The pace of Chinese investments made in the foreign agricultural and food sectors has been increasing, said Fred Gale, report co-author and senior economist with the US Department of Agriculture’s (USDA) Economic Research Service (ERS).
Recent investments illustrate the diverse mix of commodities and regions targeted by Chinese companies from palm oil and natural rubber plantations in Southeast Asia, soybean and rapeseed farms in eastern Russia, dairy and beef operations in New Zealand and Australia, and alfalfa farms in the US and Bulgaria, noted the ERS report.
Gale said greater insight into the motivations behind these Chinese ventures and their size and impacts could help government officials, farmers, business leaders, and other stakeholders in the US and other countries make more informed policies and business decisions regarding these investments.
“We observed the growing investment by Chinese firms was attracting attention and was not well understood," he told FeedNavigator.
Indeed, he said the international reporting around Chinese outward investment in agriculture has been somewhat skewed:
“Elizabeth Gooch, [report co-author and economist with ERS] discovered that Chinese investments reported as ‘land grabs’ in news media were almost always exaggerated."
Their review found the broad aims of Chinese investments in foreign agricultural and food assets are to gain profits for the investors while achieving national food security and projecting China’s influence abroad.
Chinese investors have tended to enter less-developed countries where there are few competitors, potential to raise productivity using Chinese technology, and potential to diversify suppliers of Chinese imports.
The report shows how COFCO, the Chinese state-owned agribusiness, embodied new tactics aimed at gaining more control over commodity trading, processing, and logistics, while Bright Foods, another Chinese state-owned company, took the conglomerate approach of assembling various companies and brands under one umbrella. The WH Group, a privately owned company in China’s fragmented pork industry, acquired Smithfield Foods, the world’s largest pork processor, known for its swine-breeding and pork-processing capabilities, while New Hope Group, China’s largest feed company, has diversified its investments from feed mills in neighboring countries to joint ventures with Australian and New Zealand partners to meet growing demand for animal protein in China, said the authors.
A few companies with access to financing from Chinese banks, though, are pursuing mergers, acquisitions, and partnerships with companies in more developed markets. These investments reflect changes in China’s demand for food and its need for upgrades in technology and management, but most ventures have modest impacts on agricultural trade, found the review.
While the US is the largest supplier of China’s agricultural imports, it has not been a major target of Chinese agricultural investment, said the authors. In 2014, about 2% of agriculture investments went to North America, and of 1,360 investments made from 2000 to 2016 only 34 were made in the US – however, the statistics are skewed by the $7.1bn purchase of Smithfield in 2013.
Trend towards M&A investments
The report shows that Chinese foreign investment strategies are shifting away from land purchases toward mergers and acquisitions: “The initial round of investments 10 years ago were generally focused on producing grain for the Chinese market due to alarm about soaring international grain prices in 2007-08,” said Gale.
“Soybeans are the major item that China imports, and a number of investments focused on soybeans in South America,” he said.
However, attempts to grow soybeans in Brazil and Argentina did not succeed, he said.
“Attention turned to acquiring assets in the supply chain like warehouses, processing plants, and port facilities and engaging in trading of soybeans in order to gain more Chinese influence over prices."
The state owned agribusiness, COFCO, acquired grain traders, Noble Agri and Nidera, in the past few years, making it now one of the largest grain traders, globally, said Gale. Prior to that, the so-called ABCD multinational trading companies had dominated the trading of soybeans and other commodities to the disadvantage of Chinese buyers, he said.
The M&A investment trend “reflects a broader outlook on investment and more diverse objectives—not just growing food abroad for the Chinese market but acquiring brands, technology [and] marketing expertise.
"It’s also a reflection of growing demand for products like milk, meat and wine, as well as the emergence of agribusinesses in China capable of making large acquisitions.”
Another major theme of investment has been in animal protein production, particularly dairy and beef, and mostly in New Zealand and Australia, he said.
“So far, the Smithfield acquisitions and a few others by the same company are the only overseas ventures among the dozens of players in China’s pork market.”
However, the amount of animal protein being brought in only covers a small amount of the meat imports required, he said.
“We also found that many Chinese companies investing abroad failed to export products back to China as planned,” said Gale. “The Smithfield acquisition did not have any discernible effect on US pork trade with China.”
“I have observed that Smithfield imports have been rejected by Chinese import inspectors just like imports by suppliers not controlled by Chinese companies,” he added.