China's imports of agricultural commodities are rising. It's only natural that a country with over 20% of the world's population and 9% of the world's land will import food. However, the process of China's transition to an agricultural importing nation is complicated and fraught with potential conflict. There are a lot of vested interests in China that don't like it. The growing presence of multinational companies that do not have a national identity is a threat to the emerging nationalistic alliance between big Chinese companies and government that is emerging as China's strategy for carrying out policies and development plans.
A steady stream of articles in the Chinese press express fears of foreign companies monopolizing the Chinese markets for agricultural commodities. This week another article, "Foreign Investment Penetration Expanding; Domestic Companies Face Severe Challenges", on the cn.grain.com.cn web site offers some more insights about the Chinese narrative about the perceived foreign company threat.
The author cites a surge in foreign companies entering the grain and oils processing sector dating to China's WTO accession [in December 2001]. In 2009, there were 444 foreign companies with over 71 mmt of processing capacity. The author describes a pattern in which foreign companies first targeted the soybean-crushing industry after China's WTO accession and are now using their profits from that industry to branch out into other kinds of grain processing, as well as up-stream and down-stream activities to control the entire industry chain from seeds and fertilizer through processing, logistics, marketing, and retail.
Particularly troubling for the author is that Wilmar, a Singapore company, has begun purchasing rice and wheat from farmers in the last two years. The company has formed arrangements with local grain companies and warehouses to buy raw grain and pays a premium price. [The cngrain.com.cn website ran two very similar articles this year describing Wilmar's business in Henan and Jiangxi.] The report says Louis Dreyfus has begun purchasing wheat recently too. The report complains that the foreign companies have plentiful cash and aren't worried about short-term profit since their objective is to grab market share. This puts the Chinese companies at a serious disadvantage.
The report acknowledges that the premium prices paid by foreign companies are good for farmers "in the short run," but in the long run the author views it as unfavorable for the stable development of the grain market. The presence of foreign companies "makes it hard for the state to control grain markets."
The report recounts a commonly-repeated story about how foreign companies grabbed control of the soybean processing industry. In 2004, some companies allegedly "used futures markets to drive the soybean price higher." After Chinese companies had bought soybeans, "the foreigners then drove the price back down, bankrupting half of the Chinese edible oil companies." The foreign companies then stepped in to buy up the Chinese companies.
The report says that after gaining control of the soybean industry, the foreign companies then "raised prices several times, one of the factors contributing to China's increasing inflation in recent years."
The report warns that foreign companies are now using their profits from the vegetable oil industry to begin spreading their dominance to rice and wheat markets. Supposedly, Wilmar has formed a strategic plan that began with operations in Jiamusi, an important rice-growing area in Heilongjiang Provinces, and plans to radiate out to the entire country. Wilmar has begun rice business in Jiangxi and Anhui and is believed to be preparing to expand into Hunan, "basically completing its nationwide layout."
The author warns that the "ABCD" companies (ADM, Bunge, Cargill, Louis Dreyfus) are forming entire industry chains "with the objective of monopoly control." He warns that foreign seed companies are developing rice breeds and a type of corn seed developed by a foreign joint venture is now used for about 10% of the corn plantings in Jilin Province. Wilmar has set up a fertilizer company in Shandong.
The report continues by citing examples of how the big multinationals have dominated the soybean market in Brazil and alleges that Argentina, after adopting American genetically-modified soybean seeds and pesticides "lost control of its soybean industry in less than 10 years."
Finally, the report plays the "food security" card. Grain, the author says, is a strategic commodity, basic to peoples' living standard and social harmony. In the long-term, foreign companies' control of the grain market is not just an eating issue, it is a political issue.
No comments:
Post a Comment