The Fufeng Group's acquisition of a 300-acre site in North Dakota to build a corn processing plant is routinely cited as proof that "China" has a plot to buy up American farmland. Fufeng's project was denied approval by Grand Forks officials based on concerns about spying, but its North Dakota land purchase became part of the narrative has led to growing restrictions on Chinese land ownership in the U.S., including yesterday's announcement of a National Farm Security Initiative at USDA headquarters attended by multiple cabinet secretaries.
Since we're going to create a new national security policy based on our fear of such companies, maybe we should investigate who Fufeng is and what they're up to.
You probably have never heard of Fufeng Group (pronounced foo-fung), a company with 17,000 employees headquartered in Qingdao China that manufactures food and agricultural chemical products by fermenting corn. You may have heard of Fufeng's main product, monosodium glutamate (MSG), because it makes you dizzy when you eat at a Chinese restaurant. But you probably have never heard of xanthan gum, a thickening agent used in both food processing and petroleum refining.
Lysine and threonine are the products Fufeng planned to manufacture in a U.S. facility. These are amino acids added to animal feed to aid in synthesis of protein in meat animals. These products are widely used in livestock production all over the world. Fufeng produces lysine and threonine at its facilities in northeastern China and sells them to both domestic and foreign customers. As we will discuss below, China is aggressively promoting use of amino acids in order to reduce use of soybean meal in feed.
China imported amino acids until the early 2000s. Now Chinese companies produce about 80 percent of the world's lysine and 95 percent of threonine, and Fufeng is a secondary player in both of these crowded industries. Fufeng is currently in the second tier of 10 major lysine producers in China. Fufeng is one of the top three threonine producers, but the industry leader's market share is about double Fufeng's. Fufeng is struggling to climb to the top of the heap in the hypercompetitive but mostly anonymous feed additive industry.
Fufeng is a privately-owned company publicly traded on the Hong Kong stock exchange and registered in the Cayman Islands. State-owned companies like COFCO, Bright Foods, Beidahuang, or the Xinjiang Production and Construction Corps have niches they dominate, but most of China's agriculture and food sector is composed of smaller private companies like Fufeng.
In the 1990s a young employee of a small-town distillery, Li Xuechun, started the company by pooling funds with co-workers to buy a bankrupt MSG workshop next door. According to Li's account, he built the company to a national player in the MSG industry by buying up equipment from other bankrupt factories, aggressively cutting costs and engaging in brutal price wars. The company's annual report cites the plan to open a U.S. manufacturing facility as part of its ambition to become a multinational company. Despite these ambitions, the English version of its web site does not appear to work. The company's management is a family affair: Li Xuechun, his brother-in-law, and his son make up the company's top management team.
Fufeng's founder joined the communist party in 1985, but an online search turns up no other involvement in the party. There is no mention of a communist party organization in the company on its web site. Fufeng does not mention China's policy of promoting foreign investment (so-called "going out"), nor does it mention the Belt and Road Initiative. Still, no business can succeed in China without government and party ties. It is likely that Fufeng has received help over the decades that is left out of its official history--getting its listing in Hong Kong, its designation as an agricultural "dragon head enterprise", model technological company, environmental protection awards, and land acquisitions in China.
American commentators and officials see China as a masterfully planned well-oiled machine ready to take over the world. In reality, Chinese industry is quite chaotic and hyper-competitive. Industrial policies often fall flat, and policies meant to protect one sector are often impediments to other sectors.
Fufeng produces chemicals made by fermenting corn, which currently accounts for about 55-to-60 percent of its production cost. Fufeng caught a wave of Chinese government support for corn processing industries in the early 2000s. The government lavished subsidies on the industry to chew through a glut of corn that had built up in the late 1990s. The glut was gone by 2006-07 when global grain prices spiked. The subsidies for corn processors were phased out as corn supplies became tight. The subsidies were revived during 2017-19 to dispose of another corn glut.
Meanwhile, Chinese officials are fixated on controlling grain imports to promote self-sufficiency. A quota system aims to control imports of corn by forcing private companies like Fufeng to import corn mainly through a state-owned company that controls 60 percent of the quota. During years of high prices in 2020-23 authorities permitted large imports of corn, but China has slashed corn imports this year by about 80%.
Chinese authorities try to manage grain prices to balance the profits of farmers against interests of livestock producers and companies like Fufeng that use corn as raw material. But ultimately China's grain policy limits access to imported corn for Fufeng and forces them to pay premium prices for raw material. Fufeng mainly processes corn procured in northeastern China at prices 40-to-50 percent higher than in the U.S. corn belt. Current corn prices in Heilongjiang and Inner Mongolia--sites for Fufeng's manufacturing facilities--are currently $7.60 to $8.00 per bushel versus about $4 per bushel in Illinois.
