Cofco's grain deals threaten to undermine Marubeni's China dreams
Chinese trader Cofco's move to grab control of two overseas grain operations in the space of a week threatens to limit the benefits Japan's Marubeni hoped to reap in the world's largest food market.
The Japanese trader's purchase of United States grain merchant Gavilon last year made it China's top grain supplier. The advantage of that firepower could be curbed as China develops its own global agriculture trading house.
Cofco, which agreed to buy a majority stake in Dutch grain trader Nidera last month, was in talks to buy into Noble's agribusiness arm, people familiar with the matter said. If the deals are completed, they will give state-backed Cofco more leverage on pricing and strength in logistics and market intelligence.
"The key to competitiveness in grain trading is the utilisation of shipping, and if Cofco can get the ships that Noble has, it will make them more competitive and better able to understand prices," said an executive in the grain department of a Japanese trading house.
Rising incomes have led to growing demand for protein in China, which is determined to strengthen its overseas procurement network and find new sources of food, soya bean meal and corn to feed livestock.
Chinese soya bean imports are expected to rise more than 15 per cent to 69 million tonnes in 2013-14, according to the US Department of Agriculture, with shipments of corn likely to nearly double to five million tonnes.
In a bid to capitalise on such demand, Marubeni spent US$3.6 billion buying Gavilon to link the US firm's storage network with its own export capabilities in Asia. The two together now sold 15 million to 16 million tonnes of soya beans to China, a source with knowledge of the matter said.
But the completion of the Gavilon purchase took more than a year as Chinese regulators scrutinised the deal before approving it on condition that the firms maintain separate, independent trading units when selling soya beans to China, limiting pricing power.
"I can't say this is a really, really bad deal, but it will take them some time to get their money back," said a Japanese trading house analyst.
