China Edgy Over Internationals in Its Agriculture

China Stakes | August 12, 2008

by CSC staff

The Chinese government is more and more worried over the control that overseas firms are exercising over a good portion of China’s food supply, and there is even some thought that the recent inflation might have been triggered by foreign food giants as they have expanded into every corner of China’s agriculture.

Agriculture occupies the largest sector of the Chinese economy, and its stable development is crucial to the development of the country as a whole. The recent domestic inflation led by sharp price hikes for agricultural products, coupled with multi-national companies’ entry into the Chinese market, has become politically sensitive and has triggered calls for protectionism.

Five years ago, “ABCD” (four international grain dealers: ADM, Bunge, Cargill and Louis Dreyfus) gained control of China’s soybean oil industry.

Now it is rumored that international investment banks, led by Goldman Sachs, may take a large stake in China’s hog industry. Goldman plans to acquire around 10 hoggeries, in provinces such as Fujian and Hunan, for $200-$300 million. These hoggeries will all be operated by other companies under Goldman’s supervision. Goldman already controls of Shuanghui and Yurun, China’s two largest meat processing companies. Meanwhile, Deutsche Bank is actively negotiating with Shanghai-based Hongbo, and Tianjin-based Baodi, seeking to acquire their large-scale hoggeries.

Wilmar International, with 71 food processing plants in China involved in oil pressing, protein concentration, grain and oil chemistry among others, currently holds a 50% share of China’s plant oil market. It owns two rice processing plants in Heilongjiang Province, China’s major grain producer, and one rice-processing plant in Zhangjiagang, Jiangsu Province. The company is also building a large rice and oil processing plant in Baicheng, Jilin Province, and four wheat processing plants in Sichuan Province and in Zhoukou, Henan Province.

Recently Wilmar Internatiional has marched into the soybean production base in the northeast of China, in an attempt to occupy China’s only non-transgenetic soybean market.

Cargill, another international agricultural company controls or has taken a stake in 13 feed plants in China, ranging from the Bohai Sea Ring Area and the Yangtze River Delta, to Heilongjiang Province in the northeast, and Xinjiang in the west. The company also owns four fertilizer plants and two corn processing plants. In total the company owns 27 agricultural businesses in China.

And these are not the only international enterprises entering China’s agricultural industry. Other international giants are also getting in, seeking to get a share of China’s agriculture.

The “soybean issue” in 2003 and 2004, an egregious example of price manipulation by international speculators, destroyed many Chinese soybean pressing companies. Seizing the opportunity, international firms gained control of over 60% of these companies, an access for their entry into China’s agriculture industry.

Wilmar now controls over 50% of China’s small-package oil market. Last year, the price leapt from 36 yuan per barrel to 90 yuan per barrel. Many Chinese consumers, along with Wilmar’s rivals, condemned the company, claiming price manipulating.

But Wilmar responded that China’s edible oil prices were not high at all, lower even than on the international market. The company also assisted the government in price controls. Still, Wilmar’s critics believe the international grain dealer has affected CPI.

In February 2008, China’s CPI hit 8.7% over the same month in 2007, marking a record high, while food prices shot up by 23.3%, pork and oil prices surging by 63.4% and 41%, respectively. Edible oil and pork have become a primary stimulus for CPI growth.

China’s concern over foreign companies in its agricultural industry may affect its attitude in any further negotiations in the Doha round. The most recent negotiations came to nothing with developing countries led by India and China firmly opposing the US over rules governing the threshold for tariffs to be raised to protect certain crops when prices fluctuate.

With price hikes for agricultural products driving inflation, the Chinese government is thinking over whether it should further open its agricultural markets. China is still largely an agricultural country. The food of its 1.3 billion people is all supplied from its limited agricultural resources. The stability of agriculture is the basis for the stability of the whole society.

Liu Xiaorong, researcher in a large state-owned oil company appealed for the restraint of overseas companies entering into China’s agricultural area. “How can we control our own fate if our 1.3 billion people must be fed by foreign companies?”

Original source: China Stakes

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