In China, Cargill finds a sweet spot

Diversified food demand keeps the growth engine chugging for US agri-business company

US agribusiness giant Cargill Inc is looking to further expand its presence in China as the country's demand for diversified food products continues to be on the upswing. The multinational company is looking to expand all lines of its business in China, with particular emphases on animal protein, animal nutrition, food ingredients and health-promotion businesses.

Cargill implements Hazard Analysis Critical Control Points systems in all plants across the country to ensure food safety. [Photo/China Daily]

The company is also building a new $67 million high fructose plant in Luohe, a city in Central China's Henan province. Slated for completion by June 2013, the new project will help Cargill provide better services to its customers in China.

Cargill posted lower earnings of $1.17 billion from its continuing operations across the globe during fiscal 2012, which ended on May 31 this year. In contrast, the company has posted record earnings of $2.69 billion during the same period in 2011. Though not in line with its expectations, the fiscal 2012 performance was still one of its better years for earnings and ninth in the company's history. Revenues for the period were $133.9 billion, up 12 percent from a year ago.

The food-ingredient business posted a third consecutive year of record earnings in fiscal 2012. The company invested over $4 billion to support its customers and on global growth plans, including acquisitions, joint ventures, and new or expanded facilities.

Robert Aspell, president of Cargill Investment (China) Ltd, says a significant amount of Cargill's global capital expenditure was focused on China as the nation had an integral role to play in the company's overall growth plans.

"Rising incomes and accelerating urbanization in China are driving demand for more diversified and convenient diets. Higher income has also increased the consumption of meat proteins and vegetable oils. Cargill still sees the upside on the daily caloric intake of consumers in China, especially on proteins," Aspell says. "Packaged foods and beverage companies are also expected to reap robust returns from China."

To feed a population of more than 1.3 billion, more agricultural products are now produced and sold in China than anywhere else, and this has boosted the overall food consumption in China during the past 10 years. China, India and Brazil have all become fast growing markets for international agricultural product marketers and producers from the US and Europe.

In 2011, China imported $95 billion worth of agricultural products, compared with just $12 billion in 2001. The 2011 figures also represented a 30 percent year-on-year growth, according to the Agriculture Ministry.

Ding Shengjun, a food supply and security researcher at the Academy of State Administration of Grain, says processed foods such as canned foods, especially those related with cooking and restaurants, have grown fast in China. "The demand for juices, soft drinks, yogurt and milk will provide all sorts of opportunities for the food and ingredient business. The sector has been showing excellent potential," Ding says.

According to the National Bureau of Statistics, in recent years the average person in China has been consuming 5 percent more meat, 10 percent more milk, and 8 percent more cooking oil than five years ago.

Affected by the global economic environment, extreme climate and unstable international food prices, Cargill saw lower margins from its oilseed-processing and beef-processing businesses in fiscal 2012.

Aspell says that Cargill views the current economic slowdown in China as "a bump on the road".

"Cargill believes that China will continue to be a sweet spot for investment. During our interactions with food, feed and meat companies, our main customers, we realized that all of them anticipate explosive growth in China. We plan to grow side by side with them."

At the same time, Aspell says this is also good news from a consumer perspective as it means "responsible companies making serious investments to produce affordable and safe food in China".

Cargill entered China in 1972, and has since ventured into different products ranging from animal proteins and grains to oilseeds. Cargill (China) currently has more than 7,000 employees and 52 plants across the country.