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COFCO’s Push Into the U.S. is Likely to Face Tall Hurdles

In the ten years between 2004 and 2014 China’s COFCO Corp. has seen meteoric growth in the global food supply space. Backed by funds from the Chinese state, its buying spree has been unrivaled but is far from over, according to the group.

COFCO, which acquired grain elevators in Chicago and Milwaukee through its acquisition of Nidera B.V. last year, is now turning its attention to the broader U.S. market.

"In the grain business, the world is getting flat," COFCO’s head of North America, Mr. Liu told the Wall Street Journal, "The demand- and supply-situation changes in one location will affect other parts of the world, and in that sense we want to grow our business in all the different major markets."

Hoping to gain a foothold in the world’s biggest agricultural exporting country, Mr. Liu states that the group may invest in or buy existing grain handling infrastructure, or build new facilities through partnerships with existing grain companies. It is also evaluating the possibilities that exist at ports in the Gulf of Mexico and in the Pacific Northwest.

The state-owned group however, may meet multiple challenges in their attempt to expand in the U.S., including high prices, political pushback and reluctance by U.S. companies to see a growing global competitor gain capacity in the U.S. market.

Over the past few years rising margins have increased the value of grain assets, potentially making privately held U.S. companies reluctant to sell. Any substantial asset bought from a larger competitor will come at a very high price and piecing together a network of smaller companies will take time and in the long run be no less expensive.

Difficult challenges also exist if looking to build new facilities such as new terminals or port operations. Land procurement for such ventures would be difficult on crowded waterfronts, and extremely expensive if achieved, as would attracting suppliers away from established rivals.

A major advance by a state-owned Chinese grain handler in the U.S. grain sector, which is the backbone of the country’s Midwestern economy, could also face political pushback from legislators concerned about Chinese ownership of U.S. food production and processing assets.

Despite these hurdles, COFCO’s direct supply line to China’s burgeoning food sector and ever-increasing demand could not only be a threat to U.S. grain giants such as Cargill, ADM, and Bunge, but could also be attractive feature in a potential partner. The group truly presents a double-edged sword – if COFCO owns significant grain assets in the U.S, it would enable the group to source cheaper grain for its Chinese operations, reducing its dependence on U.S. handlers and traders - however, if U.S. companies partner with COFCO, it would secure them access to China’s booming food market.

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