(FROM THE WALL STREET JOURNAL ASIA 3/31/15)
By Chuin-Wei Yap in Beijing, and Jesse Newman and Jacob Bunge in Chicago
Chinese food company Cofco Corp. is on a determined shopping
spree.
In a few short years, Cofco has spent a couple billion dollars
quietly buying up Australian cane fields, French vineyards and
Brazilian soybean pastures, helping it become one of the world's
largest food companies. Now, Cofco is exploring deals in the
world's biggest exporter of agricultural commodities: the U.S.
Little known globally but pervasive in China, Cofco is bulking
up to become the Chinese answer to U.S. grain and meat giant
Cargill Inc.
Once the government arm for importing food staples when China
was poor and isolated, the state-run company rode the country's
rise to a nation with middle-class consumers. Cofco -- the
officially adopted abbreviation of China National Cereals, Oils and
Foodstuffs Corp. -- now owns food-producing assets on five
continents. Last year, it spent $2.7 billion to acquire Dutch grain
trader Nidera BV and 51% of Noble Group's agriculture unit, gaining
footholds in the breadbasket regions of South America and central
Europe.
"We want to get more involved in other parts of the world,
especially in the Americas, where a lot of the grain is grown,
shipped and exported to other markets like China," said Paul Liu,
Cofco's head of North America.
The deals with Nidera and Noble Agri Ltd. gave Cofco a handful
of grain elevators in Chicago and Milwaukee, and Mr. Liu said the
company has begun sounding out U.S. companies on potential deals.
Such transactions could include acquisitions or partnerships with
rivals to secure U.S. ports and grain terminals, giving Cofco
better access to the world's largest source of corn and a top
soybean grower, Mr. Liu said.
Cofco's recent deals have pushed it into competition against
U.S. leaders like Cargill, Archer Daniels Midland Co. and France's
Louis Dreyfus Group. Its charismatic, deal-making chairman, Ning
Gaoning, a fluent English speaker, has transformed Cofco into a
Chinese state company in contention to be globally competitive.
With a lock on China's grain trade, Cofco has access to deep
state coffers, providing $10 billion for acquisitions, according to
company officials. Its flour, dairy and other products permeate
China's food supply, from the farm to the dinner table. Cofco's
organic cooking oil, additive-free bacon and Great Wall wine jostle
for space in supermarkets throughout China.
"It's very important to the Chinese market that they have
resources," said Matthe Vermeulen, chairman of the Royal Dutch
Grain and Feed Trade Association, where Nidera is a member.
Mr. Ning has extolled Starbucks Corp. as a model for global
reach. "Starbucks took one of the oldest beverages of the West and
transformed it with care," Mr. Ning wrote in his 2012 book "Why."
"Starbucks definitely is relevant to us."
Cofco's revenue, estimated at $63.3 billion last year after the
Noble and Nidera deals, still lags behind the world's three larger
agribusiness giants. Competitive pressures loom at home, too. As a
bottler of household edible oil, it is second to Singapore's Wilmar
International Ltd., which supplies 55% of the Chinese market
compared with Cofco's 15%, according to the consultancy Shanghai JC
Intelligence Co.
In its expansion, Cofco has avoided the expensive trophy
acquisitions some state companies have made and instead has used
its purchases to bring in expertise. Nidera, for example, also owns
laboratories for yield-boosting seed technology.
"These acquisitions represent a departure from previous
food-security policies," said Nelson Low, director of commodities
for Asia at global options and futures exchange CME Group Inc.,
referring to prior Chinese efforts to domestically produce most of
the grain it consumes.
For much of its life, Cofco embodied China's preference for
heavy state control over the economy. Founded in 1952, Cofco became
the main importer and exporter of grains, edible oils and other
staple agricultural products at a time China was chronically short
of food. After economic changes began in the late 1970s, Cofco
ventured into new territory, bringing Coca-Cola Co. to China and
striking a deal with Seagram Co. to import alcohol.
Cofco remained largely focused on grain trading until the
arrival of Mr. Ning as the company's chairman in 2004. This became
a time of explosive prosperity in China, and the diets of a new,
suddenly enriched middle class were changing. The grain market that
Cofco dominated now fed ever-growing animal herds to meet rising
domestic consumption of meat.
Mr. Ning had a track record of remaking companies, having
transformed state-owned China Resources Enterprises Ltd. into a
regional investment powerhouse during his 18 years at the food
exporter based in Hong Kong. A joint venture with South African
brewery SABMiller PLC in 1993 gave him control of Snow beer,
China's best-selling lager.
Cofco at the time had relatively little experience in areas like
food processing or value-added products like wine. But it had been
operating under the direct supervision of the central government
since late 1999, giving the company access to China Inc.'s
checkbook.
Mr. Ning swiftly set out an ambitious plan to reinvent Cofco,
according to company documents. He revamped the annual performance
review and instituted a system that ranks the most senior 100
managers and replaces the bottom five -- a technique straight out
of former General Electric Co. Chairman Jack Welch's rank-and-yank
methods.
"We call it 'last-position elimination,' " said a Cofco
executive. "It's created a lot of pressure, and yes, it's been a
little stressful." Mr. Ning has described its effect as akin to
"100 people running from a tiger."
Cofco, he said, needed to move beyond grain trading, with its
competitive margins, and had to acquire scale in food production to
secure global clout. Cofco declined to make Mr. Ning available for
interviews.
Cofco began dipping its toe overseas with the purchase of a
Chilean winery in 2010, followed by France's top-shelf Bordeaux
vineyard Chateau de Viaud a year later.
The transformative acquisition came in 2011 when farmers in
Australia put up for sale Tully Sugar, an industry crown jewel that
accounts for 10% of Australia's annual sugar-crushing output. China
was in the thick of a sugar craze, importing ever larger amounts.
U.S. giant Bunge Ltd. was circling.
Cofco quietly dispatched a four-man team from Deloitte Touche
and Tohmatsu Ltd. to go from farm to farm to gin up support and
overcome skepticism about a little-known Chinese company.
"They're salesmen, but I became very impressed with their work
ethic," said Angelo Crema, a local cane grower who was courted over
coffee at his home amid 500 hectares of cane.
Cofco prevailed with a $145 million offer. More than sugar
supplies, the Tully acquisition gave Cofco a major triumph at a
time when the company was still a relative neophyte in global
deal-making and prepared it for Noble and Nidera.
In the U.S., Cofco could face greater hurdles. Buying assets
from larger competitors could come at a hefty price tag, while a
patchwork of small properties might be difficult to consolidate,
analysts said. And a big Chinese presence in the U.S. food market
could face political pushback.
Cofco beat back appeals from local growers -- backed by Bunge --
to keep Tully Sugar in Australian hands. Since then, the cane
farmers who supply the mill and local officials say Cofco has
managed with a light touch.
"They've shown that they can run a company in Australia at its
finest," said Bryce Macdonald, a cane farmer and Tully's deputy
mayor. "There's nothing to stop them now from buying and running
all sorts of other companies."
---
Yang Jie contributed to this article.
(See related article: "Cofco's Push Into U.S. Is Likely to Face
Tall Hurdles" -- WSJA March 31, 2015)
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