COFCO’s recent buy-out of Nidera may yield its biggest benefit to Australian producers of grains, pulses and oilseeds through sharper transactional costings in getting produce from Australia to the meal tables of China.

This move is consistent with China shoring up its food supply to feed its ever-expanding middle class. As the population of China becomes more urbanised and the country builds a greater reliance on imported food, acquisitions along the supply chain are an important step towards food security.

Australia is a significant producer and major exporter of wheat, coarse grains, pulses and oilseeds and the Nidera buy-out is strategic in COFCO’s plans to shore up the pathway for imports of minerals, energy, food and fibre from South America, Australia and other origins.

In world trade in agricultural foods, China imports quantities of meat, sugar, wheat, barley, sorghum, corn, canola, pulses and dairy, as well as feeding a growing demand for imports of feed-ingredients to grow animals for meat protein, increasingly through Nidera, Noble and the other entities it wholly or partly owns.

The chain of costs a company like COFCO incurs downstream from loading a cargo on board ship at an Australian port are considerable, and its size and diversity allow it considerable leverage when it comes to costing letters of credit, bank finance, cargo inspection, ocean freight, discharge, handling and processing at destination.

COFCO’s recent buy-out of Nidera may yield its biggest benefit to Australian producers of grains, pulses and oilseeds through sharper transactional costs.
Nidera Australia’s origination manager Peter McMeekin told Grain Central that the acquisition of 100% of Nidera by COFCO International will now allow the three businesses, COFCO International, COFCO Agri and Nidera, to integrate into a world-class international agricultural commodity trading business, with a very strong strategic advantage of having direct access into significant Chinese demand.

The combined business will also leverage off COFCO Agri’s highly strategic asset base and Nidera’s strong origination and trading networks.

At this point in time, Mr McMeekin said there will be no change in the way they buy grain and Nidera Australia will be the face to the grower this harvest.

“At this stage buying from the grower this harvest will focus on Queensland, New South Wales and South Australia. If opportunities present themselves in other states we will weigh up the benefits,” he said.

Mr McMeekin said Nidera will be buying wheat, feed barley, chickpeas and Kaspa peas this harvest, as well as sorghum, which is now entering the planting window in the summer-cropping regions of Australia.

“Nidera has been a significant exporter of winter cereals, chickpeas and sorghum out of Australia in recent years and that will continue into next year,” he said.

Free Trade Agreement

The China-Australia Free Trade Agreement (ChAFTA) entered into force on 20 December 2015. Import tariffs on arrival in China for barley were 3pc while the tariff for oats and sorghum was 2pc.  These are now all zero for Australian origin grain. Tariffs for oilseeds and some vegetable oils are in process of reduction, while wheat and maize tariffs still exist. Tariffs on some pulses have been reduced to zero already and in process of being eliminated on other pulses.

China Australia trade background table

Agricultural exports to China (fob $A million) 2014-15 source: ABARES June 2016