Analyst speculates about what the China National Cereals, Oils and Foodstuffs Corp. will buy next
It is only a matter of time before a Chinese food industry behemoth attempts to acquire Canadian grain industry assets, says an analyst.
China National Cereals, Oils and Foodstuffs Corp. (COFCO) has been gobbling up assets around the world, and it won’t be long until one of the world’s largest food companies turns its attention to Canada, said Chuck Penner, analyst with LeftField Commodity Research.
“I wouldn’t be surprised at all to see at some point COFCO make a play for one of the Canadian grain handlers,” he told the Agricultural Producers Association of Saskatchewan’s mid-term convention.
“It wouldn’t surprise me one little bit.”
COFCO has global assets worth $71.9 billion, including 31 million tonnes of storage capacity, 89.5 million tonnes of processing capacity and 54 million tonnes of port terminal capacity.
The state-owned food company made a splash last year when it ac-quired controlling interests in Dutch grain trader Nidera and the agribusiness operations of Hong Kong-based Noble Group. The transactions cost about $3 billion.
The acquisitions put COFCO on the same playing field as the ABCD companies in the grain industry: Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus.
Nidera has a comprehensive grain storage and logistics network in Argentina, Brazil and Uruguay. It also has facilities in the United States, Britain, Spain, Romania, Russia and Ukraine.
Noble buys grains and oilseeds from low-cost producing regions such as South America, South Africa, Eastern Europe, India and Australia to supply customers in Asia and the Middle East. The company owns ports and crushing facilities in key regions such as Argentina.
COFCO has $5 billion of assets in Brazil, including two soybean crushing plants, four sugar mills, a transit station, two wharves and 12 grain silos. The company handles more than eight million tonnes of grains and oilseeds a year in Brazil and has a 14 percent share of the country’s soybean and corn seeds business.
COFCO recently announced it is planning to become a publicly traded company in the next three to five years as it attempts to expand its global reach to provide food security for China.
Company chair Ming Gaoning was recently asked if COFCO is interested in acquiring assets in North America after it is done integrating the Noble and Nidera assets.
“That is a place you cannot ignore,” he said.
Penner does not know if COFCO was one of the companies that bid on CWB, but he believes the Chinese firm is eyeing up at least one Canadian grain company.
“I don’t know who they’re going to go after but they’re going to go after somebody,” he said in an interview following his presentation.
“It’s just part of their strategy, especially seeing how important canola is to them.”
Penner believes COFCO will be looking for a company that has a combination of grain handling and oilseed processing assets.
“Canola is one of their big interests, so it could be somebody who has crushers,” he said.
“You have to have somebody who is interested in selling. I think the people here right now are pretty interested in hanging on to what they have, so it wouldn’t be easy.”
Senior officials at Port Metro Vancouver have said there has been considerable foreign interest in building another grain export terminal at the port. It is possible that COFCO could be one of the interested parties.
Penner said COFCO’s investments in other regions of the world could also have a profound impact on Canadian growers.
Chinese president Xi Jinping announced in 2013 that the country would be building a new Silk Road to connect China with Eastern Europe.
The Silk Road Economic Belt and the 21st Century Maritime Silk Road are initiatives designed to rejuvenate two ancient trading routes.
Gaoning said the initiatives have strong trade implications for the countries located along those trade routes, and COFCO will be seeking investment and co-operation opportunities with grain companies in those areas.
One of those countries is Kazakhstan, which has a climate that is strikingly similar to Saskatchewan.
Kazakhstan plans to invest more than $20 billion on transportation infrastructure by 2020 to become the gateway between China and Europe. One problem that has to be overcome is that China and Kazakhstan use different track gauges on their railways.
Penner said the Silk Road project could pose problems for Canadian exporters because Kazakhstan is already the world’s largest exporter of wheat flour and has rapidly become Canada’s biggest flax competitor.
“They’re right next door to China with rail access. That’s not so good. That’s one of the things that makes me nervous,” he said.
“Kazakhstan has huge untapped potential, and it’s right next door to them.”
Kazakhstan does not grow a lot of pulses but that could change in a hurry.
“The flax industry blossomed in Kazakhstan in some five years,” Penner said.
“It went from almost zero (production) to competing heavily with us.”