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  • Dec 21, 2014
  • Updated: 4:05pm
BusinessChina Business

Food is the new oil in China's global M&A push

PUBLISHED : Saturday, 31 May, 2014, 12:59am
UPDATED : Saturday, 31 May, 2014, 4:26am

After spending the past decade and more than US$200 billion acquiring mines and oilfields from Australia 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 kilo of beef the world produces, China will need almost half of that to keep its citizens fed.

And in a recognition that it cannot produce enough crops and meat domestically, mainland Chinese and Hong Kong-listed firms spent US$12.3 billion abroad on takeovers and investments in food, drink or agriculture last year, the most in at least a decade.

Those purchases included the largest Chinese takeover of a US company when Shuanghui International Holdings bought Smithfield Foods for US$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.

"These deals have been bound to happen, and I'm actually surprised it didn't happen sooner," said Paul Conway, vice-chairman of Cargill, 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 has 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 went on a global decade-long US$40 billion plus spending spree to acquire oil assets.

China's emerging champion in food security is Cofco Corp, which controls 90 per cent of China's wheat imports and has made two acquisitions this year.

It bought controlling stakes in Dutch trader Nidera Holdings and Noble Group's agribusiness in the space of two months, paying about US$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.

Cofco will be "a powerful global agricultural trader and able to procure directly around the world", Fitch Ratings said.

The numbers show why. China has 21 per cent of the world's population with just 9 per cent of its arable land, and an even lesser percentage of fresh water, according to Jefferies Group. 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 a report.

In the task of feeding China, Cofco will have plenty of competition. Archer-Daniels-Midland, Bunge and Cargill of the US, as well as France's Louis Dreyfus, control more than 70 per cent of global grain trade, according to Tokyo-based Continental Rice Corp.

"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 realising this."


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Formerly ******
It's too late. Everybody know that China literally is dirt (of the arable land type) poor and lacks water or energy to ever be self-sufficient. Perhaps the CCP should wake up to the fact that the whole world knows this and try a new tack, such as reaching agreements to share the natural resources.
Of course, the CCP doesn't care if it ruins China, because the CCP members are buying land in the West. So, they'll just move on after they've raped China and so thoroughly polluted its land and water so as to make it a wasteland.
它是太晚了。大家都知道中國字面上是骯髒 (耕地類型) 的貧困和缺乏水或能源要過達到自給自足。也許,中國共產黨應該醒來整個世界都知道這樣的事實,試試新的方法,如達成協議,共用自然資源。
Formerly ******
它可能太晚了您的建議。其土地、 水和空氣的大部分這樣徹底被污染其中一個看著幾代人,幾十年,或者,對於一些機構的水,千年。此外,國家現在知道中國的弱點是它不能喂它自己的人民,所以其通常的好戰行為,與中國共產黨正在關閉這些途徑。
至於人民幣或人民幣正在為世界所接受的貨幣,忘了它 ;它是一個不會成真的夢想。一樣此網站的很多人把攥美國,如果你問他們是否他們寧願 700 萬人民幣或 100 萬美金,只是每個人會選擇美元。一種貨幣成為基於對世界的感知的信任這樣一個國家的世界貨幣。
Formerly ******
It might be too late for your suggestions. Much of its land, water, and air are so thoroughly polluted, that one is looking at generations, decades, or, for some bodies of water, millennium. Also, countries now know that China's weakness is that it can't feed its own people, so, with its usual belligerent behavior, the CCP is closing these avenues.
As for the Yuan or renminbi being an acceptable currency for the world, forget it; it's a dream that won't come true. As much as many on this site slam the US, if you asked them if they would prefer seven million Yuan or one million US dollars, just about everyone would choose the dollar. A currency becomes the currency of the world based upon the world's perception of trust of such a country.
So, notwithstanding all of the criticism and posturing against the US, it's still the most trusted country in the history of the world, as evidenced by the amount of trust place in its currency by the rest of the world, including China. Think about why even China holds more US dollars and debt than any other similar assets combined of all other countries.
China's Hukou System needs to be gradually abolished in the coming years, in the country's endeavour to achieve a much higher degree of urbanization.
The hukou system has partly caused the country’s high level of precautionary savings.
An investigation done in 2009 shows that 1/3 of the peasants’ expenditure is spent on the education of their children, the same ratio American parents have to spend by sending their children to the private schools in America.
By discriminating against the farmers and denying them access to the town’s public goods, like cheaper education, housing and hospitals, how can the Chinese government stimulate the country’s internal consumption demand ?
The greater the degree of urbanization, the higher the population densities of the cities, and the lower is the average cost of providing the public goods, because of the advantages of economies of scale, and hence the more self-liquidating the local governments’ infrastructure projects can become, and the lower the amount of debt the local governments have to incur.
(Don't believe this ? Well, come to Hong Kong and have a look !)
(Adapted from the Chinese book ‘How special is China’s model ?’)
It is never too late to enact the rural land reform in China.
With private property rights to the rural land well established, it is now in the interest of the land ‘owners’ to well-protect their land property and their environment, well-fertilise their farmland, get rid of pests on plants, and avoid the problems of agricultural land pollution, water pollution, bad irrigation systems, illegal chopping down of trees or hunting of animals or birds, soil erosion, etc.
Their land can also be mortgaged to the banks for loans to be used in any ways they see fit.
If this crucial reform is successful, China’s rise to world hegemony in the future is greatly ensured.
With the gradual development and deepening of the municipal bond market, together with other tax revenues and central government's tax revenue transfer,
China's local governments can gradually rely less and less on land sale revenue which is partly obtained by expropriating the farmland without giving much compensation to the affected farmers.
China's urbanization model is greatly different from the East Asian one, and is similar to England's enclosure movement.
The local governments expropriate the land from the farmers at a very low price, and resell it at the market price to the investors, making a tremendous gain from the price difference.
The lower the level of the government, the more this model is relied upon.
Since the land price is relatively very low, so is the cost of construction --- this greatly stimulates the enthusiasm of the property developers, and greatly increases the demand for all the needed raw materials, locally or abroad.
The foreign entrepreneurs from the FDIs come to invest in China, and need to pay only a very low land price.
Part of the low cost of production of the foreign capital is based on the sacrifices that have to be made by the affected Chinese farmers.
Due to the local government's intervention, the Chinese farmers have no bargaining power.
Which means China's urbanization efforts produce no wealthy class of citizens.
This is in sharp contrast to the East Asian model (those of South Korea and Taiwan), in which the first wealthy class that props up as a result of their urbanization comprises of those affected farmers.
Lacking this wealthy class, China finds that the internal consumption demand during the process of urbanization is always very low, and her economic growth forever has to depend on external demand.
(From 'How special is China's model')
The falling ratio of domestic consumption expenditure as a share of GDP in China in recent years shows that the diminished consumption ability of the 800 million farmers cannot be fully compensated by the local governments’ investment expenditures and the rise in salaries of the civil servants.
But stimulating internal consumption demand does not imply that Chinese exporters have to be penalised, say through yuan revaluation, tax increases or lower subsidies.
To enlarge domestic demand, they need to raise the internal ability to consume, not to jeopardise exports.
One obvious way is to enrich the domestic farmers, as is suggested in the previous columns.
The rise of the CCP to power in China was partly due to the help of those Chinese farmers in the previous generations.
That their future generations are not rewarded accordingly can be regarded as one of the greatest ironies in the modern history of socialist China.
The policy of farmland privatisation should have been done 5 or even 10 years ago.
Now that the property market seems to have started cooling, the potential benefits that can be accrued to the farmers are now probably much less than before.




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