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[ADAPTED] China spends $2.4 Billion... On Pesticides?  

2011-01-12 03:51:30|  分类: biz insight |  标签: |举报 |字号 订阅

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China spends 2.4 Billion... On Pesticides? [adapted] - Tony Wong - MapleRipples

logo for ChemChina (中國化工)

China spends 2.4 Billion... On Pesticides? [adapted] - Tony Wong - MapleRipples  Why pesticides?
 
 
China’s luck with big-ticket agricultural purchases hasn’t exactly been impressive of late. In July, China’s Bright Food Group Co (光明) botched a bid for sugar and renewable energy firm CSR Ltd. Then, later in the year, Sinochem’s (中國中化) effort to play white knight to Canada’s Potash Corporation of Sasketchewan didn’t exactly end up with a romantic ride into sunset.

So it was somewhat surprising when state-owned China National Chemical Group, or ChemChina for short, signed a $2.4 billion deal over the weekend to acquire Israel’s Makhteshim Agan Group, the world’s largest maker of generic pesticides.

Makhteshim said the deal with a subsidiary of ChemChina, China’s largest state-owned chemical production enterprise, would mean taking Tel Aviv-listed Makhteshim private, with ChemChina taking a 60% stake and Koor Industries holding the other 40%. Under that arrangement, ChemChina will get to pick Makhteshim’s board chairman, although Makhteshim said the deal still requires approval from China’s central government, which may be “some months” away.

Pesticides is an odd target for China. When it comes to big foreign buys, the country’s palate tends to favor strategic assets like oiliron ore. Not to mention that the domestic pesticide industry is in surplus , with profit growth failing to keep pace with raw material and labor costs.

And on top of all that, reports by Greenpeace and the Wilson Center suggest Chinese farmers are already overusing pesticides.

So why is China–already the world’s largest user, producer and exporter of pesticides—interested in this deal?

One explanation is that China is simply hungry for a big agribusiness deal to rinse away the bad aftertaste of the failed Potash and CSR deals. ChemChina might also be responding to a recent call from China’s agriculture minster (農業部) for domestic agribusinesses to start ramping up their efforts offshore. In support of that hypothesis, Rabobank analyst Lief Chiang suggested to Dow Jones Newswires that the Makhteshim deal might be intended as a way for ChemChina to take advantage of the Israel company’s distribution channels, rather than the other way around.

Underlying all this is China’s fear of depending on foreign interests for its food needs. Rising food prices have become a major concern for leaders in a country where famine is a not-too-distant memory and ChemChina’s purchase, what ever else it may accomplish, marks a strategic step in the country’s efforts to secure access to key overseas farm-related assets.


big-ticket purchase: a big purchase

of late: recently, lately

renewable energy: energy such as tide, wind, sunlight, rain and so on, which are naturally replenished

rince away: wash away

aftertaste: the taste intensity of a food or beverage that is perceived immediately after that food or beverage is removed from the mouth
ramp up:
a term used in economics and business to describe an increase in firm production ahead of anticipated increases in product demand
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