Date
19 November 2017

Food producers need to build overseas M&A appetite

China’s statistics bureau has announced that the country’s grain production will top 600 million metric tons for the first time this year, recording ten straight years of expansion. But authorities acknowledged that the impressive yield has come at the expense of the environment.

In pursuit of bumper harvest, Chinese farmers have used fertilizers and pesticides extensively over the past decade. As crop yields were beefed up, there has been a depletion of water resources and contamination of farmland amid excessive application of chemicals.

The 21st Century Business Herald quoted an unidentified official from the Ministry of Environmental Protection as saying that crops basically absorb only 35 percent of the chemical fertilizers. The remaining 65 percent will be residual pollution in the soil.

So before the environment carrying capacity reaches its limit, Beijing needs to make earnest preparation to secure food supply for its 1.35 billion-strong population. Given the current situation and the growing consumption of Chinese people, the government can no longer seek autarky in food supply.

Against this backdrop, going abroad is the natural course for domestic food producers. In fact, several key agri-firms have already set their sights on overseas supply sources. New Hope Group has vigorously acquired cropland and livestock farms in countries such as Canada, New Zealand, Bangladesh, the Philippines, Indonesia and Vietnam.

Shuanghui International, the controlling shareholder of Henan Shuanghui Development (000895.CN), has taken an even more enterprising approach in overseas foray. The company spent about US$7.1 billion to acquire US-based Smithfield Foods and become the largest pork supplier in the world.

The mergers and acquisitions (M&A) theme still has a long way to play out as the country’s biggest food player COFCO Group, which is the parent of China Agri-Industries Holdings Ltd. (00606.HK), has not taken any shot yet in buying out foreign peers. But the state-backed enterprise has made it clear that it has set aside at least US$10 billion for potential acquisitions abroad.

– Contact the writer at [email protected]

RC

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