|Why Is China Spending $43 Billion for a Farming Company? The biggest overseas purchase in Chinese history is meant to ensure the world’s largest country can keep feeding its people. |
By Keith Johnson | February 15, 2016, 7:30 AM
China’s biggest-ever overseas acquisition, announced this month, isn’t about gobbling up resources to feed its industrial maw, broadening its financial leverage, or enhancing its strategic position. Rather, the $43 billion bid for Swiss agricultural company Syngenta is about something a lot more basic and a lot more important: ensuring that its farms will be able to produce enough food to keep pace with the country’s still-growing population, already the world’s largest.
Beijing today faces a variation of the dilemma that has bedeviled leaders there for thousands of years: how to feed so many people with so little arable land. China today accounts for about 19 percent of the global population, yet has just 8 percent of its arable land. And unlike other countries with growing populations, there’s no land left to till; indeed, given years of chemical abuse in the countryside and industrial pollution that sowed heavy metals through rice paddies, China’s available farmland is actually shrinking
With the population set to keep growing from 1.3 billion today to 1.4 billion or more by 2030, and with demand for cereal grains rising as the population eats ever more beef and pork, the country needs a quantum leap in agricultural productivity if it is going to feed its population in a generation’s time. Food shortages, or spiking prices for food, have been a recipe for unrest, rebellion, and imperial downfall in China for hundreds of years. Food security, the ability to ensure ample and affordable supplies of food for all, is a political headache for leaders in Beijing who are all too aware that staying in power means keeping rice bowls filled. The Syngenta deal — which is meant to keep Chinese farms humming — could be part of the solution.
“Food security has become more prominent under President Xi Jinping. He personally has put a lot of political capital into emphasizing food security,” said Fred Gale, the senior economist for China at the U.S. Department of Agriculture’s Economic Research Service.
It’s not just Xi. Premier Li Keqiang zeroed in on the under-performing agricultural sector in his wide-ranging [url=http://english.gov.cn/archive/publications/2015/03/05/content_281475066179954.htm]critique last year of China’s economy, following former Premier Wen Jiabao’s lifelong focus on food security. For the 13th straight year, China’s guiding annual policy blueprint, the so-called “No. 1 Central Document,” put agricultural innovation at the top of the nation’s wish list. And food security was at the top of the agenda at last year’s summit between Xi and U.S. President Barack Obama.
That’s where the proposed $43 billion purchase of Swiss-based Syngenta by state-owned China National Chemical Corp., or ChemChina, comes in. Syngenta is one of the world’s biggest producers of crop protection products, from pesticides to fungicides to novel types of seeds that can increase harvests of corn, rice, and wheat. It rebuffed a richer offer last summer from rival agribusiness giant Monsanto Co., but welcomed ChemChina’s bid with open arms; Syngenta’s board of directors said in a release that it was “unanimously recommending the offer” to shareholders.
The deal, Syngenta Chairman Michel Demaré said in a statement on Feb. 3, “is focused on growth globally, specifically in China and other emerging markets, and enables long-term investment in innovation.”
It could also be just what the doctor ordered for Chinese leaders. “The Syngenta acquisition is very consistent with their goal of overhauling the agricultural sector; one of the themes of that overhaul is to rely on new technology to boost productivity,” Gale said.
Indeed, ChemChina Chairman Ren Jianxin talked up the deal as a way to “increase global crop yields” and placed special emphasis on the Chinese market, where he said it’s necessary to increase both agricultural productivity and quality.
Of course, the purchase isn’t just a strategic, state-driven decision. It’s also good business for a Chinese firm aspiring to play in the big leagues. ChemChina, in particular, has just in the last year snapped up a host of foreign firms, including a solar power company, Pirelli, the tire maker, a machine-tools concern, and a commodities trading outfit.