Published by Financial Times on December 15, 2011
What do Peruvian fishmeal, Chilean wine and Brazilian soy beans have in common?
They’re all on China’s shopping list as the nation of 1.3bn people steps up its agribusiness acquisitions and investments overseas to overcome considerable supply constraints at home.
“Obviously Chinese agribusiness investments will never have the impact of oil and mining in the region,” Luis Gomez Cobo, of SinoLatin Capital, told the FT. “But I’m quite sure that we will see more and more activity in the agribusiness and food sector.”
According to SinoLatin, which focuses on M&A and private equity transactions between China and Latin America, investment in foreign agribusiness is picking up rapidly as part of a long-term strategy to feed China’s multitudes.
Of China’s outbound deals in the past six years, 90 per cent were related to food and agriculture, it says. At least 26 Chinese companies have acquired stakes in foreign agriculture, food, fertilizer and fishery assets.
Disclosed acquisitions totaled $1.4bn, with the lion’s share spent in North America and Europe accounted for the lion’s share of disclosed deals, with 15 transactions worth $351m and two transactions worth $269m respectively.
But SinoLatin sees great potential in Latin America, where China made four acquisitions between 2005 and 2011 worth $347m, in spite of regional drawbacks such as overblown logistics costs and weak infrastructure.
“Latin America is the world’s farm. In terms of arable land China has .11ha per capita… Latin America averages twice as much at 0.25ha,” Mr Gomez Cobo said in a report.
“The region [also] holds 34 per cent of the world’s total renewable water resources. China only accounts for 5.2 per cent of the total share.”
So far Peru, which now ranks China as its number one trading partner, has attracted the larger part of Chinese agribusiness investment in the form of fishmeal.
China Fishery Group’s Peruvian acquisitions have totalled $320m since 2006, delivering it an important stake in the world’s biggest fishery.
In Chile, Cofco, China’s biggest food company, snapped up Biscottes, one of Chile’s biggest wineries, in 2010 for $18m.
China’s new sweet tooth – it has become the second biggest sugar consumer after India – saw state-owned Complant pick up the Bernard Lodge, Frome and Monymusk sugar plantations in Jamaica in August for $9m.
While China is eyeing land acquisitions in Brazil and Argentina among other countries, it is pragmatic about political sensitivities and flexible about seeking strategic partnerships and joint ventures where it can’t make an outright acquisition.
“We’re seeing the Chinese interested in investing in land and companies. They have options, they’ll go where they’re wanted,” says Mr Gomez Cobo. “They’ll be flexible, create joint ventures, acquire minority shareholdings, supply loans; there’s plenty of ways to do it.”
Ecuador, notably, has turned to China for some $6bn in loans for hydropower and oil deals. On a smaller scale, Chinese companies have signed a $20m agreement to import Ecuadorean bananas and fishmeal, and they’re looking at cocoa, coffee, agriculture and fisheries possibilities.
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