February 10, 2022

By Lynda Kiernan-Stone, Global AgInvesting Media

China is implementing a strategic restructuring to further ensure food safety, supply chain efficiencies, and to streamline capacity of its state-owned ag companies. As part of this initiative, it has been announced that COFCO, the largest food manufacturer and commodities trader in the country, has agreed to establish two joint ventures with the nation’s China Grain Reserves Group, or Sinograin, according to a release issued by China’s State top asset regulator.

China Grain Reserves Group was begun in 2000 and today oversees 98 percent of the country’s total grain reserves, after years of its control standing at above 95 percent.

COFCO Group, which was founded in 1949, has grown to be the country’s top food processor with fully integrated chains for grain trading, rice processing, oil processing, corn processing, and sugar trading and processing complete with brands, ports and wharves, equipment, storage, and logistic capabilities.

For years, COFCO Group and Sinograin have provided China with what it calls “two-wheel drive” advantages, with COFCO taking a market-oriented approach, and Sinograin taking a more policy-focused approach. 

These joint ventures play to the strengths of each partner, and will be the foundation for a reorganization designed to account for overlapping businesses. The first is a grain storage business that will be controlled by Sinograin, and the second will be an oilseed crushing and processing business, managed by COFCO.

Deng Yiwu, president of Sinograin, told China Daily that based on the structures of the two joint ventures, the grain reserve business will solidify its position as managing the country’s central grain reserve, and will keep pace with grain collection and storage policies, management, sales, and transport, while the combined oilseed business will find itself in a more competitive position, better able to innovate, influence and control risk, and generate appreciation for state-owned assets.

Commenting on the formation of the joint ventures, Weng Jieming, member of the State-owned Assets Supervision and Administration Commission, said, “It is the first professional integration project this year. Another innovative move to use each director’s strengths, improve the efficiency of resource allocation, and better maintain national food security.”

Most of China’s key state-owned companies evolved from former monopolies that have since come under central planning, resulting in bloated businesses that Beijing has long intended to streamline. This move to combine COFCO’s and Sinograin’s operations, which has been in the offing since 2019, will position COFCO as more of a rival to the world’s top ABCD traders – Archer Daniels Midland, Bunge, Cargill, and Louis Dreyfus. 

It also will improve resource allocation to advantageous enterprises, and create entities better able to withstand risks, noted the State-owned Assets Supervision and Administration Commission, which oversees China’s state-owned assets, adding that this in-turn will lay the groundwork for more stable grain and oilseed supply chains and greater food security for the nation.

Weng said, “This year, integration of companies based on their specialized businesses is a key task for SASAC.The integration between COFCO and China Grain Reserves Group serves as the first such integration case this year.”

“The equity cooperation between the two will help further rationalize the functional positioning and management boundary of grain storage and oil processing businesses of the two companies,” Weng continued. “The cooperation will also help to build a model benchmark for further reforms, and make contributions to better guarantee the grain reserve security of the country.”

*The content put forth by GAI News and its parent company HighQuest Partners is intended to be used and must be used for informational purposes only. All information or other material herein is not to be construed as legal, tax, investment, financial, or other advice. GAI and HighQuest Partners are not a fiduciary in any manner, and the reader assumes the sole responsibility of evaluating the merits and risks associated with the use of any information or other content on this site.

– Lynda Kiernan-Stone is editor with GAI Media, and is managing editor and daily contributor for Global AgInvesting’s AgInvesting Weekly News and  Agtech Intel News, as well as HighQuest Group’s Oilseed & Grain News. She can be reached at lkiernan-stone@globalaginvesting.com.