “Cofco, by contrast, has had a lot of their
senior managers live and work in the U.S. and they’re quite international.
They’re the logical company to go out and acquire assets.”
Culled from Bloomberg.net
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