Saturday, November 15, 2014

China's Bulgarian Corn Connection

On November 11, China received its first cargo of imported Bulgarian corn. This corn represents China's new approach to agricultural trade in which Chinese entities control the commodity from its source. This corn was grown by a Chinese company on soil that happens to be in Bulgaria.

The 36,700-ton cargo--identified prominently in news media as "non-GMO"--was received at the Shenzhen port, where it was promptly inspected and testing with expedited "green channel" procedures for agricultural cargoes. This treatment stands in contrast to other cargoes which are turned away or languish in their berths for weeks waiting for port officials to approve the shipment.

A representatitve of the importer--Tianjin Nongken Longchen Jiayi International Company--notes that the corn was grown in Bulgaria to be sold back to China. The company plans to import 175,000 metric tons of corn in 2014 and hopes to import 300,000-500,000 tons next year.

The corn shipment is the first tangible result of an agricultural investment strategy targeting Bulgaria. Several years ago commercial officers at China's Bulgarian embassy recommended Bulgaria as a potential site for Chinese companies to launch agricultural investments on the European continent as part of the Chinese "go global" strategy to grow crops overseas for the Chinese markets. A number of companies have been exploring possibilities, but the Tianjin company's investment in grain and oilseed production is the flagship project.

The investor in Bulgarian farming is a company created by the State farm system in China's Tianjin municipality ("Nongken" is an abbreviation of "agricultural reclamation", part of a national network of state-owned farms that operate swathes of land converted to farms on the forest or desert frontier, reclaimed coastal lands--like Tianjin--or tropical plantations.)

Tianjin Nongken has political support. In May 2014, a member of China's Politburo and Party Secretary of Tianjin Municipality visited Bulgaria at the invitation of the head of Bulgaria's Socialist Party. The Chinese official conveyed greetings from the Chinese premier and was briefed on the agricultural investment project. The agreement allowing Bulgarian corn to be imported to China was signed 3 months later. Diplomats said an earlier agreement to establish import protocol for Bulgarian corn was signed to facilitate the Tianjin Nongken project.

Also in May--perhaps by coincidence, perhaps not--Minister of Agriculture Han Changfu urged State farms to form shareholding companies and conglomerates and endorsed them as main players in China's agricultural "go global" strategy.

In 2011, Tianjin Nongken set up a company in Bulgaria with investment of 30 million Euros, renting 30,000 mu (2000 hectares) of land in northwestern Bulgaria to grow corn and other crops using local labor.

According to the Politburo official's briefing during May, Tianjin Nongken planted crops on 127,000 mu in Bulgaria during 2014. They expect to produce 25,000 metric tons of corn, 10,000 tons of wheat, 4,500 tons of sunflower seeds and rapeseeds, and 3,500 tons of other oilseeds. An online posting by Tianjin Nongken's trading company offers corn, alfalfa, wood products, sunflower oil, Bulgarian wine, distillers dried grains, and other grain products. The company has warehouses near the Varna port and has acquired a Bulgarian flour mill and a sunflower seed processor.

Chinese overseas agricultural investors encounter a lot of problems. Tianjin Nongken planted their first Bulgarian crop in 2012 but production was disappointing (they were hoodwinked by Bulgarian partners?). The land was fragmented into numerous parcels and much of the land was not usable for farming. Transportation was poor and the level of economic development was low. The Tianjin Nongken company packed up and moved their operation to another part of Bulgaria. They signed another agreement to buy and rent 130,000 mu (8,700 ha) with investment of 270 million Chinese yuan (about US$ 44 million).

According to the diplomats' report, a Beijing company has rented 500 hectares of land in Bulgaria to grow vegetables in greenhouses. They are just getting started but expressed frustrations over lack of labor and poor English skills of workers. They plan to bring in more Chinese companies to help them.
Chinese investors complain that buying land in Bulgaria is risky due to frequent disputes over ownership "for historical reasons." The legal environment is poor, efficiency is low, it's hard to consolidate land parcels (sound familiar?) and organized crime and "interest groups" are a problem.
The diplomats say the China-Bulgaria agricultural relationship is constrained by differences in language, customs, culture, and ideas. Bulgarian workers have poor English, communication is difficult, and misunderstandings are common.

Returning to the 36,700-ton Bulgarian shipment--this single shipment exceeds the Tianjin Nongken's entire production in Bulgaria this year. The trading company's plan to bring in 175,000 tons means that the company is getting corn mainly through traditional purchasing channels. This illustrates the impossibility of completely controlling grain supplies from production to port.


Anonymous said...

Usually China needs long procedures by AQSIQ to agree for any agricultural product to be allowed to be exported to the Country.
If they bypass the long queue of international request to give priority to the Chinese vested operations I think this is against the WTO rules or it is against the Market Status Economy they say they have right to. isn't it?

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