Cofco, the Chinese food giant, unveiled a third agriculture tie-up
in four months with Western partners as it sought to exploit the industrialisation
of the world's biggest pork producing country.
Cofco revealed that its pork subsidiary, Cofco Meat, had sold
stakes to private equity groups including KKR, the US-based champion of leveraged
buyouts, in a "strategic partnership" to construct and manage "large scale" hog
farms and meat processing plants in China.
Locally-based Barings Private Equity Asia, Boyu Capital and
Hopu, the private equity group founded by Fang Fenglei, a former senior
executive for Goldman Sachs in China, have also backed the purchase, which is
reported to involve the purchase of a stake of up to 70% in Cofco Meat for
Of this, KKR is believed to be investing about $150m.
Cofco meets KKR
The tie-up joins state-run Cofco to one of the icons of
Western capitalism, in KKR, whose 1989 leveraged buyout of RJR Nabisco was chronicled
in the book Barbarians at the Gate.
However, Cofco has shown an increasing willingness to join
with foreign partners to help secure food for China, which has 21% of the world's
population, but just 9% of its agricultural land.
In March, the group, which for instance controls 90% of
China's wheat imports, bought 51% Nidera, the Dutch grain trader, followed up
in April by the $1.5bn purchase of a stake in an agriculture tie-up with
Singapore-based commodities giant Noble Group.
But while these deals are viewed as helping Cofco originate agricultural
commodities, from grains to sugar, for import to China, Friday's tie-up
involves tapping foreign money for investment in farm production in the country
That is along the lines of investments already made in China
by KKR, which in 2008 paid $150m for a 34% stake in China Modern Dairy, the
country's top raw milk producer, tripling its money on a sale of most of its
stake a year ago.
KKR and China Modern Dairy in September unveiled a $140m
tie-up to build two large-scale dairy farms in China.
The hog tie-up is aimed at exploiting the industrialisation
of pork production in China, which is responsible for more than half world output,
and consumption, of the meat.
Industrialised hog farms with production of more than 50,000
head a year, account for "less than 1%" of the country's pork supply, Cofco
However, "large-scale farms are expected to increase more
than six-fold by 2020," encouraged by, besides greater operational efficiency,
a drive by China to improve output of traceable and high quality of food,
following a long history of scares.
'Much bigger actor'
Ning Gaoning, the Cofco
chairman, said that expanding in meat was a "natural extension" of the group's
footprint, while partnership with the private equity groups would "diversify
our equity ownership and enhance our corporate governance".
The joint venture partners would "together grow Cofco Meat
into a much bigger actor in China's meat industry".
For KKR, Julian Wolhardt, regional leader for China, said
that "we look forward to fully utilizing our global resources and local
expertise to assist Cofco Meat in setting the bar for food safety in China".