China's COFCO, Japan's Itochu form food alliance

Reuters

Mon Aug 4, 2008

By Yuko Inoue and Risa Maeda

TOKYO Aug 4 (Reuters) - China's largest agricultural trading and processing company, COFCO, has enlisted Japanese trading house Itochu Corp (8001.T: Quote, Profile, Research, Stock Buzz) to help it prepare for possible increases in demand for grains and other food from around the world.

Itochu, Japan's fourth-biggest trading company, said on Monday it and the Chinese company were discussing joint purchases of grains, dairy products and meat to boost their buying power in the international market, after signing a strategic alliance last month.

"China wants to increase purchases of food on the global market as domestic demand is getting pretty tight," Itochu Executive Vice President Yoshihisa Aoki told a news conference.

China's exports of key grains such as corn and rice are fast shrinking on the back of growing demand at home.

Rapidly increasing wealth in China has also opened the way for sales of high quality farm produce from Japan, as tastes in the world's most populous nation turn to meat, dairy products and imported food.

At the same time a rally in international grain prices, such as corn and soybeans and higher fuel and freight costs have made it difficult for food importers to find stable supplies at reasonable prices.

COFCO is expanding its food-processing business as part of an effort to diversify away from grains trading, which is losing importance as China's economy opens up.

It is the largest edible oil producer in China and is increasing its processing of sugar, rice, meat, wine and canned goods, while in supermarkets its "green foods" are promoted as healthier, better quality food.

Japanese trading houses, which handle grain trading and own equipment such as large grain elevators in exporting countries, are strengthening ties with major global grain companies and looking for chances to invest in farmland.

Itochu is strong in food processing and retail but has been a laggard in investing in upstream operations compared with rivals like Mitsubishi Corp, Marubeni Corp, and Mitsui & Co, which already have strong ties with grain majors.

Takashi Murakami, analyst at Credit Suisse, said: "A tie with COFCO would be a good chance for Itochu to strengthen its upstream operations."

COFCO declined to comment immediately on the alliance but said it may do so later.

"COFCO may be counting on Itochu's strong information networks," said Tsuyoshi Ishisone, analyst at Daiwa Institute of Research.

The two companies' discussions also covered support for Japanese food makers to operate in China, licensing Japanese companies' food processing expertise, and expanding sales of Japanese rice and other products, Itochu's Aoki said.

COFCO and Itochu may consider a capital tie-up in a joint venture in future, he added.

Last year, COFCO and Japan's biggest trading house, Mitsubishi Corp (8058.T: Quote, Profile, Research, Stock Buzz), signed a deal in which Mitsubishi took a 4 percent stake in COFCO's Hong Kong-listed subsidiary, China Agri-Industries Holdings (0606.HK: Quote, Profile, Research, Stock Buzz), for 7.9 billion yen ($73.5 million).

Marubeni (8002.T: Quote, Profile, Research, Stock Buzz), Japan's fifth-biggest trading house, owns Columbia Grain International, the biggest grain trader on the U.S. west coast. Second-ranked trading company Mitsui & Co (8031.T: Quote, Profile, Research, Stock Buzz) and big Canadian grain trader Louis Dreyfus Canada Ltd last year invested in farmland in Brazil.

Resource-poor Japan is the world's biggest net food importer but it is a mature market with an ageing population so its trading companies are looking to fast-growing economies such as China for new business opportunities.

Aoki told Reuters on the sidelines of the news conference that Itochu and oilseed processor Bunge Ltd (BG.N: Quote, Profile, Research, Stock Buzz) of the United States are in a feasibility study on building a grain elevator for exports to Asia at the Port of Longview on the west coast, but they have not made any decisions yet.

Itochu shares finished down 5.8 percent at 966 yen, on Monday, in line with the wholesale sector index.

($1=107.51 Yen) (Additional reporting by Sachi Izumi in Tokyo and Lucy Hornby and Coco Li in Beijing; Editing by Hugh Lawson)

Source: Thomson Reuters

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Smithfield says COFCO to take 5 pct stake

Reuters

Tue Jul 1, 2008

NEW YORK, June 30 (Reuters) - U.S. pork producer Smithfield Foods Inc (SFD.N: Quote, Profile, Research, Stock Buzz) said on Monday that COFCO Limited, China's largest agricultural trading and processing company, will buy a near-5-percent stake in the company.

Smithfield said COFCO will purchase 7 million shares, or 4.95 percent, of Smithfield's common stock.

The purchase price will be equal to the closing price of its common stock on the day its offering of $350 million convertible senior notes due 2013 is priced, said the company.

A spokeswoman with COFCO Ltd in Beijing said the investment, the company's first in a U.S firm, will benefit COFCO's expansion in the pork industry in China.

"So far we have no intention to raise the stake," she said.

"We hope we will learn from Smithfield its technology and management advantages in the production chain from livestock breeding to quarantine to consumer table," said the spokeswoman, adding the move was not aiming at increasing pork imports.

Consumption in China, the world's largest pork producer and consumer, has been growing more than 10 percent annually in recent years.

China's pork prices hit a record high level after outbreaks of blue ear disease in 2006 had helped reduce the pig population and drive the country's inflation to a decade-high level.

Domestic pork prices were likely to remain high for the rest of the year after the earthquake in the country's largest pork producing province of Sichuan in May killed more than 3 million pigs, according to estimates from industry officials. (Reporting by Nicole Maestri in New York and Niu Shuping in Beijing; Editing by Keiron Henderson)

Source: Thomson Reuters

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