Why are Chinese agricultural firms so active in Latin America and the Caribbean?

Cargill’s massive soy processing plant in Santarém, Brazil. Chinese companies are seeking to replicate the logistics of multinational companies such as Cargill in order to secure products such as soy and fishmeal to feed livestock (image: Matt Hintsa).

Why are Chinese agricultural firms so active in Latin America and the Caribbean?

From the perspective of the People’s Republic of China (PRC), the ability to feed its 1.35 billion population is a matter of existential strategic importance. Growing Chinese prosperity and associated meat consumption has exponentially increased the demand on a Chinese agricultural system constrained by limited arable land, industrial contamination and drought.

While China has sought to maintain self-sufficiency in the production of food for human consumption, it has increasingly turned abroad to acquire animal feed to produce that meat, including soy to feed pigs and fishmeal for chickens.  As a result, from 2000 through to 2012, Chinese agricultural trade with Latin America expanded from $2.0 billion to $26.2 billion, and is projected to exceed $40 billion by 2017.  With the blessing of the Chinese government, Chinese agricultural firms have increasingly developed relations abroad, including with Latin America, to obtain vital foodstuffs.

A glimpse at five countries (Argentina, Brazil, Peru, Jamaica and Mexico) sheds light on the diversity of Chinese agricultural activity in the region and on the challenges it brings.

Argentina.  During the past decade, high international soy prices, driven in part by Chinese demand, have led Argentine farmers to dedicate land previously used for other crops, to soy production. Although Argentina’s growing soy exports to China also stimulated interest by Chinese investors in acquiring land in the country, an Argentine land law passed in December 2011 restricted such acquisitions.

Generally unable to acquire land, Chinese companies turned to a strategy of seeking to build a farm-to-port logistics infrastructure to guarantee delivery of these much-needed goods, mirroring that of the established agro-industrial companies such as ADM, Bunge, Dreyfus and Cargill.

In August 2011, for example, the Heilongjiang-based Chinese Beidahuang Nongken Group announced a proposed project in which it would invest $1.5 billion in the Argentine province of Rio Negro for the growing of soybeans, including the installation of irrigation systems and the construction of storage, crushing, and other facilities.  The project was derailed, however, when the provincial governor who had opened the door for the project César Barbeito, was beaten in regional elections by Carlos Soria the candidate of the national ruling party, the Victory Front, which opposed the project.

In a similar fashion, in 2012, the Chinese agricultural conglomerate Chongqing Grain, in conjunction with an Argentine partner, Molinos Cañuelas, was reportedly seeking to establish a soy production facility in the province of Cordoba.

In the end, however, the inability of Chinese companies to construct such logistics networks led them to turn to purchasing companies with an established presence in the sector, including the $1.2 billion acquisition of controlling interest in the agricultural firm Nidera, and the $1.5 billion acquisition of a majority stake in H.K. Noble in 2014.

Brazil.  As in Argentina, the Brazilian government has acted to block Chinese and other foreign investors from acquiring land in the country, including a restrictive ruling by the Attorney General’s office in 2010 blocking such acquisitions, reinforced by further administrative decrees in 2011.

Again paralleling the Argentina experience, in the face of such restrictions, Chinese investors in Brazil sought to create infrastructure in the country for acquiring, storing processing and exporting soybeans and other agricultural products to the PRC.  Announced projects included a $7.5 billion investment by Sanhe Hopeful in the state of Goais, and $2.5 billion in projects by Chongqing Grain in Bahia, although to date neither project has gone forward.

Peru.  In Peru, Chinese agricultural investment has centered on the fisheries sector.  Over the past decade, Hong Kong based China Fisheries Group, has acquired a significant portion of the Peruvian fishing fleet, and associated on-shore fishmeal processing facilities, conferring rights to an ever greater portion of the Peruvian offshore fishing quota.  By November 2011, the group had six processing facilities on the Peruvian coast, and rights to 12% of the country’s fishing quota.  Its most significant advance, however, came in June 2013, when it virtually doubled its presence by acquiring the fishing company Copeinca for $783 million.

Jamaica.  Chinese agricultural activities in Jamaica were relatively limited until 2010, when the Chinese state owned enterprise China National Complete Plant Import Export Corporation (Complant) purchased the national sugarcane processing facility being divested by the Jamaican government for $774 million.

From the beginning, however, Complant experienced continuous difficulties both with its labor force and local sugar producers, forcing the company to replace the plant manager that it initially sent from China.

Mexico.  Chinese agricultural engagement with Mexico has historically been limited. By contrast to Brazil and Argentina, there is little land in Mexico which can be diverted to grow agricultural goods for export to the PRC.  As a part of the North American Free Trade Agreement (NAFTA), most of that agricultural production which Mexico exports is absorbed by the United States.

Under President Enrique Peña Nieto, Mexico has nonetheless sought to expand agricultural exports to China to offset the country’s enormous trade deficit with the PRC in manufactured goods. In 2013, Mexico and China reached accords to expand Mexican pork exports to the PRC, yet to date, such initiatives have produced only limited results.

China’s growing role

In general, the focus of Chinese agricultural engagement in the countries of Latin America and the Caribbean has depended on the predominant agricultural sectors in the host country, and those which fulfill particular needs within the PRC. Thus, in Peru, the Chinese focus on the fishing sector is a coincidence between the existence of an important fishing sector in the country and China’s voracious demand for fishmeal for chicken feed.

Chinese agricultural initiatives in the region have also regularly generated political resistance in the countries in which they have occurred. Typically, such objections have not been framed in terms of the Chinese identity of the company or businessmen, per se. Opposition to the Beidahuang project in Rio Negro, for example, focused on whether the state government had the constitutional authority to commit Argentine territory to a foreign enterprise, while in Jamaica, critics of the government’s sale of its sugar refinery to Complant simply questioned whether it was getting a good deal.

In virtually all of the cases, Chinese agricultural engagement in the region reflects an ongoing learning process; Chinese companies doing business in the region will tend to become more effective with time.

The activities of Chinese agricultural companies today are transforming Latin America and the Caribbean. The process of learning and adaptation of those companies will only enhance the effects of their engagement with the region, both positive and negative, in the years to come.

 

This article is an abridged version of R. Evan Ellis’ chapter in the recently released Política Exterior China: relaciones regionales y cooperación published by the Benemérita Universidad Autónoma de Puebla (BUAP).

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