Thus, the prospect of cheaper corn is a motivator for Fufeng to build a facility in the United States to serve its overseas customers. After being rejected by Grand Forks, Fufeng is now considering a site in corn-rich central Illinois for its U.S. manufacturing facility.
A more recent Chinese government initiative appears to directly benefit Fufeng's amino acid business, but the results have been underwhelming. In April 2023 China's Ministry of Agriculture and Rural Affairs (MARA) announced a 3-year action plan to promote use of amino acid additives in livestock feed in order to reduce inclusion of soybean meal. The objective is to reduce reliance on imports of soybeans and thus insulate China from reliance on the United States. Fufeng does not mention this initiative in its report or web site. Other company reports and industry analyses do cite the MARA initiative as an important factor in the amino acid additive business, but they stop short of pronouncing it to be a great business opportunity.
MARA claims great success in substituting amino acids for soybean meal since the action plan started, but Fufeng's business performance does not indicate any amino-acid sales boom. Fufeng's revenues have been stagnant since 2022. Fufeng's 2024 annual report credited growth in exports of lysine and threonine for boosting its amino acid business during 2024 as domestic demand weakened. Fufeng's lysine sales volume fell 2.5% in 2024, the second year of the amino acid action plan. Meanwhile, China's exports of lysine were up 15%. Fufeng's threonine sales volume was up 14% in 2024, but exports of threonine were up 26%. Fufeng's competitor, Meihua Group's 2023 annual report reported a similar pattern of declining prices and sales for domestic lysine and strong export sales. Despite the MARA initiative to push use of amino acids, Chinese lysine prices dropped dramatically in the first half of 2025, according to a semiannual industry report from Chinese consultancy Boyar.
MARA announced the amino acid action plan just before soybean meal prices crashed. Since 2023 Chinese soybean meal prices have plummeted about 30 percent, undermining the economic incentive to cut back on its use.
Like many other Chinese industries, Fufeng and other producers of corn fermentation products expanded capacity at a frenetic pace, leading to price wars and a flood of cheap products that took over European, American and Asian markets. The U.S. and EU already had antidumping duties on Chinese MSG. Even Vietnam has antidumping duties on Chinese MSG. The blip in Chinese lysine exports during 2024 probably reflected European buyers trying to get ahead of EU antidumping duties on Chinese lysine that took effect January 2025. The U.S. launched an antidumping investigation of Chinese lysine in May 2025. According to a U.S. Department of Commerce's antidumping announcement U.S. imports of Chinese lysine more than doubled in volume from 29,066 metric tons in 2022 to 77,934 metric tons in 2024.
The corn fermentation products Fufeng produces are not a new innovation. They were developed and popularized during the late 20th century by a group of multinational companies based in North America, Japan, and Europe. Three of those companies filed the petition for the lysine antidumping probe in May. Interestingly, the Illinois site now being considered by Fufeng is practically in the backyard of one of the U.S. companies.
In another rhyming of history, Chinese amino acid companies appear to have engaged in the same kind of price-fixing behavior that prompted prosecutions and jail for a U.S. lysine producer in the 1990s (immortalized in the 2009 film The Informant!). According to the 2023 annual report of Meihua Group (Fufeng's competitor) the top 4 threonine producers (which would include Fufeng) agreed to fix prices after European customers cut their purchases during 2023:
"To improve the profitability of the industry, the leading enterprises raised the price and adopted a strategy of tie-in sales. The market price of threonine was adjusted to a higher level from the third quarter onwards, causing the whole industry to make profits."
Colluding to fix prices is probably legal in China unless foreign companies do it. (In past years there were other cases where Chinese food companies agreed to price-war truces and fixed their prices at a level that would avert a U.S. antidumping investigation.)
This post is not intended to give unqualified approval to Fufeng Group or any other Chinese investor. However, by looking into Fufeng's business environment it becomes evident that the company has strong incentives besides spying to invest in a U.S. facility: to access cheap corn and overseas customers, avoid antidumping duties, and as a means of climbing to the top of the heap in a crowded, hyper-competitive industry. Spying and intellectual property theft are real threats, and in the business world it's hard to put full trust in anyone.
Both U.S. and Chinese officials need to recognize that food markets are a lot more complex than they realize, and most of what's happening now has happened before. Ironically, with so much information available at our fingertips, in-depth research and verification of claims seems to have fallen by the wayside. It is much simpler to make national policy based on internet memes and simplified black-and-white narratives.
No comments:
Post a Comment