Smithfield embodies China’s record hunger for farms

Cotton & Water

China is “willing to encourage” investment by capable Chinese companies in Australia’s farm sector, Vice Agriculture Minister Chen Xiaohua said in March. The nation’s agricultural businesses should invest in global grain trading and logistics to help China secure supplies, Chen Xiwen, deputy head of the Central Rural Work Leading Group under the State Council said in May 2012.

In August, Australia approved the sale of Cubbie Station, the nation’s biggest cotton farm and water rights holder, to a Chinese-led group for $235 million. Bright Food Group Co., China’s second-largest food company, agreed in May last year to buy a 60 percent stake in British cereal manufacturer Weetabix Ltd., valuing the maker of Ready Brek and Alpen cereals at about 1.2 billion pounds ($1.9 billion).

China’s acquisitions are being driven by the desire to secure volumes of safe produce for import and, in the longer-term, access to the transfer of technology, Craig Armitage, Advisory Global Leader for Food and Agriculture at PricewaterhouseCoopers New Zealand, said in e-mailed responses to questions from Bloomberg.

As well as established targets such as Australia and Brazil, there’s growing opportunities for Chinese investment in southern Africa, parts of Russia and Europe, he said.

Intellectual Property

“Holdings in industry-leading farmers and processors around the world give Chinese companies access to the intellectual property that drives it all,” said Christchurch, New Zealand-based Armitage, who cited China’s food safety scandals, including the death of at least six infants in 2008 from tainted milk, as a motive for the overseas acquisitions. “This will ultimately drive a steeper increase in the productivity of China’s domestic production.”

China’s push to secure more foreign agricultural assets followed a surge in global food prices in 2007 and 2008. With 20 percent of the world’s population and just 8 percent of its farmland, China needs to spend $861 billion developing its farm sector through 2050 to produce crops and livestock to feed its people, the United Nations estimates.

Wheat and rice, the most consumed food grains, rallied to a record in 2008, while corn and soybeans reached all-time highs last year, topping earlier peaks of 2008. World food prices were little changed in May with an index of 55 food items tracked by the UN’s Food & Agriculture Organization down 0.3 percent to 215.20 points. The gauge reached a record in February 2011.

Food Security

China’s rapid urbanization, pollution and limited supply of arable land and water is prompting the nation to increase trade and investment with countries in southeast Asia, Australia and New Zealand, said Doug Ferguson, partner in charge of the Asia business group with KPMG Australia, who recently returned from China. Food security is “critically important,” to the Chinese government, he said.

“I met approximately 25 agricultural companies and understand that there is genuine demand for investing not only in farms but more importantly, food processing plants and various technologies associated with food production,” said Ferguson. “Chinese companies are often only interested in very large scale assets.”

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