by Nitin Jain
Food Security is a grave concern in the world, and more so in a developing country like India. According to a recent report by Food and Agriculture Organization of the United States (FAO) by the year 2050 the world’s population will reach 9.1 billion, which is 34 percent higher than today, and most of the increase will come in developing countries. Urbanization will accelerate, with about 70 percent of the world’s population expected to be urban, compared with 49 percent today. To feed this, larger, more urban and potentially richer population, food production will need to increase by 60 percent from the 2005–07 baseline to 2050.
China way ahead in the game
China, unlike India, has been early to recognize this demand-supply gap in food, and aggressively act on the same. COFCO (China National Cereals, Oils and Foodstuffs Corporation), was founded in 1952 by the Chinese Government, and till the 1990s was the sole agricultural products importer and exporter operating under direct control of the central government.
The company started to expand its overseas operations just over a decade ago, and has accelerated that pace in the last few years. In March 2016, COCFO completed acquisition of 100% equity stake in Noble Agri Limited, the agricultural commodity business of the Giant Noble Resources which had 45 assets, more than 13,000 staff in 60 locations and revenues of US$ 12 bn for calendar year 2014.
Noble Agri was acquired for USD 2,250 million, and the acquisition gives China direct access to farmers producing major crops like sugarcane, soybean across the globe. In 2014, COFCO also acquired Dutch grain Nidera, that had revenues of US$ 17 bn.
In 2015 COFCO had revenues of US$ 40 bn with an asset base of US$ 71 billion and over 120,000 employees working in 336 branches and offices all over the world .
‘ABCD’ of Global Agri Commodity Trading
The Food Production by value for the world was US$ 2.2 trillion in 2014, food exports and imports were each nearly US$ 1 trillion . The food trading business is dominated by four agricultural trading firms—the ABCDs (ADM, Bunge, Cargill and Louis-Dreyfus). They have a long history dating back to the 1800s and early 1900s. They buy and sell grain, have their own processing plants, their own logistics and transport network, and also own distribution.
The leadership of ‘ABCD’ of the world is under threat from other Global Commodity players like Noble Resources, Wilmar and Chinese giant COFCO. China is fast developing its own Chinese ABCD in the Global Agri Commodity Industry. As per the Chinese finance ministry in its annual budget report on March 5, 2014, “We will encourage agriculture to go global and actively use foreign resources.” The Chinese government has provided a cheap line of credit to COFCO for its global acquisitions.
Indian Agri Commodity needs a ‘COFCO’
In less than a decade and a half, India will become the most populous country in the world surpassing China, with a population of 1.6 bn by 2030 . We believe that India is sitting on a time-bomb if we have to depend on the ‘ABCD’ and COFCOs of the world for our agricultural shortages in the next decade or so.
India needs to have a detailed Food Supply Strategy detailing a conscious plan or effort by the Government to plug the gap in demand-supply in food over the next 10 or 15 or even 25 years. In case we are not able to develop our own Global Food network we in most likelihood will be susceptible to high price volatility and shortages in the food chain going forward.
Currently, Government-owned agriculture commodity trading companies like State Trading Corporation of India Limited (STC) and Metals and Minerals Trading Corporation of India (MMTC) which has an agri commodity trading division, are miniscule in volumes compared to the Global majors in the industry. There is a strong need to create a focussed Global company in agricultural commodities in India.
ONGC Videsh has done a good job in acquiring overseas assets, and there is need now for the Government to create an ONGC replica as an Indian Agri Commodity Giant with a sole objective of acquiring overseas assets, plantations, and transportation network, and securing India’s food supplies for the long term.
1 Source: Fortune Global 500. http://fortune.com/global500/cofco-272/
2 Source: FAO Statistical Pocketbook, World Food and Agriculture, 2015
3 Source: United Nations Department of Economic and Social Affairs. http://www.un.org/apps/news/story.asp?NewsID=51526#.V2fhUI9OJMs
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