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BUSINESS
Chinese Food Giant Explores Deals in
U.S.
Cofco is bulking up to become the Chinese answer to Cargill
Paul Liu, Cofco's head of North American operations, with soybeans in the company’s offices in Englewood
Cliffs, N.J. Cofco is seeking deals in the U.S., a top soybean grower. PHOTO: ANDREW HINDERAKER FOR THE
WALL STREET JOURNAL
By CHUIN-WEI YAP in Beijing, and JESSE NEWMAN And
JACOB BUNGE in Chicago
March 30, 2015 5:08 p.m. ET
Chinese food company Cofco Corp. is on a determined shopping spree.
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Chinese Food Giant Explores Deals in U.S. - WSJ
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In a few short years, Cofco has spent a couple billion dollars quietly buying up Australian
cane fields, French vineyards and soybean pastures in Brazil, helping it become one of
the world’s largest food companies. Now, Cofco is exploring deals in the world’s biggest
exporter of agricultural commodities: the U.S.
Little known globally but pervasive in China, Cofco is bulking up to become the Chinese
answer to U.S. grain and meat giant Cargill Inc.
Once the government arm for importing food staples when China was poor and isolated,
the state-run company rode the country’s rise to a nation with middle-class consumers.
Cofco—the officially adopted abbreviation of China National Cereals, Oils and Foodstuffs
Corp.—now owns food-producing assets on five continents. Last year, it spent $2.7
billion to acquire Dutch grain trader Nidera BV and 51% of Noble Group’s agriculture
unit, gaining footholds in the breadbasket regions of South America and central Europe.
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“We want to get more involved in other parts of the world, especially in the Americas,
where a lot of the grain is grown, shipped and exported to other markets like China,” said
Paul Liu, Cofco’s head of North America.
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The deals with Nidera and Noble Agri Ltd. gave Cofco a handful of grain elevators in
Chicago and Milwaukee, and Mr. Liu said the company has begun sounding out U.S.
companies on potential deals that could expand its U.S. presence. Such transactions
could include acquisitions or partnerships with rivals to secure U.S. ports and grain
terminals, giving Cofco better access to the world’s largest source of corn and a top
soybean grower, Mr. Liu said.
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Cofco’s recent deals have pushed it into competition against U.S. leaders like Cargill,
Archer Daniels Midland Co. and France’s Louis Dreyfus Group. Its charismatic, dealmaking chairman, Ning Gaoning, a fluent English speaker, has transformed Cofco into a
Chinese state company in contention to be globally competitive.
With a lock on China’s grain trade, Cofco has access to deep state coffers, providing $10
billion for acquisitions, according to company officials. Its flour, dairy and other products
permeate China’s food supply, from the farm to the dinner table. Cofco’s organic cooking
oil, additive-free bacon and Great Wall wine jostle for space in supermarkets throughout
China.
“It’s very important to the Chinese market that they have resources,” said Matthé
Vermeulen, chairman of the Royal Dutch Grain and Feed Trade Association, where
Nidera is a member.
Mr. Ning has extolled Starbucks Corp. as a model for global reach. “Starbucks took one of
the oldest beverages of the West and transformed it with care,” Mr. Ning wrote in his
2012 book “Why.” “Starbucks definitely is relevant to us.”
Cofco’s revenue, estimated at $63.3 billion last year following the Noble and Nidera
deals, still lags behind the world’s three larger agribusiness giants. Competitive pressures
loom at home, too. As a bottler of household edible oil, it is second to Singapore’s Wilmar
International Ltd., which supplies 55% of the Chinese market compared with Cofco’s
15%, according to the consultancy Shanghai JC Intelligence Co.
In its expansion, Cofco has avoided the expensive trophy acquisitions some state firms
have made and instead has used its purchases to bring in expertise. Nidera, for example,
also owns laboratories for yield-boosting seed technology.
