China's push into food trading will be piecemeal
06/03/2014 03:20
(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.) By Una Galani HONG KONG, March 6 (Reuters Breakingviews) - China's challenge to global food traders has its limits. State-backed COFCO is eyeing a joint venture with the agriculture unit of Singapore's Noble Group NOBG.SI . The news comes just days after the Chinese group agreed to buy a 51 percent stake in Dutch grain trader Nidera for $1.3 billion excluding debt, according to a person familiar with the company. COFCO's mission to ensure food security for China is finally translating into large overseas acquisitions. Yet big targets remain in short supply. The wine producer to hotel owner is already China's main importer of wheat. Demand for grain, which is used to feed livestock, is growing as the population shifts towards a more protein-rich diet. COFCO's past overseas acquisitions have been limited: it bought a 5 percent stake in U.S. pork producer Smithfield in 2008, which it later sold, and owns a minority stake in Hong Kong-listed China Mengniu Dairy 2319.HK . COFCO's latest deals are a step towards building a global trading platform for so-called "soft commodities" and reducing its reliance on the "ABCDs" - Archer Daniels Midland (ADM) ADM.N , Bunge BG.N , Cargill and Louis Dreyfus - which dominate the business. The Nidera deal gives COFCO a stake in selling seeds to farmers in South America and Central Europe before buying back the grain. Yet COFCO will find scaling up to match its rivals in size and pricing power a challenge. Nidera and the Noble unit combined have a quarter of the revenue of industry leader Cargill. Consolidation has left few large independent targets. Glencore GLEN.L acquired Canadian grain trader Viterra in 2012, while Japan's Marubeni 8002.T snapped up U.S. grain supplier Gavilon last year. Acquisitions are also becoming increasingly politically sensitive. U.S. trader ADM had its bid for GrainCorp GNC.AX blocked by the Australian government last November. COFCO's bid to tie-up with Noble builds on existing sovereign ties. China Investment Corporation owns a 14 percent stake in the trader which it bought in 2009. COFCO's slow start overseas compared to other non-resource state-backed acquirers like Bright Food, which bought Weetabix in 2012, underscores the difficulty of buying raw materials over brands. All things being equal, COFCO's food security push looks set to remain piecemeal. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS: www.breakingviews.com/TOPNewsSubscription ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> CONTEXT NEWS - Singapore's Noble Group said on March 4 that it was in talks with an unnamed consortium for a potential joint venture of its agriculture business. - Reuters earlier reported that China's state-backed food group COFCO Corp was in talks to buy Noble's agribusiness arm in a deal that would value the division at around $1 billion. - The Wall Street Journal separately reported that private equity firm Hopu Investment was part of the consortium. - Noble's agriculture business handles sugar, grains, oilseeds, cotton, coffee and cocoa amongst other products. - The unit had revenue of $15.5 billion in 2013, equivalent to 16 percent of Noble's total. Noble had a market capitalization of $5.5 billion as the close of trading on March 5. - COFCO announced on Feb. 28 it had agreed to buy 51 percent of Dutch grain trader Nidera. The deal was valued at around $4 billion, including debt, according to a person familiar with the deal. COFCO's equity investment was around $1.3 billion, the person added. - Nidera has platforms for procuring grain in Brazil, Argentina, and central Europe as well as a global trading platform. - "Investing in Nidera is in line with COFCO's strategy to become a global player in the agricultural industry with a fully integrated value chain", COFCO chairman Frank Ning said in a statement. - HSBC advised COFCO on the Nidera deal. - COFCO/Nidera press release: http://link.reuters.com/rej47v - Noble Group press release ID:nSNZ9GbSHp - Reuters: China's COFCO in talks to buy Noble's agribusiness arm - sources ID:nL3N0M1222 - For previous columns by the author, Reuters customers can click on GALANI/ (Editing by Peter Thal Larsen and Katrina Hamlin) ((una.galani@thomsonreuters.com)) ((Reuters messaging: una.galani.thomsonreuters.com@reuters.net)) Keywords: BREAKINGVIEWS CHINA TRADERS