China’s Cofco shores up second European agribusiness deal this year

The move to shore up its ownership of Nidera, a near century-old Dutch trading company, is part of Cofco International’s aim to grow and consolidate its international agribusinesses into an integrated global platform. 

It follows Cofco’s March takeover of Noble Agri, another leading commodities trader, which it plans to integrate with Nidera’s operations through their combined origination and trading networks, and especially its seeds business. 

The integration programme will be led by Matt Jansen, chief executive of both Cofco International and Cofco Agri—as Noble was renamed after its acquisition. 

“This transaction will pave the way for a successful integration and enhance the globalisation initiatives underway at Cofco​,” said Patrick Yu, its president. 

The deal will help Nidera to evolve and thrive over the long-term, said Jensen.

“Our combination enlarges the playing field and opens up new opportunities that were previously closed to us as separate companies, but that we can now pursue together​,” Overheu said.

“This significantly accelerates the progress we have made in building a global leader in the international agricultural and food products industries, while delivering sustainable growth and superior returns for our shareholders​.” 

Ratings agencies were not so optimistic over the deal, with Moody’s quickly placing Cofco’s Hong Kong listed company under review for a downgrade.

"We are concerned that Cofco’s acquisition of the remaining stake in Nidera could increase its debt leverage, and its exposure to Nidera's weak commodity trading businesses, which will in turn weaken the company's standalone credit strength​," said Lina Choi, a Moody's vice-president.

It was revealed through an annual filing this year that Nidera had taken additional loans from shareholders to avoid breaching credit covenants. It posted an annual loss in 2015 after the actions of a rogue trader in biofuels cost it almost $200m.

In the three years to the end of 2015, Nidera accumulated a net loss of US$188m in biofuels trading due what it called "severe​" irregularities by a single trader.

Cofco bought into Nadera in 2014 with a 51% shareholding to value the company at an estimated US$4bn.

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ADB agrees loan intended to boost China’s domestic milk supply​

The Asian Development Bank has issued a US$125m loan to Inner Mongolia Saikexing Breeding and Biotechnology Group to and expand the domestic supply of milk in China.​

The deal will enable Saikexing—China’s fourth-biggest dairy farming business—to invest in technology that will halt the discharge of untreated animal waste, and increase its use for fertilisers, irrigation, and energy. 

It will also allow the company, which currently owns around 100,000 cows across 27 farms, to develop at least another four new farms with 20,000 cows in total. 

“Food security and food safety are major concerns for China and this project will promote modern, sustainable dairy farming practices to minimise pollution and improve product safety​,” said Martin Lemoine, ADB’s agribusiness unit head.

“It will also help set environmental and food safety benchmarks for dairy farming that will have great potential for replication elsewhere​.”  

As demand for processed milk in China has been growing, so too has the gap between domestic production and consumption been rising. According to Ministry of Agriculture figures, demand will increase from 9.7m tonnes in 2014 to 15.4m tonnes in 2024. Per-capita dairy consumption reached 36.1kg last year, up 5.9kg in 2008. 

As safety concerns have spurred a consumer shift toward imported dairy powders, local manufacturers have been seeking ways to market fresh, safe, domestically produced milk as an effective long-term step towards meet rising demand.  

Following eight years of tightened regulation, Chinese dairy is working hard to gain consumer trust, according to a recent report from the Dairy Association of China.

Official spot checks last year showed that 99.5% of dairy products were up to standard, while no illegal additives had been detected for seven consecutive years, the report said.

Twenty major domestic dairy companies account for more than half of the total output and revenue of the whole industry.

The ADB loan will help Saikexing to build modern treatment and processing facilities at a time when dairy farming in China is generating high levels of waste—a serious threat to groundwater and farmland. 

Beyond enabling solid and liquid waste to be treated and recycled for fertiliser, irrigation and cleaning water, the loan will also finance the use of captured methane to produce energy for cooking and heating. 

Funds will also be used to buy modern and sterilised milking and healthy feed processing equipment to boost the quality and safety of milk.  

Operating in some of China’s poorer provinces, Saikexing expects its new farms to provide more than 600 new jobs by 2020. In addition to direct positions, the number of smallholder farmers that supply forage food to Saikexing is projected to grow from about 15,000 in 2015 to at least 17,500 by 2020.

The project is a first for Manila-based ADB, which has a focus on reducing poverty across Asia-Pacific, and marks its initial direct non-sovereign assistance to a livestock company, and its first private-sector agribusiness investment with a specific focus on both environmental protection and food safety. 

The structure of the financing ensures that the project’s impacts are spread widely to farms across seven provinces and autonomous regions.  

Markets update: Chinese garlic prices remain firm as yields decline​

Chinese garlic prices continue to remain high, up 30% since the start of the year due to a decline in yields. ​

According to Mintec, the commodities analyst, yields are forecast to fall by around 9% year on year despite an increase in planted area, due to adverse cold weather during the winter months of December and January.  

In addition, low carry-over stocks from the processing industry have supported demand for the raw material. 

Garlic prices rose rapidly last year, driven up by limited supplies of raw material, as a result of lower production of fresh garlic in China. 

Output last year is estimated to have fallen by 10% year on year on the back of reduced planted area. Farmers have planted less garlic crops due to low garlic prices seen in the Chinese market in 2013 and 2014.