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AGRICULTURE: China Holds Agribusiness Opportunities for SA Companies


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China potentially holds huge opportunities in terms of investment and growth for foreign multinationals wishing to broaden their revenue base, says professional services firm PwC.

China will remain a key engine of growth, with increased prosperity driving demand for agricultural products, says Ken Su, PwC Transactions Services Partner, China. Su presented a paper on investment opportunities for South African agribusinesses in China at the AMT South African Agricultural Outlook Conference held on 3 and 4 September 2012 in Pretoria.
South African companies need to consider their attitude towards foreign investment in China, says Su. “Companies need to consider what they want from investment and at what level. Otherwise they may miss out on a great opportunity for investment in agriculture.

“As growth in retail, functional foods and agricultural products in Western markets are predicted to be sluggish in the foreseeable future in the wake of the recent economic uncertainty, the emerging markets hold out more opportunities for growth and expansion.”

The agri-business sector is an important focus of the Chinese government and government policies.
The Chinese Government recently set out Five Year Plans across most industries, which are similar to policy white papers with specific growth targets. The current agricultural and food plan emphasizes food safety, industry consolidation, the modernisation of methods and improvement of technology, and the elimination of low quality over-production.
In 2011, government agricultural subsidies totalled over 1 trillion Yuan ($130 billion), potentially doubling to 2 trillion Yuan in annual subsidies within the next five years. Over 180 investments in the agricultural industry were announced from 2006 to 2011 with a total value of over $2.7 billion.

According to a recent study carried out by PwC, more than half the CEOs in the Asia-Pacific region are “very confident” of increased revenue for their companies over the next three to five years, despite the ongoing economic uncertainty. More than 40% of those surveyed say the single biggest opportunity for growth will stem from the rise in consumer spending power in Asia.

The South African agricultural sector needs to consider building joint ventures with other emerging economies, particularly China in the food business, says Su.
China and Africa have made significant strides in bilateral relations over the past 50 years, especially since the establishment of the Forum on China-Africa Cooperation (FOCAC) in 2000. Trade between China and Africa has soared from over $10 billion to $166 billion in 2011. Many South African multinational companies are making investments in China. Su also points that many of South Africa’s top products and exports are increasing in demand in China and are encouraged for investments. These include poultry processing, cattle, maize, vegetable juice and green organic vegetables, fruit, sugar cane and wheat.

However, Su warns that countries need to be aware of laws and regulations when doing business with China.
“South African agricultural products to China may face high tariffs in some instances. Therefore it is necessary for South Africa and China to take cognisance of that when negotiating Preferential Trade Agreements.
“Furthermore, certain sectors are prohibited and others restricted by government policy for foreign investment.”
The industries restricted by China’s Ministry of Commerce include seed development, cotton processing, vegetable/nut oil processing, bio fuel production, advanced rice/corn/flour processing, and traditional Chinese alcoholic beverages.
Su says that the restrictions on foreign investment are a challenge which has perhaps contributed to under investment in some areas, but evolving regulations may bring new opportunities for foreign firms to enter in the future and help develop various sectors.

Other challenges include operating without a free trade arrangement as the Southern African Customs Union (SACU) is still negotiating with China and China’s VAT regime which does discriminate against the import of certain products.
Notwithstanding certain barriers, domestic mergers and acquisition activity remains high on companies’ agendas, with over $160 million in deals in the breeding sector accounted for last year. “The emerging economies are undoubtedly entering a new and exciting era.”

Frans Weilbach, PwC’s Local Agribusiness Leader agreed that South African agribusinesses are showing an increasing interest in investment opportunities in the Asia Pacific region and especially China as the dominant player.

Thomas Magill, PwC China Desk Leader in Johannesburg added “As mentioned above, it is very important to understand the environment in which you are trading and that is why with the PwC China Desk, we are able to offer you the knowledge and advice in order to make the transition that must easier.”

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