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Commodities

China's COFCO to enter global grain super-league with listing

LAUSANNE, Switzerland (Reuters) - China’s COFCO, the commodity consuming giant’s state-run grain trading company, is planning to list within three to five years, a move that would catapult it into the select stable of companies dominating global agricultural trade.

China National Cereals, Oils and Foodstuffs Corporation (COFCO) Chairman Frank Gaoning Ning attends the Asian Financial Forum in Hong Kong January 14, 2013. REUTERS/Bobby Yip

In just over a year, COFCO has invested $2.8 billion to transform itself from a procurement operation into a global agricultural trader, via joint ventures with Noble Group Ltd’s agribusiness and Dutch grain trader Nidera, after taking substantial stakes in the companies.

“This should be not a Chinese, but a global company...the IPO will help us to achieve this standard,” COFCO Chairman Ning Gaoning said at the FT Commodities Global Summit.

Ning told Reuters COFCO’s plan would be to list all of COFCO’s, Noble’s, and Nidera’s agricultural assets together.

Its overall objective would likely be to rival the “ABCD” quartet of companies -- Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus -- that dominate agricultural commodity trading.

“After the integration with Noble Agri I think COFCO will invest again in other companies,” Ning said.

“That is a place you cannot ignore,” he said when asked if COFCO could expand in North American markets.

The investments marked the biggest overseas acquisitions in China’s grain sector, giving COFCO assets in some of the world’s top grain and vegetable oil producing regions, including Brazil, Argentina, Indonesia and the Black Sea area and enabling it to bring food supply to China independently of the dominant ABCD operators.

“People ask me: are you going to be a buyer or a competitor in the future?...I think we will cooperate, sometimes we will compete,” Ning said.

COFCO’s Nidera and Noble deals were considered a wake up call for the grain industry as one of the world’s biggest customers turned into a competitor.

“When they acquired Noble and Nidera they were already talking about an IPO, they said from the beginning that in due course they were considering an IPO,” said Karel Valken, global head of trade and commodity finance at Dutch bank Rabobank.

“Clearly the priorities are to create synergies between the three (COFCO, Noble and Nidera), by that time of course we would hope the stock market is more favorable than it is now.”

He said the move would strengthen COFCO’s capital base and change the profile to a Chinese-international company.

MORE TRANSPARENCY?

China agricultural stocks statistics are closely guarded, as changing inventory levels can move food markets sharply. It was unclear whether an IPO would mean more transparency given there are several state-owned entities involved in managing China’s food needs.

On China’s food supply policy, Ning noted that after 11 years of production growth in China, costs were higher due to land prices, water and other services becoming more expensive.

“Put it all together and policymakers have to rethink their self-sufficiency policy. They have to (adopt) an adequate import policy. It is a good thing to replace a higher cost (product) and leverage power on world market,” he said.

“This year is the first year that the government plan for its agricultural budget is lower than last year, in 2014, which means we are not going to produce as much as we can. We are going to have an adequate import policy.”

China’s soybean imports are expected to grow faster than other products at around 5 percent a year or more, Ning said. China currently consumes around a quarter of global soybean output.

Over the longer term, he said China’s overall agricultural imports were set to rise to 200 million tonnes a year within 10 years from 120 million tonnes currently.

Additional reporting by Dominique Patton and Sarah Mcfarlane; Writing by Veronica Brown; Editing by Jason Neely, Nigel Hunt and Susan Thomas

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