(FROM THE WALL STREET JOURNAL ASIA 3/31/15)
By Jacob Bunge and Jesse Newman
A foray into the U.S. isn't likely to come easily for China's
biggest grain trader.
Cofco Corp. hopes to gain a foothold in the world's largest
agricultural exporting nation through acquisitions or alliances
with rivals. But the state-owned company, which currently owns just
a few physical assets in the U.S., might struggle against high
price tags and U.S. trading houses' reluctance to cede capacity to
a burgeoning global competitor, analysts said.
The Beijing-based company, with its direct pipeline to China's
growing food sector, could represent both a potential threat and an
attractive partner for long-established U.S. grain-trading
behemoths such as Cargill Inc., Archer Daniels Midland Co. and
Bunge Ltd. Owning significant North American assets such as ports
and grain terminals could enable Cofco to buy more grain at lower
cost to supply its Chinese operations, reducing its dependence on
the U.S. grain shippers. If a U.S. company teamed with Cofco,
however, it could secure direct access to one of the world's
fastest-growing food markets.
Cofco might buy or invest in existing grain-trading
infrastructure, or form alliances with grain companies to develop
new facilities, said Paul Liu, Cofco's head of North America.
The company, which acquired grain elevators in Chicago and
Milwaukee last year through its acquisition of a Dutch grain
company, is evaluating port possibilities along the Gulf of Mexico
and in the Pacific Northwest, Mr. Liu said. Owning facilities that
buy crops from U.S. farmers or smaller, Midwestern grain companies
would improve Cofco's knowledge of grain supply and demand, Mr. Liu
added.
"In the grain business, the world is getting flat," Mr. Liu
said. "The demand- and supply-situation changes in one location
will affect other parts of the world, and in that sense we want to
grow our business in all the different major markets."
Cofco could face hurdles depending on its approach, analysts
said. Buying assets from larger competitors could come at a hefty
cost, while stitching together a cohesive network from smaller
companies could be a slow undertaking, they said. The value of
facilities held by smaller competitors also has increased over the
past half-decade amid rising profit margins, potentially making
privately held companies reluctant to part with them.
"Anything you buy will be at a premium," said Sterling Liddell,
a senior agribusiness analyst at agricultural lender Rabobank.
Building new river terminals and port facilities also poses
challenges, such as procuring land on a crowded waterfront or
wresting suppliers away from established competitors, Mr. Liddell
said. A major push by a Chinese state-owned company into the U.S.
grain business -- a core segment of the Midwestern economy -- also
could face political resistance from lawmakers concerned about
rising Chinese ownership of U.S. food-production assets.
U.S. regulators scrutinized pork producer Smithfield Foods
Inc.'s $4.7 billion sale to a Chinese meatpacker but ultimately
cleared the deal in 2013. Meanwhile, Japanese trading firm Marubeni
Corp. in 2013 acquired Gavilon LLC, one of the largest U.S.
grain-trading firms, for $3.6 billion. A U.S. antitrust review at
the time raised no red flags on the purchase of the Omaha,
Neb.-based company.
Executives at Bunge -- the third-largest U.S. grain trader, with
about $58 billion in annual sales -- said Cofco might add
competition to the U.S. grain markets, but the company remains a
major customer too.
"We're always open to talk to customers about partnerships in
any number of ways," Bunge Chief Executive Soren Schroder said in
an interview. Representatives for Cargill and ADM declined to
comment.
(See related article: "Chinese Food Giant Shops in U.S." -- WSJA
March 31, 2015)
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