Chinese Firm Acquires Control of Brazilian Soybean Trader

As China continues to pursue food security, Hunan Dakang, a unit of China’s Shanghai Pengxin Group agreed to acquire a majority stake in Brazilian soybean trader and biodiesel company, Fiagril for $286 million, according to Bloomberg.

Brazil’s soybean output has nearly doubled in the last ten years, prompting the country to become responsible for 45% of the world’s total soybean trade today. Of this total production, 78% of its 2015 soybean exports were bound for China to help meet the country’s soaring demand.

Unnamed sources told Reuters that Hunan Dakang acquired a 57% stake in Fiagril noting that existing management will be retained post-closing. It was also disclosed that under the terms of the agreement, which will not include Fiagril’s shipping, biofuels, or seed businesses, Pengxin will be a source of working capital loans to Fiagril.

Founded in 1989 and based in Lucas do Rio Verde in Mato Grasso, Fiagril is a family owned enterprise with 700,000 tons of storage capacity and grain trading and processing facilities responsible for moving 2.5 million tons of soybeans and corn per year. The company also supplies pesticides and fertilizers to growers and owns a biodiesel plant with a production capacity of 53 million gallons. In a company statement Fiagril confirmed the acquisition by Hunan Dakang, stating that the deal will provide Fiagril with a growth opportunity, but declined to provide further information.

This purchase by Shanghai Pengxin will be the largest acquisition by a Chinese company of a Brazilian agricultural operation to date, according to Bloomberg. Given the fact that Chinese buyers bought 45% of Brazil’s soybean, corn, and soymeal exports last year, according to Thomson Reuters -- it may not be surprising that the first such deal was for control of a soybean trader.

Large Chinese enterprises have been competing with the four major, global ‘ABCD’ commodity traders – Archer Daniels Midland, Bunge, Cargill, and Louis Dreyfus for a greater controlling share of global commodity trade.

Growing domestic demand in China for meat and a higher protein diet has trickled down to a growing demand for soybeans to be used to produce livestock feed, along with cooking oil and fuel. Driven on by these trends, China’s soybean imports have tripled since 2005, and pursuing deals that will give Chinese businesses grain origination have become increasingly important.

Two of the more recent and notable deals includes COFCO’s acquisition of Noble Group’s agribusiness unit and the Dutch trader, Nidera Holdings, which provided COFCO exposure to the South American grain and milling sectors.

Indeed, tasked with feeding a fifth of the world’s population with approximately 10% of the world’s arable land, China can be expected to continue this outward reach for major agricultural deals in the world’s key food supplying countries.