COFCO's international business volume exceeds domestic, asset integration to be completed before 2017
After more than 6 years of internationalization strategy deployment, COFCO Group's goal of a full industry chain is gradually being realized.
According to an internal COFCO management person, last year COFCO, by controlling the Netherlands-based Nidera Group and Noble Agri under Hong Kong, China's Noble Group, had already preliminarily formed a global agricultural products supply chain layout, and its international business volume had already surpassed its domestic business volume, making it a veritable international grain trader. In the past, when COFCO bought soybeans overseas, it had to find middlemen and suppliers to place orders; now, through its controlling stake in Nidera, it can buy directly from farmers in Brazil and Argentina, freeing itself from the “control” of middlemen and suppliers when it comes to soybean prices.
Economic Observer has learned that in the next step of its internationalization strategy layout, COFCO will, on the one hand, accelerate its layout and investment in the North America region; on the other hand, it plans to complete by 2017 the asset integration of COFCO's domestic assets with the acquired assets of Nidera and Hong Kong, China's Noble Agri. This also means that the integrated COFCO Group will become a “global agricultural company” capable of standing shoulder to shoulder with the four major international grain traders “ABCD” (namely ADM, Bunge, Cargill and Louis Dreyfus).
Industry chain strategy
At the end of 2004, Ning Gaoning was “parachuted” in from China Resources Group to COFCO and began to hold the helm of COFCO. By 2009, COFCO had formally proposed the full industry chain strategy.
As for why the concept of the “full industry chain” was proposed? Ning Gaoning at the time had a very vivid description——“If a room is quite nice, but the sofa and lamps inside are all very messy, rearranging them may make it much more comfortable. This is the problem COFCO faces. So can COFCO's current assets be arranged more neatly?” It was under such painstaking deliberation that he finally thought of the need to implement the “full industry chain” strategy. “One afternoon at the end of last year (2008), I was at home and wrote the three characters ‘industry chain,’ and suddenly everything became clear.”
COFCO is a domestic grain and oil giant. In the past, its business was mainly concentrated in the import and export trade of agricultural products and food. After proposing the full industry chain strategy, COFCO began to advance toward both the source and the terminal ends of the grain, oil and food sector, and tried, under the operation of the full industry chain model, to organically organize the industry chains of wheat, rice, corn, oils and oilseeds, sugar, tomatoes, barley, meat and so on, achieving unimpeded flow of the entire grain, oil and food process “from the field to the dining table.”
This year is already the 6th year of COFCO's implementation of the full industry chain strategy. During this period, COFCO carried out a series of acquisitions in agricultural product processing and the food industry. Domestically, these included large private and state-owned enterprises such as Wugudao Chang, Mengniu Dairy, China Grain Group and Huafu Group, and “COFCO system” companies were listed one after another; abroad, there were industry giants such as Australia's Tully Sugar, the Netherlands-based Nidera Group and Hong Kong, China's Noble Agri, making it a veritable international grain trader. The “full industry chain” has also become COFCO's golden signboard.
At present, COFCO is the largest comprehensive grain, oil and food enterprise in China and a market-oriented grain and oil trading enterprise. In sectors such as oil processing, flour processing, rice processing, corn processing, tomato processing, malt processing and dairy processing, it is in the top one or two positions in the industry, and its position in the feed processing, sugar processing, and meat breeding and slaughtering industries is also rising rapidly.
COFCO's pace of international acquisitions is also accelerating. In 2011, COFCO acquired 99% of the shares of Australia's Tully Sugar; in 2014, it successfully took controlling stakes in Nidera and Noble Agri, extending its grain and oil supply chain globally, thereby gaining a certain degree of pricing power in the international grain market and enhancing its competitiveness against the four major international grain traders “ABCD.”
The aforementioned COFCO management person told Economic Observer that Brazil has long been known as the “world's granary.” The two terminals T12A and Cere-alsul at the Port of Santos in Brazil are important logistics ports for COFCO's transshipment of agricultural products such as soybeans, corn, wheat and sugar in Brazil. Through these two terminals, COFCO can export agricultural products to major grain-consuming regions such as China, Europe and the Middle East, with an annual agricultural product transshipment capacity of more than 5.7 million tons.
In addition, COFCO currently also owns 2 soybean crushing plants, 4 sugar mills and 1 transfer station in Brazil. Its annual grain and oilseed operating volume in Brazil can exceed 8 million tons, with total grain sources of 7.4 million tons and grain storage capacity of 1.81 million tons. These will play a safeguarding role in stabilizing the domestic grain market.
The aforementioned COFCO management person also said that in the current global grain and oil industry chain, from the upstream cultivation of agricultural products such as soybeans and corn all the way to processing and sales, ultimately large terminals must be relied upon to realize logistics operations,
and the Port of Santos in Brazil is one of the most important distribution centers in global grain trade, where an important flow of global agricultural products between the Eastern and Western Hemispheres is formed. At present, COFCO's two terminals, T12A and Cereal-sul, are precisely important links in the global agricultural product value chain.