COFCO to expand overseas M&A
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China Daily, November 4, 2011
China National Cereals, Oil and Foodstuffs Corporation (COFCO), the country's largest trader of grains and edible oils, said it will add investment worth more than $10 billion to fund overseas mergers and acquisitions in the next five years.
The company will increase its efforts in overseas investment in the 12th Five-Year Plan period (2011-2015), focusing on a number of markets including the United States, Australia and Southeast Asian nations, said Jiang Hua, a COFCO board member.
In mid-October, COFCO's Chairman of the Board, Frank Ning, said the company is trying to connect China's consumer market with sources overseas and will seek foreign investment to help secure supplies of commodities such as sugar, wheat and soybeans.
With the economy growing rapidly and individual incomes rising, China's demand for daily necessities and commodities including meat, dairy, sugar, wheat and corn has surged in recent years.
Liu Hande, deputy secretary-general of the China Sugar Association, predicted on Tuesday that the sugar deficit in the world's second-largest consumer may be 2.5 million tons this year, spurring an increase in imports. Industry insiders also said sugar imports will hit a record high and exceed 2 million tons this year, compared with 1.77 million tons in 2010.
A recent report from Morgan Stanley said China, which in 2010 became a net importer of corn for the first time in 14 years, is "entering a golden age of consumption".
"The next 10 years will be a period of fast growth in China's consumption of foodstuffs, including poultry, meat, eggs and dairy products," said Jiang.
"Because of the nation's limited agricultural resources, we have to look overseas. As a company that aims to build itself into a brand that provides Chinese consumers with a variety of daily foods, COFCO will increase its efforts in seeking acquisitions overseas," she said.
China will try to increase the imports of commodities including agricultural goods because supplies will fail to meet demand, said Zhong Shan, vice-minister of commerce.
COFCO has also made acquisitions in the sugar and wine industries of the US, France, and Brazil. In February, the State-owned group announced it would buy Chateau Viaud, a 20-hectare estate in the French wine-growing region of Bordeaux, but released no further details.
In July, the company increased its share holding in Australian sugar producer Tully Sugar Ltd to 99 percent from 61.25 percent, which cost the company 938 million yuan ($148 million). After Tully Sugar, COFCO sought to acquire Proserpine Co-operative Sugar Milling Association Ltd, but the Australian company rejected the offer.
"The overseas partnerships help us enhance our core competitiveness and provide Chinese consumers with more alternatives in their daily diet," said Jiang.
"We expect that the Chinese government could provide supportive measures for companies aspiring to invest overseas, including COFCO, to become more involved in the global competition."
Ning told Chinese media that the company is looking into wheat-related projects in Russia, but didn't elaborate.
However, that move may encounter difficulties. "It's in a different country with different people"with the difficulties likely stemming from a "lack of understanding of what the Chinese may do," said Ning.
Since 2004, a series of nationwide M&A deals has seen COFCO change from simply importing and exporting agricultural goods and begin working across a whole chain of sectors ranging from commodities to food processing, logistics and sales.
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