“These acquisitions represent a departure from previous food security policies,” said
Nelson Low, director of commodities for Asia at global options and futures exchange
CME Group Inc., referring to prior Chinese efforts to domestically produce most of the
grain it consumes.
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For much of its life, Cofco embodied China’s preference for heavy state control over the
economy. Founded in 1952, Cofco became the main importer and exporter of grains,
edible oils and other staple agricultural products at a time China was chronically short of
food. After economic reforms began in the late 1970s, Cofco ventured into new territory,
bringing Coca-Cola to China and striking a deal with the Seagram Company Ltd. to
import alcohol.
Cofco remained largely
focused on grain trading
until the arrival of Mr.
Ning as the company’s
chairman in 2004. This
became a time of
explosive prosperity in
China, and the diets of a
new, suddenly enriched
middle class were
changing. The grain
market that Cofco
dominated now fed evergrowing animal herds to
meet rising domestic
consumption of meat.
Mr. Ning had a track record of remaking companies, having transformed state-owned
China Resources Enterprises Ltd. into a regional investment powerhouse during his 18
years at the Hong Kong based food exporter. A joint venture with South African brewery
SABMiller PLC in 1993 gave him control of Snow beer, China’s best-selling lager.
Cofco at the time had relatively little experience in areas like food processing or valueadded products like wine. But it had been operating under the direct supervision of the
central government since late 1999, giving the company access to China Inc.’s checkbook.
Mr. Ning swiftly set out an ambitious plan to reinvent Cofco, according to company
documents. He revamped the annual performance review and instituted a system that
ranks the most senior 100 managers and replaces the bottom five—a technique straight
out of General Electric Co. ex-chairman Jack Welch’s rank-and-yank methods.
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“We call it ‘last-position-elimination,’ ” said a senior Cofco executive. “It’s created a lot of
pressure, and yes, it’s been a little stressful.” Mr. Ning has described its effect as akin to
“100 people running from a tiger.”
Cofco, he said, needed to move beyond grain trading, with its competitive margins, and
had to acquire scale in food production to secure global clout. Cofco declined to make Mr.
Ning available for interviews.
Cofco began dipping its toe overseas with the purchase of a Chilean winery in 2010,
followed by France’s top-shelf Bordeaux vineyard Chateau de Viaud a year later.
The transformative acquisition came in 2011 when farmers in the heart of Australia’s
cane country put up for sale Tully Sugar, an industry crown jewel that accounts for 10%
of Australia’s annual sugar-crushing output. China was in the thick of a sugar craze,
importing ever larger amounts. U.S. giant Bunge Ltd. was circling.
Cofco quietly dispatched a four-man team from Deloitte Touche and Tohmatsu Ltd. to go
from farm to farm to gin up support and overcome skepticism about a little-known
Chinese company.
“They’re salesmen, but I became very impressed with their work ethic,” said Angelo
Crema, a local cane grower who was courted over coffee at his home amid 1,200 acres of
cane.
Cofco prevailed with a $145 million offer. More than sugar supplies, the Tully acquisition
gave Cofco a major triumph at a time when the company was still a relative neophyte in
global deal-making and prepared it for Noble and Nidera.
In the U.S., Cofco could face greater hurdles. Buying assets from larger players could
come at a hefty price tag, while a patchwork of small properties may be difficult to
consolidate, analysts said. And a big Chinese presence in the U.S. food market could face
political pushback.
Cofco beat back appeals from local growers—backed by Bunge—to keep Tully Sugar in
Australian hands. Since then, the cane farmers who supply the mill and local officials say
Cofco has managed with a light touch.
“They’ve shown that they can run a company in Australia at its finest,” said Bryce
Macdonald, a cane farmer and Tully’s deputy mayor. “There’s nothing to stop them now
from buying and running all sorts of other companies.”
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3/30/2015
Chinese Food Giant Explores Deals in U.S. - WSJ
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—Yang Jie contributed to this article.
Write to Chuin-Wei Yap at [email protected], Jesse Newman at
[email protected] and Jacob Bunge at [email protected]
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