China's food and agriculture deals likely to rebound soon, says Rabobank

Investment stalls due to slower economic growth and ahead of government's new five-year plan

PUBLISHED : Wednesday, 11 November, 2015, 11:52pm
UPDATED : Wednesday, 11 November, 2015, 11:52pm

China's appetite for offshore investment in food and agriculture is expected to rebound from a lull that has delayed some deals, given strong interest to meet growing domestic demand, a leading banker said.

Confidence had stalled due to slower economic growth and ahead of the release of the government's new five-year plan but should recover quickly, said Wilco Hendriks, Rabobank's chief executive for China.

"There is a lot of appetite for our Chinese clients to make foreign acquisitions or partnerships," Hendriks said.

Chinese interest in overseas food deals has grown rapidly in recent years, driven by demand for commodities, technology and quality brands to feed the country's 1.4 billion people.

Outbound investment in food and agriculture hit US$8.8 billion last year, according to Mergermarket, but has fallen to US$1.9 billion so far this year, although the number of deals has risen.

China's slowing economy and stock market turmoil had dented investor confidence, Hendriks said.

"But if you look through that cycle, the fundamentals in our business remain solid," he said. "Maybe it will delay some acquisitions by six to 12 months but we are confident they will still happen."

State-owned agriculture companies and others with "indirect" state backing were also holding back while the central government drew up its policy priorities for 2016 to 2020, but should resume buying once the 13th five-year plan was approved early next year, Hendriks said.

The China-Australia Free Trade Agreement had boosted interest in Australian dairy, beef and sugar farms, while some investors were looking as far as Brazil for assets, he said.

Hendriks said Dutch-based Rabobank, which has a global food and agricultural loan portfolio worth €92.3 billion, also aimed to expand lending to China's smaller farms. These often struggle to get financing because government-owned land cannot be used as collateral.

"This is at an early stage but is one thing we are planning to do more," he said.

The bank was also still working closely with Agricultural Bank of China, despite selling off most of its stake earlier this year to reduce capital costs, he said.