COFCO spread too thin with property interests

By Liu Jiwei Source:Global Times Published: 2012-12-26 23:24:05

China National Cereals, Oils and Foodstuffs Corp (COFCO), the mainland's largest processor and supplier of agricultural products, plans to transfer ownership of its mainland real estate assets onto the struggling Hong Kong-listed property firm it purchased over the summer, COFCO chairman Ning Gaoning told the media earlier this month.

COFCO is just one of the many large Chinese conglomerates now trying to juggle an overabundance of assets which fall outside of its core business scope.

Frankly, the company would be better off if it had its fingers in fewer pies and just focused on strengthening its place in the mainland market and beefing up its fundraising abilities. While its attention has been elsewhere, the world's top food processors - US-based Bunge Limited, Archer Daniels Midland Company, Cargrill Inc and France-based Louis Dreyfus Group - have quickly been gobbling up the mainland market as COFCO pursued opportunities in spaces where it had either limited expertise or lacked the resources needed to make a meaningful contribution, according to recent reports from several local institutions, including Huidian Market Research Center.

Indeed, COFCO has invested nearly half of its capital into sectors unrelated to its primary business in recent years, occasionally with disastrous results.

Take, for instance, COFCO's partial acquisition of China Mengniu Dairy Co. COFCO took a stake in Mengniu in 2009 in a bid to solidify its place in the dairy supply chain. Yet, with much of its disposable funds tied up in other projects, COFCO bought little say in Mengniu's management. COFCO also had few staff members with experience in the dairy industry and little to offer Mengniu in terms of technology. All of these factors left COFCO powerless to avert the safety scandals which hit Mengniu in 2011.

COFCO's four largest rivals, on the other hand, have limited their investments and their operations to the food supply chain industry only and are doing much better financially.

Yet, an overextended business horizon is not the only problem undermining COFCO. The company, again compared to its world-leading competitors, has few ways to raise funding aside from bank lending and the short-term financing its listed units bring in.

Building up the infrastructure and agricultural base needed to become a global player in the food processing business requires a great deal of time and capital. COFCO's pursuit of quick profits in overheated sectors, such as property and hospitality, have long been diluting its capital and diverting its attention from long-term goals.

The author is an industry analyst from Shenzhen-based consultancy Qianzhan Intelligence Co. qianzhanzixun@163.com



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