September 13, 2015

China’s two-part challenge of its economic slowdown and the devaluation of its currency, is beginning to put pressure on operating margins throughout the country’s agribusiness and food sectors with the greatest effect predicted to be on companies that import raw materials, according to a new report by Rabobank.

Agribusinesses are dealing with high input costs, and market volatility is making it difficult for companies to manage exposure and raise stock market funds. These conditions may drive China’s food and agribusiness companies to re-examine their overseas origination options for commodities and their merger and acquisition plans.

Imports of raw beef, which accounts for 12% of the entire Chinese market, could become prohibitively expensive in light of tight global supplies, driving Chinese companies to remain aggressively interested in the possibility of overseas expansion according to the report, and the dairy processing industry could be greatly affected by higher input costs resulting from the currency devaluation causing a potential 15% reduction in pre-tax profits.

The bank also predicts that the devaluation of the yuan will hit the growth in the country’s brewing sector which relies on barley imports for beer production, and China’s bakery and instant noodle industries, which depend heavily on imported wheat and palm oil.

On a positive note, Rabobank also indicates that these conditions will contribute to Chinese food and agribusiness companies becoming more attractive to foreign investors, with companies conducting business in the spirits sector and the farm inputs sector being of particular note.