In China, Cargill finds a sweet spot

Updated: 2012-09-14 07:45

By Zhong Nan (China Daily)

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In China, Cargill finds a sweet spot

Cargill implements Hazard Analysis Critical Control Points systems in all plants across the country to ensure food safety. Provided to China Daily

Diversified food demand keeps the growth engine chugging for US agribusiness company

US agribusiness giant Cargill Inc is looking to further expand its presence in China as the country's demand for diversified food products continues to be on the upswing. The multinational company is looking to expand all lines of its business in China, with particular emphases on animal protein, animal nutrition, food ingredients and health-promotion businesses.

The company is also building a new $67 million high fructose plant in Luohe, a city in Central China's Henan province. Slated for completion by June 2013, the new project will help Cargill provide better services to its customers in China.

Cargill posted lower earnings of $1.17 billion from its continuing operations across the globe during fiscal 2012, which ended on May 31 this year. In contrast, the company has posted record earnings of $2.69 billion during the same period in 2011. Though not in line with its expectations, the fiscal 2012 performance was still one of its better years for earnings and ninth in the company's history. Revenues for the period were $133.9 billion, up 12 percent from a year ago.

The food-ingredient business posted a third consecutive year of record earnings in fiscal 2012. The company invested over $4 billion to support its customers and on global growth plans, including acquisitions, joint ventures, and new or expanded facilities.

In China, Cargill finds a sweet spot

Robert Aspell, president of Cargill Investment (China) Ltd, says a significant amount of Cargill's global capital expenditure was focused on China as the nation had an integral role to play in the company's overall growth plans.

"Rising incomes and accelerating urbanization in China are driving demand for more diversified and convenient diets. Higher income has also increased the consumption of meat proteins and vegetable oils. Cargill still sees the upside on the daily caloric intake of consumers in China, especially on proteins," Aspell says. "Packaged foods and beverage companies are also expected to reap robust returns from China."

To feed a population of more than 1.3 billion, more agricultural products are now produced and sold in China than anywhere else, and this has boosted the overall food consumption in China during the past 10 years. China, India and Brazil have all become fast growing markets for international agricultural product marketers and producers from the US and Europe.

In 2011, China imported $95 billion worth of agricultural products, compared with just $12 billion in 2001. The 2011 figures also represented a 30 percent year-on-year growth, according to the Agriculture Ministry.

Ding Shengjun, a food supply and security researcher at the Academy of State Administration of Grain, says processed foods such as canned foods, especially those related with cooking and restaurants, have grown fast in China. "The demand for juices, soft drinks, yogurt and milk will provide all sorts of opportunities for the food and ingredient business. The sector has been showing excellent potential," Ding says.

According to the National Bureau of Statistics, in recent years the average person in China has been consuming 5 percent more meat, 10 percent more milk, and 8 percent more cooking oil than five years ago.

Affected by the global economic environment, extreme climate and unstable international food prices, Cargill saw lower margins from its oilseed-processing and beef-processing businesses in fiscal 2012.

Aspell says that Cargill views the current economic slowdown in China as "a bump on the road".

"Cargill believes that China will continue to be a sweet spot for investment. During our interactions with food, feed and meat companies, our main customers, we realized that all of them anticipate explosive growth in China. We plan to grow side by side with them."

At the same time, Aspell says this is also good news from a consumer perspective as it means "responsible companies making serious investments to produce affordable and safe food in China".

Cargill entered China in 1972, and has since ventured into different products ranging from animal proteins and grains to oilseeds. Cargill (China) currently has more than 7,000 employees and 52 plants across the country.

The company has partnered with the World Wildlife Fund to train 25,000 corn farmers in China by the end of 2014. Its goal is to improve yields by 20 percent, reduce waste by 10 to 15 percent, conserve water and reduce its overall environmental impact, including its carbon footprint, through fertilizer optimization. Ten demonstrations farms are currently underway in Northeast China's Jilin province.

For new growth drivers, Aspell says the most obvious is the modernization of livestock and the food supply chain, which is a big area in which there are lots of investments. Cargill has also made significant long-term investments in China's agriculture supply chain such as oilseeds processing, animal feeds, refined oil, fully integrated poultry business, starch and sweetener business, food specialty and health promotion products.

In 2011, Cargill launched a fully integrated project covering each part of the poultry supply chain in East China's Anhui province to minimize food disruption, from feed production, chicken breeding, raising, hatching, slaughtering and processing.

Aspell says the company will continue to introduce new technologies in food safety, poultry raising, animal nutrition, disease prevention, environmental protection and energy savings. The total investment in the project is expected to be around $200 million.

According to Aspell, China has more or less progressed in the right direction when it comes to improving agricultural production capacity and quality. On the grain production side, the county's overall output has grown substantially since 2005. Corn production alone has seen a 40 percent increase since 2005. The better yields have led to higher rural incomes and stable food production.

"At Cargill, we believe that to meet the growing global food needs, one of the key essentials is an open global market where countries grow what they are really good at, export their surpluses and buy what others can produce more efficiently," he says. "China's entrance into the WTO was a critical step that ensured that China could use the global food system efficiently to fill in the gaps in its overall supply.

"We would like to see responsible investments in terms of investing in the right parts of the supply chain. Too often we see too much money move into parts of the supply chain that already have more than sufficient capacity. We see this in many industries in China."

In addition to agricultural investments, Cargill is also working with its key customers to deliver innovation in areas like nutrition, new menu item, and risk-management solutions. These innovations will help to bring increased menu and product diversity, while ensuring a sustainable source of food at a fair value.

Food consumption is normally a good indicator of the economy and the population size. In China, food consumption is rising and so are the types of food that people are eating. Foods have become more sophisticated and people now look more for convenience, Aspell says.

Ding from the Academy of State Administration of Grain says foreign food traders and their investment in China's agriculture business can help the nation ease the pressure on natural resources and ensure the country's food supplies, because they are proficient in the international food trade, green agricultural technologies and producing food with better quality.

"The participation of foreign food companies and growing demand for agricultural products in China have brought more choices to consumers, as they have better and more options to pick products that they think are cheaper, safer and better in taste," Ding says.

(China Daily 09/14/2012 page16)