China in global investment-food expansion
Chinese companies are buying agricultural producers around the world and thus in 2013 have already spent $ 12.3 bln on their acquisition, trying to provide food security. Internal food resources of the country are in poor condition and due to this the Chinese companies have launched an international M & A expansion.
Since 2004, China has acquired mines and oilfields for more than $ 200 bln in geographical areas from Argentina to Australia, but now the country is focused on the food. The world largest population requires solving problems with provision: China needs about half of each produced in the world kilogram of meat or bushel of wheat, Bloomberg reports.
Chinese producers are not capable to provide such volumes. In the meantime, the Chinese government uses a time-tested strategy of "moderate import" of agricultural products through the acquisition of farmlands and creation of their own logistics centers in other countries that need foreign investment.
For example, in September last year, the media reported that China was going to lease about 3 mln hectares of farmland in Ukraine for 50 years under the policy of the use of foreign land for growing crops. The initial investment in the project, which was supposed to begin in the Dnipropetrovsk region, to continue in the Kharkov region and the Crimea, estimated at about $ 2.6 bln but has never been completed.
One of the largest Chinese purchases - the acquisition of $ 7 bln U.S. meat producer Smithfield Foods by the Chinese Shuanghui International Holdings. The deal included a debt of U.S. companies. The vice-president of Cargill, one of the four largest in the world food corporations, Paul Conway said that the transaction would have occurred even earlier. China continues deeper integration into the global system of agricultural production.
Cofco corporation has become a China driver of food security, the company took over 90% of China's grain imports and concluded two major deals this year - the acquisition of controlling stakes in agro Noble Group and Nidera Holdings for $ 2.8 bln
After buying Noble, Cofco received sugar mills in Brazil and elevators in Argentina, oil extraction plants in China, South Africa and Ukraine.
Through the purchase of Nidera by the Chinese corporation, it has built a solid base for grain production in Argentina, Brazil and Central Europe, according to the spokesman of Cofco. The company will become one of the largest traders in the agricultural sector on a global scale, according to the April report of Fitch Ratings.
And figures clearly explain why. 21% of the population living in China despite the fact that there are only 9% of the arable land and less than 1% of the drinking water. Rising incomes increases the demand for food, rich in protein, while domestic production of these products is approaching the critical minimum. According to the World Bank, in the mid-term, China's population will continue to grow and by 2028 to total 1.43 bln However, by 2050 a decrease is predicted to 1.36 bln. However, in solving the problem of food security in China Cofco company has many competitors. According to a study of Continental Rice company based in Tokyo, about 70% of the grain trade in the world conducted by Archer-Daniels-Midland, Bunge, Cargill and Louis Dreyfus Holding, known as ABCD. In addition, there are great prospects for the Japanese company Mitsui & Co, which over the past seven years from scratch created a trade network on all five continents.
National Australia Bank specialist in Food and Agribusiness, Patrick Vizzon notes that private and public companies from different countries organize the supply chain from Australia and the Americas to China. Mr. Vizzon is also one of the directors of Cofco "daughter"- China Agri-Industries Holdings. The expert notes the high potential of the Chinese companies for further growth through the acquisition of sunoil, grain, beef and lamb producing companies.
In addition, Margarita Louis-D, the head of Louis Dreyfus, reported on the reorganization of the corporation in preparation for a possible sale of the shares and public offering. In the near future IPO not planned, but a corporation is to prepare in advance.
Cofco Corporation was created through a series of mergers among state livestock and food companies in the 1950s. Now the company is the largest in its sector on the Chinese market, more than 60 thousand employees works in the company.
Today, the largest granary in China is under the control of the corporation as well as ports that can annually handle more than 100 mln tons. In addition, Cofco owns residential and commercial real estate, hotels, tourist resorts, regional banks and insurance companies (in cooperation with Aviva) and provides brokerage services.
Paul Conway reports that many Chinese state-owned companies face difficulties to do business in an environment with which they are unfamiliar. Unlike them, most top managers of Cofco worked and lived in the U.S., and so that quite international. Naturally, the company wants to acquire assets in foreign markets.
Source: Finance, inventure.com.ua
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