China's Priority Turns to Food Created by rrummel on 6/4/2014 4:02:33 PM
Provided by Bloomberg News
After spending the pastdecade and more than $200 billion acquiring mines and oilfields from Australiato Argentina, China’s attention is turning to food. The world’s most populous nation is confronting a harsh reality: For everyadditional bushel of wheat or pound of beef the world produces, China will needalmost 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 ontakeovers and investments in food, drink or agriculture last year, the most inat least a decade, data compiled by Bloomberg. Those purchases included the largest Chinese takeover of a U.S. company whenShuanghui International Holdings Ltd. bought Smithfield Foods Inc. for $7billion including debt. They are likely to be followed by overseas forays intobeef, sheep meat and grain assets, according to the National Australia BankLtd.
“These deals have been bound to happen, and I’m actually surprised it didn’thappen sooner,” said Paul Conway, vice chairman of Cargill Inc., one of thefour companies that now dominate world food trade. “China will be moreintegrated into the global commodities system on the agriculture side than theyhave ever been.” During China’s explosive economic growth of recent decades, it’s been a patternof the government to use state-owned enterprises as national champions to leada charge into strategic industries. This is what happened with energy security when PetroChina Co. (857) went on aglobal decade-long $40 billion plus spending spree to acquire oil assets.
Cofco’sRole: China’s emerging champion in food security is Cofco Corp.,which controls 90 percent of China’s wheat imports and has made twoacquisitions this year.
It bought controlling stakes in Dutch trader Nidera Holdings BV and Noble GroupLtd. (NOBL)’s agribusiness in the space of two months, paying about $2.8billion in total.
With Noble’s agribusiness Cofco gained grain elevators in Argentina and sugarmills in Brazil, as well as oilseed crushing plants in China, Ukraine and SouthAfrica. The Nidera purchase gives Cofco a strong platform to produce grain inBrazil, Argentina and central Europe, the Chinese firm said Feb. 28.
Cofco will be “a powerful global agricultural trader and able to procuredirectly around the world,” Fitch Ratings Ltd. said in an April 3 report.
FoodRivals: The numbers show why. Chinahas 21 percent of the world’s population with just 9 percent of its arableland, and an even lesser percentage of fresh water, according to JefferiesGroup LLC. Rising incomes are driving demand for more protein-rich food, whiledomestic output is close to its limits, Abhijit Attavar, an analyst withJefferies 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 wellas 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-basedContinental 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 fromscratch since 2007 and can tap assets on five continents.
Japan’s trading houses have ventured into assets as diverse as Brazil soybeanplantations to Thai shrimp farms and U.S. corn silos. The world’s biggest oiltrader Vitol Group last year expanded into grains trading by setting up a Singaporedesk.
FeedingChina: “We’re seeing that driven bySOEs, private enterprises and indeed trading companies from other countries alllooking to create supply chains that go from Australia into China and indeedfrom the Americas and into China as well,” said Patrick Vizzone, regional headof food & agribusiness at National Australia Bank.
Vizzone, who also sits on the board of Cofco unit China Agri-IndustriesHoldings Ltd. (606), said he sees the potential for Chinese ventures andacquisitions in the grains, oilseeds, mutton and beef industries.
There may be bigger options too. Margarita Louis-Dreyfus, chairman of hernamesake company, has said the commodities unit will be reorganized to prepareitself for a possible stake sale or an initial public offering. That won’thappen in the immediate future, but the company wants to be ready, she said inApril.
‘ArchaicFear’: Cofco has no comment onacquisitions, a woman in the company’s media relations office, who asked not tobe identified citing company policy, said by phone. Yin Jianhao, Cofco’sofficial spokesman, didn’t answer four calls to his mobile phone.
“Food security must include imports and without that the global food systemdoesn’t work,” said Franz Fischler, former EU commissioner of agriculture. “Theidea of self sufficiency is almost an archaic fear and China is realizingthis.”
Cofco was formed through a series of mergers of state food and animal husbandrycompanies in the 1950s and is now China’s biggest food company with 60,000employees. Chairman Ning Gaoning holds an MBA from the University of Pittsburghand also serves as Cofco’s Communist Party Secretary.
China’sBiggest: Today, the company operatesChina’s biggest grain storage facilities and owns ports that can process 100million 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, aregional bank, and an insurance venture with London-based Aviva Plc. (AV/) Ithas seven listed units.
“Many Chinese SOEs are very uncomfortable with the going out policies andoperating in environments they’re not familiar with,” Cargill’s Conway said,referring to China’s efforts to invest overseas. “Cofco, by contrast, has had alot of their senior managers live and work in the U.S. and they’re quiteinternational. They’re the logical company to go out and acquire assets.”