China hungers for Brazil’s Grain Harvest
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Africa is not the only continent China is investing in
Author: Denise Chrispim Marin
Conventional wisdom says China plans ahead. Right now, as it works to secure food supplies for the next 50 years, China is getting more active in Brazil, the worldâs third-largest grain producerâand one with the significant untapped capacity to expand the cultivated land.
China has been ramping up agricultural investments. In 2016, ChemChina raised eyebrows with a $43 billion bid for Syngenta, a major producer of seeds. It later snapped up Adama, an Israeli pesticide maker with a strong presence in Brazil, for $1.5 billion.
Also that year, Chinaâs CMOC bought Copebras, a mining company that extracts phosphateâa key ingredient in fertilizers. Pengxin Group spent $200 million to acquire 57% of Fiagril, a grain-trading company. Last year, Pengxin subsidiary Hunan Dakang paid $253 billion for special purpose vehicle DKBA, which owns 54% of Belagricola, a diversified agricultural services provider.
The moves have helped Beijing dodge some of the impacts of its tariff fight with Washington. Brazilian grain exports to China have increased due to the trade war. Yet, this business boost could easily vanish if the big countries back down.
Still, these are only Chinaâs opening bids in Brazil, says Eduardo Daher, agribusiness specialist with the consulting firm macro sector. âWith these timely acquisitions, China has built its own system of inputs and grain commercialization in Brazil,â Daehr says. âIt says to agricultural producers from the Brazilian midwest and south: You have now another option to the huge traders who dominate the grain sector, such as ADM, Bunge and Cargill.â
Beijingâs next step could be actual land purchases. Although Brazilian law strictly limits foreign ownership of land, the law is flouted with secret private contracts. Daher says foreigners own large tracts of Brazil, with such contracts tucked away awaiting a government that will overturn the ban.
Chinaâs âinvasionâ doesnât always raise hackles locally. Former Minister of Agriculture Roberto Rodrigues, director of the FGV Agribusiness Center, says these investments are welcome if the Brazilian government enforces regulations and limitsâin particular, pressing Chinese companies to boost Brazilâs exports of higher value-added products.
âWe have water, land, sunshine, two harvests a year and tropical agriculture technologyâbut we have no money,â Rodrigues says. âI suggest Chinese producers here do not export soybeans to China, but chicken.â
Rodrigo Lima, general director of Brazilian agribusiness think tank Agroicone, says it doesnât matter if China owns 5 million hectares, as long as Chinese investors bring technology and innovation with their capital. Brazil should cut tough dealsâdemanding, for example, a more stable piece of the Chinese market for Brazilian businesses. As Rodrigues puts it: âThis is not neo-nationalism, but opportunity management.â
Source: Global Finance
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