Chinese ag investment: changing the game

Foreign companies own a large chunk of Western Canada’s agri-food industry.

A Swiss firm, Glencore, owns Viterra, one of the largest grain handlers on the Prairies.

An American company, Cargill, owns a major beef processing plant in High River, Alta.

Brazil’s JBS owns the beef processing plant in Brooks, Alta.

A Thai company and Japanese firm now control Hylife, one of Canada’s major pork producers and processors.

However, one country missing from this short and incomplete list is China.

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That’s surprising because for about a decade China has been buying a sizable portion of the oilseeds, grains and meat produced in Western Canada.

In 2017, Canada exported $4.1 billion worth of oilseed products to China, $710 million in meat and offal and $640 million in grain and grain products.

Looking ahead, a lack of Chinese investment in Canada’s agri-food sector may become a problem for Canadian farmers in the next 10 to 15 years because China’s agricultural policies have changed.

It no longer wants to be a passive buyer of grain, oilseeds, meat and dairy, says a U.S. Department of Agriculture report from last year.

Instead, China’s government wants its companies to buy agri-food businesses and gain more control of global supply chains.

“Chinese officials have ambitious strategic plans for agricultural investments to reshape patterns of agricultural trade and increase China’s influence in global markets,” USDA economist Fred Gale wrote in the report.

“These investments contribute to national food security, gain a greater share of the profits for Chinese companies from imported commodities, exert influence on global price.”

Chinese firms are already acting on this strategy. They have spent billions to acquire agri-food processors or create partnerships in nations that export grains, oilseeds, meat and dairy products:

  • In 2013, the Chinese agri-business New Hope Group paid $100 million for a beef slaughter plant in Australia and in 2015 announced a $100 million deal with two of Australia’s largest dairy farmers.
  • From 2010-15, Chinese companies invested more than $500 million in New Zealand’s dairy sector.
  • In 2016, COFCO, a state-owned company, acquired a 100 percent stake in Noble Agri, a grain trader with operations in 29 countries and sales of US$15 billion in 2015.
  • Chinese companies have 657 agricultural projects in Belt and Road countries, valued at $9.4 billion.

All this investment means China could become less dependent on North America for grain, oilseeds and other commodities.

“A broader concern for U.S. exporters and business leaders is the potential for Chinese investments to steer trade toward competing countries,” Gale wrote.

“(It) may bolster the share of commodities China imports from these countries versus … U.S. commodities.”

Gale wrote his paper for an American audience, but steering trade toward competing countries is also a threat for Canada’s farmers.

For the last four months China has stopped buying Canadian canola seed. The official reason is unidentified “pests” in shipments from Canada, but most believe it is retribution for a Canadian court decision in December to arrest and detain Meng Wanzhou, an executive with Chinese telecom firm Huawei. The U.S. government has accused Meng of breaking sanctions on Iran and wants Canada to extradite her to America.

Chinese companies don’t own grain elevators or grain export terminals in Western Canada, but if they did, would that have stopped China from taking such a drastic step on Canadian canola?

Probably not, said an executive director of a Canadian commodity organization, because the Meng-Huawei case is highly political and a matter of national pride for China.

There’s also the example of Smithfield Foods, the largest pork producer in the United States.

In 2018, China imposed tariffs on all American-made pork, even though the tariffs are painful for the Chinese company that owns Smithfield.

Nonetheless, there may be cases where agricultural investments are more important than a diplomatic fight.

Last summer a posting on Twitter sparked a diplomatic storm between Canada and Saudi Arabia. The federal global affairs department criticized Saudi Arabia for arresting and jailing women’s rights activists. In response, the Saudis froze all trade with Canada, including imports of Canadian wheat, barley and forage products.

However, the Saudis did not sell their majority share in G3, a grain handler and exporter based in Winnipeg.

Saudi Arabia likely wants to hang onto G3 because the spat with Canada will not last forever. As well, long- term ownership of a grain company in Canada is probably seen as a wise strategy for a country that’s highly reliant on food imports.

At some point, the Meng Wanzhou case will become history and Canada-China relations will return to normal, or at least some version of normal.

Regardless of when that happens, China’s ambition of controlling agricultural supply chains is not going away.

It’s possible that a Chinese firm may eventually make a bid for a major Canadian agri-business. Maybe a Chinese company will try to buy a privately held grain business with 45 elevators in Western Canada, or try to buy a meat company with a maple leaf on its logo.

If that did happen, should Canada’s agri-food industry welcome the investment and the promise of steady and stable exports to China?

Or not?

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