Keeping up with the demand

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| The European | 14th August 2018
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When it comes to ranking the world’s largest economies, US and China are leading the race. Some publications and statistics put the US ahead while some have already declared China as the top economy. Both the economies had their highs and lows in 2018. Irrespective of their ranking, both the economies have to deal with their short-comings.

China is facing a daunting challenge to feed its growing population (1.42 billion, 19 percent of the world population).

The increasing urbanisation has changed diet preferences of Chinese population. Western food has gained tremendous popularity. While the Western diet typically demands about one acre per person, China has only 0.2 acres to devote to feeding each citizen. Meanwhile, the country consumes 50% of the world’s total pork supply. (source: Business Insider)

“The rapid rate of industrialization in China is really chewing up crop land at an alarming rate,” Lester Brown, founder and president of the Earth Institute, told Reuters. “China is now losing cropland.” The pace of industrialisation of the Chinese economy is also raising environmental issues.

It is a logical fact that for any country there are only two options to secure its food supply. Either they increase local food production or they rely on food imports. However, China has adopted a totally different path. It is on a buying spree, making high value acquisitions in the global food industry.

One large acquisition that raised eyebrows in the international business market was the acquisition of Syngenta, a food sector company based in Switzerland. China National Chemical Corporation (ChemChina – a Chinese State-owned Enterprise) was the acquirer. The deal was finalised in May 2017 (source: Business Wire). It was valued at US $ 43 billion (approximately 81 percent share). Later on in 2017, ChemChina increased its stake to 98 percent share and filed a petition with the Basel Appellate Court to cancel the remaining Syngenta shares (not held by ChemChina or any of its affiliates).

The business of Syngenta – as it states on its website (www.syngenta.com) is a focus on, “8 major crops that make up the majority of global food production: cereals, corn, diverse field crops, rice, soybean, specialty crops, sugar cane and vegetables”. Syngenta is also dealing in many other projects that relate to global food industry. This acquisition secured a big slice of China’s ever increasing food demand.

It is not correct to assume that China is aiming only for big acquisitions. Alongside its large scale investments, it is also on a lookout for “exotic” food products. Recently it has shown interest in the Honey sector. Australia’s Capilano Honey Ltd said on Monday (August 13, 2018) that a consortium of China-focused Wattle Hill RHC Fund and Roc Partners agreed to buy the company for Australian$ 189.8 million (US$ 138 million). (source: Reuters)

This shows that China has set its eyes on Australian food sector. Australia has a diverse food market. China has also shown interest in New Zealand’s food sector.

In another major development, North China’s Yili Industrial Group Co Ltd plans to acquire a stake of “no more than 51 percent” in Fauji Foods Ltd. (Pakistan) (source: PSX filings). Fauji Foods Ltd (Pakistan) is one of the recognised names in Pakistan’s food sector and is a big player in cereals, dairy, juices and meat sector. It has a significant market share in Pakistan, a country with a population of 201 million. This investment has a very important strategic value for both countries. “One-Belt-One-Road” project of China has a major stake in CPEC (China Pakistan Economic Corridor). Though the primary focus is on development and operation of Gwadar Sea-port but Chinese investors have by and large invested in many sectors of Pakistan’s economy.

Future prospects for China in the food sector

The ferocious pace at which China is going ahead with its acquisitions in food sector shows a bright future. In the long-term China has a good chance to secure its food supplies if it continues with this strategy.

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