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First Came Tokyo

Tokyo is in full execution mode, urging Japanese ag and food companies to buy up even larger positions in countries such as Canada, building on a trend by cash-rich but farm-poor economies that want to assure their food security.

Increasingly, Japan is being joined by China and now South Korea. But the strategy is evolving. Instead of buying farmland, which has set off political alarms in target countries, the Asians now are focused on locking in their purchase rights instead.

As just one example, China is investing $7.5 billion in roads, railways and elevators in the Brazilian state of Goias to help farmers there expand market access. In return, China is in a position to buy as much as 80 per cent of farm production in the region where the soybean crop last year hit 8.2 million tonnes.

Other programs are designed to operate under the political radar too. For instance, the Japanese program, laid out two years ago by its Overseas Investment Promotion Conference for Food Security, calls for Japan to invest in foreign agriculture with the stated aim of selling the resulting crops and livestock on the global food market, not specifically to Japan.

The reality, however, is that Japan has a serious food imbalance. On a calorie basis, Japan’s farmers produce less than 40 per cent of the country’s food.

Yet while there are international fears that Japan is effectively buying farmland to feed itself, Japanese officials are quick to deny it.

Takanobu Kobayashi, international affairs department director for international trade policy at Japan’s Ministry of Agriculture, Forestry and Fisheries (MAFF), says the sudden influx of large-scale agricultural investments caused problems in developing countries when world food prices shot up in 2008.

“At the G-8 Summit of L’Aquila in July 2009, Japan proposed the promotion of Responsible Agricultural Investments (RAI) to the governments and local inhabitants of receptive countries,” Kobayashi says.

Now, the Food and Agriculture Organization of the United Nations’ Committee on World Food Security is also holding comprehensive talks with a view to drafting rules for RAI.

“Considering this, the Japanese government does not plan to acquire land in foreign countries,” Kobayahi says.

Kobayashi says MAFF and the Ministry of Foreign Affairs have been exploring Ukraine since December 2009 and Argentina since March for investment opportunities, and MAFF alone has been looking at Bulgaria and Paraguay this year, and other counries will also be considered. “Soybeans and corn are our priority crops,” Kobayashi says.

Japanese companies have been investing in other countries’ agriculture for several years. Examples Kobayashi gave include Sojitz, which bought a one-third share in ETH Bioenergia of Brazil to grow sugarcane in that country for the production of sugar and ethanol. It also grows soybeans, sunflower and other crops on 11,000 hectares of leased land in Argentina.

Another company, Mitsui Bussan, is the largest shareholder (44 per cent) in Swiss-based company Multigrain, which grows soybeans, corn and cotton in Brazil. “Mitsui Bussan made an agreement in January with Multigrain to double its shares in the company, making Multigrain a consolidated subsidiary,” Kobayashi says.

Three years ago, Mitsui Bussan also started renting 3,000 hectares in Egypt to grow broccoli, spinach and other vegetables. As well, the company owns about 80 factories in China producing frozen vegetables and other foods, and rents farmland in Cambodia, according to the Tokyo business newspaper The Nikkei Weekly.

In Canada, Mitsui has bought into a joint venture with Louis Dreyfus on its new canola-crushing planting at Yorkton, Sask. Nor is Canada the only developed country that it is pumping money into.

Sally Standen, minister-counsellor for agriculture at the Australian embassy in Tokyo, says that a number of Japanese companies have successfully ventured into Australian agriculture, with products being shipped mainly or solely to Japan. For example, Standen cites the integrated feedlot, feed mill and abattoir called Rockdale Beef, a joint venture in New South Wales between Japanese companies Itoham Foods and Mitsubishi, shipping up to 170,000 processed head of cattle per year to Japan from its base at Powranna, Tasmania.

Nippon Meat Packers owns three abattoirs in Australia which together process 166,000 tonnes of cattle by carcass weight, mainly for export to Japan. SC Agri Produce, owned by the Japanese Sumitomo Corporation, produces and exports compressed hay for use in Japan as stockfeed.

Then the list continues. Ito En Australia, partly owned by Japanese company Ito En, produces green tea for export to Japan in Victoria. Japanese companies have also invested in New Zealand forestry. According to its own website, Pan Pac Forest Products in Whinrinaki — wholly owned by Japanese pulp and paper producer Oji Paper, — was established in 1971 for the main purpose of providing wood fibre for paper making operations in Japan.

Meanwhile, China is also active. Heilongjiang Beidahuang Nongken Group, the country’s largest agricultural company, plans to expand its overseas business, the China Daily has reported. The group’s chairman Fengfu Sui told the newspaper it plans to acquire 200,000 hectares of farmland in Russia, the Philippines, Brazil, Argentina, Australia, Zimbabwe and Venezuela this year.

The state-owned Chinese group invested more than 250 million yuan ($37 million) in overseas projects between 2005 and 2010. While the expansion plan is global, practices differ in different target countries, says Sui, who is also a deputy to the National People’s Congress.

In Venezuela and Zimbabwe, the company mainly provides machinery and labourers, and takes about 20 per cent of the harvest in return, Sui says. “In Australia, it is mainly through the acquisition of local farmland. In Brazil and Argentina, the business model involves renting land.”

The company is continuing its operation in Russia, where it rents land for soybean cultivation. Now it has expanded into Mongolia, and the group will also work on the development of new varieties of such crops as corn and rice to boost output in the Philippines.

“We first worked with local universities to develop new varieties for planting trials,” Sui says. “Then we set up companies to deal with the high-yield seeds.”

Xinyu Mei, a researcher with an international trade and economic co-operation research institution affiliated with the Ministry of Commerce, told the China Daily that agricultural companies can bring advanced farming techniques to foreign markets and alleviate the international food supply crisis. “Chinese enterprises’ overseas expansion can reduce global grain prices by increasing output,” Mei says.

In fact, a new report by Rabobank says the Chinese strategy is aimed at curbing the threat that North American farmers will be able to charge it higher prices during crop shortages. With large supplies locked in, China will be a cagey buyer, only coming into the market when it sees an advantage.

South Korean firms are also going abroad in search of cheap arable land,Yonhap News Agency reports. There are currently 73 South Korean companies farming on a little over 23,000 hectares of land in 18 countries, according to a report by a think tank run by the National Agricultural Cooperative Federation, known as Nonghyup.

Now, there are also emerging signs of the next strategies these countries will use. In Brazil, China is locking in production by extending cheap credit to farmers. The tactic reduces China’s exposure to U.S. treasury bonds while also cutting the price it pays for U.S. crop. From a Chinese perspective, it’s clearly a win-win.CG

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With $7.5 Billion In Infrastructure, China Is Locking Up 80 Per Cent Of Soybeans In Brazil’s Goias State

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