| TOKYO, March 13
TOKYO, March 13 Chinese trader COFCO Corp's
move to grab control of two overseas grains
operations in the space of a week threatens to limit the
benefits Japan's Marubeni Corp hoped to reap in the
world's largest food market.
The Japanese trader's purchase of U.S. grain merchant
Gavilon last year made it China's top grains supplier. The
advantage of that firepower could be curbed as China develops
its own global agriculture trading house.
COFCO, which agreed to buy a majority stake in Dutch grains
trader Nidera on Feb. 28, is in talks to buy into Noble Group's
agribusiness arm, people familiar with the matter
If the deals are completed, they will give state-backed
COFCO more leverage on pricing and strength in logistics and
"The key to competitiveness in grains trading is the
utilization of shipping, and if COFCO can get the ships that
Noble has it will make them more competitive and better able to
understand prices," said an executive in the grains department
of a Japanese trading house.
Rising incomes have led to growing demand for protein in
China, which is determined to strengthen its overseas
procurement network as well as find new sources of food, as well
as soybean meal and corn to feed livestock.
Chinese soybean imports are expected to rise more than 15
percent to 69 million tonnes in 2013/14, according to the U.S.
Department of Agriculture, with shipments of corn likely to
nearly double to 5 million tonnes.
In a bid to capitalise on such demand, Marubeni spent $3.6
billion to buy Gavilon in a bid to link the U.S. firm's vast
storage network with its own export capabilities in Asia. The
two together now sell 15-16 million tonnes of soybeans to China,
according to a source with knowledge of the matter.
But the completion of the Gavilon purchase took more than a
year as Chinese regulators scrutinized the deal before approving
it on condition the firms maintain separate, independent trading
units when selling soybeans to China, limiting pricing power.
"I can't say this is a really, really bad deal, but it will
take them some time to get their money back," said a Japanese
trading house analyst who requested anonymity.
Akio Shibata, president of the Natural Resource Research
Institute, said Marubeni's foray into China had met unexpected
hurdles, including regulatory and a weakening in grain prices
between the time the deal closed and they took on the business.
"It looks like it will take Marubeni longer and require more
effort than first envisioned to obtain the full benefits from
the addition of Gavilon," he said.
A Marubeni spokesman said the company was aware of the COFCO
developments but was not in a position to comment on them.
The conditions attached to the Gavilon buy, along with curbs
on foreign investment in domestic crushing activities, are part
of Beijing's strategy to curb the dominance of a single company.
"Big buyers, not just COFCO, want multiple supply sources
because having a single supply source creates insecurity," said
an official in the grains division at a Tokyo-based trading
"While COFCO will continue making purchases from others, it
will also get supplies from its own production areas, and that
will have an impact (on the market)."
A deal with Noble would also pit COFCO against Marubeni in
South America, where Noble has soybean crushing facilities and
China is already a major buyer.
Marubeni bought nearly a quarter of Brazil's soybeans in
2013, and is looking to sell Brazilian corn to China.
If it wraps up the Nidera and Noble deals, COFCO will likely
gain more leverage in corn as well. China's corn imports are
seen nearly doubling to five million tonnes in 2013/14 from 2.7
million tonnes a year ago, according to the U.S. Department of
"COFCO has buying power domestically, so for grains majors,
including Marubeni, trade would fall if they could buy from
themselves," the executive at the Japanese trading house said.
"But Noble doesn't have any grain supply depots in
production regions, they're just a trader, so it's not too
Marubeni sells soybeans mostly to small- and mid-sized
traders in China, but does not currently sell direct to COFCO.
The two firms did, however, sign an agreement in 2010 for
Marubeni to import Chinese milling wheat into Japan from COFCO.
MORE DEALS MAY COME
When asked about its M&A intentions, COFCO previously said
that a key strategy was to increase supply sources worldwide to
boost food security and focus on firms with a network to help
export finished and processed food products.
Developing its own trading house should help China get a
firmer grip on food supply and the flow of farm commodities.
Beijing sees it as vital to gain a bigger say in pricing
commodities. China is the top consumer of everything from
soybeans to copper yet price benchmarks are dominated by the
COFCO could be on the lookout for more acquisitions. A
Japanese trading house official said once COFCO establishes a
sales outlet, it could be looking to boost its production
"So you add the selling power, then go for the production
area, so (with a Noble deal) it will be very interesting how
COFCO decides to move next."
(Additional reporting by Lewa Pardomuan, Manolo Serapio Jr.,
Naveen Thukral, Rujun Shen in SINGAPORE and Shuping Niu in
BEIJING; Editing by Aaron Sheldrick, Amran Abocar and Ed Davies)