Toil on the soil

Chinese soybean deal hit by local politics


Inhospitable ground for CGG

Qianyang county magistrate Zhang Guaiya made his name during the Song Dynasty after sentencing an official to death for stealing a single coin. When the official remonstrated that the punishment far outstripped his crime, Zhang is said to have told him he had to die because ‘dripping water eventually penetrates stone’ (shui di shi chuan).

Today the saying often symbolises something more positive in Chinese folklore: that with perseverance it is possible to overcome even the greatest barriers.

It is an apt metaphor for the country’s attempts to exert greater control over the global soybean industry. China, or more precisely its pig population, consumes almost a quarter of soybean production, with imports more than doubling over the past decade.

Since 2010, state firms have been encouraged to go global to improve China’s food security. Most of the efforts have proven unsuccessful, especially when companies tried to follow the template of buying large tracts of farmland and tried to control the entire supply chain (i.e. from the field to the processing factory).

In particular, Brazil, China’s largest soybean supplier, has proved an extremely hard nut to crack. Earlier last month, the Economic Observer analysed what went wrong in some of the more ambitious projects, particularly in the largest proposed scheme in the coastal state of Bahia.

Over the course of 2010 and 2011, Chongqing Grain Group (CGG) announced a Rmb17 billion ($2.7 billion) soybean investment in a town called Barreiras (appropriately enough, it means ‘obstacle’ in Portuguese). Progress since then has been painfully slow and may even have come to a complete halt – although neither CGG nor the local authorities have formally confirmed the project’s demise.

According to the Economic Observer, the venture has been “delayed” because the Chinese state-owned firm failed to get the necessary environmental permits for some of the land concerned, which contains a nature reserve.

However, most commentators believe the real problems relate to fears of neo-colonialism, in a period in which China’s overall investment in Latin America has been growing.

In a paper for the BRICS Initiative, the University of California’s Gustavo Oliverra says CGG originally planned to purchase 120,000 hectares of farmland and build a railway linking the land to the nearest port. He says local officials agreed on condition that the group also built a soybean crushing facility to employ local workers. However, CGG subsequently acquired just 52,000 hectares of wasteland after the central government implemented restrictions governing foreign purchases due to fears about Chinese land-grabbing.

CGG also ran into problems with the Landless Workers Movement (MST), which campaigns for rural workers. Peasants set up tents opposite the site demanding that the land be reassigned to them.

Highly concentrated land ownership is one of the most damaging legacies of Brazil’s colonial past, with roughly 3% of the population controlling two-thirds of the land. But Chinese investment in rural areas adds a more emotive, nationalist tinge to any rural discontent. Hence the Economic Observer cites a 2012 study by Renmin University’s Qiu Huanguang, which concluded that China’s land purchase schemes have made other countries uneasy too. A Ministry of Agriculture expert told the newspaper that ­– instead of buying land – Chinese firms should invest at the higher-end of the supply chain, putting capital into warehouses or ports or developing new seed technology.

As Oliverra points out, the political fanfare surrounding Chinese investment in Bahia far outweighs the limited level of financial involvement so far. According to his calculations, the sum total is only $300 million. Nearly all of that can be attributed to CGG, which has also purchased land from a joint venture controlled by Zhejiang Fudi Agriculture and Heilongjiang State Farm that had run into local problems.

Oliverra says that all of the other Chinese investments have failed to materialise, including a second large project by Sanhe Hopeful Grains in Goias. By contrast, Japan has made investments of $3.9 billion, followed by France on $2.7 billion and Holland $2.5 billion. Between them, four multinationals (ADM, Bunge, Cargill and Louis Dreyfus) also account for 50% of Brazil’s crushing capacity.

Oliverra concludes that the Chinese investors have been naïve in how they have presented their projects and in the way they have dealt with government officials. Instead, they should have stuck to the “Western” model of treading more carefully politically or simply opting to control the logistics of soybean production and sale, and leaving most of the farming to the locals.

Chinese interest in global agribusiness clearly hasn’t subsided, however, following Cofco’s 2014 acquisitions of Noble Agri and Nidera with the aim of creating a global powerhouse to rival the multinationals. A few months ago it poached ADM’s Matt Jansen to run the merged entity, Cofco International.

And some of the Brazilians appear to be having second thoughts about how best to welcome Chinese capital too, with the national farmers association even seeking a Supreme Court injunction to get the 2010 land purchase restriction law overturned.

Back in 2010 Brazil’s GDP growth was 7.5%. Now it is -1.1%. As economic growth falters, perhaps the Brazilians are more intent on winning the Chinese back.

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