China’s appetite for food imports to fuel agribusiness M&A
2013-06-06 17:09:36
China is set to become more dependent on imported grains, oilseeds and meat during the next 10 years, a development that is likely to support prices and fuel further dealmaking in the global agribusiness industry.
The Food and Agriculture Organization and the OECD on Thursday painted a bullish view for Chinese food demand in their closely watched annual agricultural outlook. The report for the first time devotes a full chapter to China.
The country’s imports of coarse grains, used mostly for fattening herds, are expected to double by 2022. Imports of soyabeans will grow 40 per cent, while meat imports are set to soar – beef imports nearly doubling.
“The challenge is clear: feeding China in the context of its rapid economic growth and limited resource constraints is a daunting task,” the report stated. “China’s consumption growth will slightly outpace its production growth.”
The forecast comes as China’s entry into global agricultural markets has already started to drive mergers and acquisitions in the agribusiness industry.
Shuanghui of China last week announced a $7bn bid for Smithfield, the leading American pork producer. At the same time, commodities trading houses including Archer Daniels Midland and Marubeni, have spent $10bn over the past year buying grain traders in Australia and the US targeting the Chinese food market.
China is already the world’s largest importer of soyabean as the new middle class is leading the change in food consumption habits, in particular a growing appetite for meat. Soyabean is a key source of feed for the meat industry. The dietary shift has added to the strain on China’s agricultural sector, which is already trying to feed one-fifth of the world’s population with scarce farmland and water.
The FAO and OECD pointed to the limits on land usage for agriculture within China. “While it would appear that substantial room exists for productivity gains to sustain domestic market advantage, constraints of land, water and even rural farm labour appear to limit future supply,” said the report.
The constraints in turn will probably increase China’s reliance on the international markets for its food resources. The shift towards a greater reliance on food imports could have profound implications for global food markets because China’s total demand for grains is vast relative to the size of globally traded markets.
Chen Xiwen, a top Chinese agricultural official, earlier this year acknowledged that higher food imports were inevitable. “Making full use of international resources and international markets has become very necessary,” he said.
The rising reliance on food imports by China, together with other factors such as biofuel production, will put upward pressure on commodity costs.
“Rising prices for both crop and livestock products are projected over the coming decade due to a combination of slower production growth and stronger demand,” the report stated. “Meat, fish and biofuel prices are projected to rise more strongly than primary agricultural products.”
China is expected to become the world’s leading consumer of pork on a per-capita basis, surpassing the European Union by 2022. Although historically China has been mostly self-sufficient in pork, the FAO and OECD estimate that international pork prices will rise about 5-8 per cent as a result of Chinese buying.
China is already the biggest importer of milk, but the country’s voracious demand for dairy products is expected to rise a further 60 per cent in dairy product imports over the next decade.