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BEIJING The season for autumn grain purchasing is upon us but this year
various factors are making it more complicated, partly because of the
involvement of a new participant, the Yihai Kerry Group. Haloti Ngata Womens Jersey . As a result of
adverse weather, international price fluctuations and speculation, grain prices
for corn, wheat and rice have been vacillating widely, despite repeated
assertions that stockpiles are abundant. Bags of rice for sale at a grocery
store in Beijing. [PhotoBloomberg]  Average purchasing prices for rice and corn
in major autumn grain production areas have surged by 20 to 30 percent from a
year earlier, said Li Guoxiang, researcher of the Chinese Academy of Social
Sciences Rural Development Institute. In contrast to the rise in prices, market
trading is relatively inactive. Higher prices have raised farmers expectations
for even higher prices in the future, prompting them to store grain rather than
to sell it, Li said. Furthermore, favorable prices offered by big companies such
as Singapore agricultural business Yihai Kerry have also fuelled farmers market
expectations, said analysts. Yihai Kerry is the Chinese subsidiary of Singapore
agribusiness conglomerate Wilmart International Ltd. It is the biggest edible
oil supplier in the Chinese market and is run by chairman and chief executive
officer Kuok Khoon Hong, one of Singapores richest businessmen. To support the
rapid growth of its grain processing business, Yihai Kerry has joined in the
grain purchasing process in major production areas. I havent sold a grain of my
paddy rice so far, and most farmers in my county are reluctant to sell their
grains, said Shan Yiheng, a farmer in Zhaodong, Heilongjiang province. Zhaodong
is famous for its corn and rice in Northeast China. Shan is one of the biggest
local farmers in terms of sown area. His approximately 20-hectare farmland
performed very well this autumn with yields of about 100 tons of paddy rice. The
current purchasing price here is about 140 yuan ($21.2) for every 50 kilograms
of paddy rice, higher than last years 124 yuan, but its still lower than my
expectation. All kinds of costs are rising this year, so why not grain? he
asked. Shan said Yihai Kerry has started purchasing rice in neighboring cities
in Heilongjiang province such as Wuchang and Jiamusi since this autumn with
prices about 10 yuan higher for every 50 kilograms. Its obvious that farmers
prefer to sell grains to companies such as Yihai Kerry because the price is more
favorable, Shan said. However, Shans opinion isnt shared by everyone. Grain
issues are extremely sensitive and can easily trigger arguments over food safety
in a country where agriculture has been the dominant economic sector in its long
history. As the old Chinese proverb goes, Food is the God. Yihai Kerrys
participation has made the grain purchasing market more complicated, said Ma
Wenfeng, an analyst at Beijing Orient Agribusiness Consultant Ltd. In previous
years, about 60 percent of the grains were purchased by Stated-owned companies
such as the China Grain Reserves Corporation (Sinograin) and the rest went to
small and medium-sized private companies. Supported by the relatively high
profits gained from Chinas oil market, Yihai Kerry can purchase grains at cost
price, but small- and medium-sized grain processing companies will go into
bankruptcy if they do the same thing because of the small margins for profit in
the processing industry, Ma said. Grain purchasing needs a large amount of
liquidity. Its very hard for small private processing companies to get financial
support. A group of companies will be forced to close by this kind of
competition, added Ma. The speed of Yihai Kerrys expansion is amazing. According
to Ma, the companys flour processing capacity in China is about 4,000 tons per
day. Compared with the 7,000 ton daily turnover of the Cofco Group and 13,000
tons by the Hebei-based Wudeli Group, Chinas biggest flour processing company by
volume, Yihai Kerrys market share remains small, Ma said. But with the current
speed of expansion, the company can catch up its competitors and become Chinas
biggest grain processing company within five years. By then, it will have a big
say in pricing, Ma said. The companys rice milling capacity is about 3,000 tons
per day, ranking it among the top 10 in China, Ma said. Yihai has built 130
large-scale manufacturing plants in more than 35 strategic locations in China,
with a nationwide sales and distribution network, the companys website said.
Yihai Kerry declined to provide the numbers of its wholly-owned companies and
joint ventures in China. Adams Li, a press officer for Yihai Kerry Foodstuffs
Marketing Co, said Yihais purchasing activity and market share has been
exaggerated. We have yet to start purchasing for autumn grain. This year we only
purchased about 500,000 tons of wheat and about 191.7 tons of early Japonica
rice, he said. Revenue in China exceeded 100 billion yuan in 2009, with the
major element coming from the oil sector, he said. Wilmarts global revenue was
$23.89 billion in 2009. We are keeping a close eye on Yihai Kerrys operations in
China, although its market share is not big, but rapid expansion has posed a
threat to Chinas food security, said an official from Sinograin, who declined to
be named. Sinograin is the largest State-owned grain storage company. Besides
stockpiling and rotating government grain reserves, the company also has a
processing business. A deep concern is that the flour processing industry may
fall into the same trap as the edible oil industry, he said. Yihai Kerry became
Chinas biggest edible oil manufacturer by purchasing a dozen domestic oil makers
between 2003 and 2005 after 70 percent of Chinese soybean oil companies went
into bankruptcy as a result of vicious competition from international players,
said analysts. As the biggest edible oil supplier in the market, Yihai Kerry has
gained a dominant say in pricing, said Ma. Yihai Kerrys share in Chinas oil
market exceeds 30 percent and once rose to as much as 50 percent in 2007, said
analysts. Cheng Guoqiang, a researcher at the Development Research Center of the
State Council, said it was very rare to see foreign investors get involved so
deeply in a countrys grain purchasing and processing. Its risks to food security
and market stability are obvious and the situation must be watched, Cheng said.
Chinas grain industry was opened up to capital enterprise after reform in 2004.
There are no limitations on foreign investors, but such an example of deep
penetration into the market might go beyond policy makers expectations, Cheng
said. Food prices account for about 30 percent of the consumer price index in
China. Frequent price fluctuations of grain have brought great pressure on those
trying to manage inflation. The government has halted Sinograins sideline
trading business and urged the business to focus on stockpiling and rotating
government reserves. It aims to stabilize the market by reducing the number of
participants. Foreign investment in the agricultural sector is regarded as a
double-edged sword by industry observers. I think the advantages of foreign
investment in the agricultural industry outweigh the disadvantages, said Li of
the Chinese Academy of Social Sciences. The technology of foreign investors and
their advanced management skills are useful references for domestic companies,
and they have not brought substantial harm to Chinas purchasing market, Li said.
In 1989, when agriculture was neglected by most foreign investors, Singapore
businessman Kuok Khoon Hong, the nephew of Malaysian tycoon Robert Kuok, started
a Chinese agribusiness venture with a refinery in the southern Chinese city of
Shenzhen. During 20 years or so of expansion, Yihai Kerry has aggressively
expanded to oilseed crushing, specialty fat processing, rice and flour milling
and biofuel energy. The Chinese operation has laid a sound basis for Kuoks
international business in eastern Asia and other countries. Kuok ranks No 4 in
Singapores 40 richest in 2010 with a net worth of $3.5 billion, according to
Forbes magazine. He is the chairman and chief executive officer of Wilmart
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