Cargill sees food scares boosting China's grains appetite

SINGAPORE - A slew of food safety scandals has stoked China's hunger for higher quality products that would sustain consumption of protein-rich farm commodities even as its economy slows, a top executive of leading commodities trader Cargill Inc said.

China is toughening its fight against food safety violators in the face of rising incidents of food scares since a deadly scandal in 2008 when dairy tainted with industrial chemical melamine led to the deaths of at least six infants.

It is also prompting the country, the world's top importer of soybeans and a major buyer of corn, to move from backyard hog farms to mechanized modern plants requiring higher volumes of grain-based compound feeds.

"The Chinese population has become highly sensitized to food safety and rightly so," Cargill Vice Chairman Paul Conway told Reuters in an interview. "For commodities which go into direct human consumption or via meat, we don't see a slowdown in China."

A growing middle-class that craves for more high-protein and safe food products would also ensure China's consumption of agricultural commodities would remain high even as economic growth slows to 6-7 per cent.

"We are positive not only on China but on the region generally about the emergence of a stronger and more vibrant middle class who demand more variety and better quality in their food," Conway said.

Food supply-chain issues in China have come under increased scrutiny, with KFC-parent Yum Brands Inc, Wal-Mart Stores Inc and McDonald's Corp all recently facing food safety issues with suppliers.

China's shift to a consumption-driven economic expansion and away from infrastructure that could see rapid growth in its environment, healthcare and education sectors will also require more of higher quality food, said Conway.


Cargill, along with Archer Daniels Midland, Bunge Ltd and Louis Dreyfus comprise the ABCD companies that dominate global grain trading.

With sales of $134.9 billion in fiscal 2014, Cargill expects its global grain business to double in 7-8 years with Asia growing at twice the pace, supported by thriving consumption in China, India and Indonesia, said Conway.

The company has a major presence in China's food supply chain - importing grains and oilseeds, making animal feed, raising chickens and manufacturing products such as sweeteners and cereals.

The company's fully-integrated poultry project, which recently started operations, has a capacity to process 65 million chickens per year as well as 176,000 tonnes of poultry products.

Cargill is building its fourth soybean processing plant in China, he said without giving details on the size, location and investment.

Turning to the selloff in global grain and oilseed markets, Conway said prices are unlikely to fall below the multi-year lows seen in October as US farmers have been holding back supplies.

"It is clear that you are not going to see the sorts of lows that you used to see with these sorts of harvests," he said. "Farmers, particularly in the US, have enormous ability to hold supplies."

Prices of corn, soybeans and wheat in Chicago have since rebounded, with soybeans rising 14.5 per cent last month, corn climbing 17.5 per cent, and wheat adding 11.5 per cent.

Despite record crops in the United States and elsewhere, global food demand is rising rapidly, said Conway, which is keeping the agricultural industry on its toes given the 2008 food supply shock.

"Essentially we are only one harvest away from a big problem," he said.

"We can't relax because the world does need more food and of course today you have non-food uses such as biofuels."