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Feeding Your Needs
COFCO spans the entire agribusiness supply chain from farmland to table
By Li Xiaoyang  ·  2019-09-23  ·   Source: NO.39 SEPTEMBER 26, 2019

An employee works at an assembly line of COFCO Oils and Oilseeds (Qinzhou) Co. Ltd. in south China's Guangxi Zhuang Autonomous Region on January 10, 2018 (XINHUA)

Coca-Cola, the world-famous soft drink, was quite rare in China several decades ago. In 1978, when China started its opening up, the company and the state-owned China National Cereals, Oils and Foodstuffs Corp. (COFCO) held cooperation talks in Beijing. The following year, Coca-Cola became the first U.S. company to operate in the Chinese mainland, the same year that China-U.S. diplomatic relations were established.

Providing a key door to introducing Coca-Cola to China, COFCO has become its fifth largest cooperation partner in the world, Luan Xiuju, President of COFCO Coca-Cola Beverages Ltd., a joint venture established in 2000, said.

The Coca-Cola project makes up just a small part of COFCO's business. Initiated in 1949, the Beijing-headquartered company has developed into China's largest agricultural products supplier by revenue. In 2018, its operating revenue was 471.1 billion yuan ($66.2 billion), with more than half from foreign markets. It has made the Fortune Global 500 list since 1993.

From 1949 to 1978, COFCO focused on trade in grain and oil, making key contributions to China's food exports. During that period, the number of its different types of products skyrocketed from dozens to over 2,000.

A more open market and the improving living standards of Chinese people have promoted its expansion. Currently, COFCO is much more than what its name suggests. With 14 listed subsidiaries, the company has developed famous food and beverage brands such as COFCO Grains & Cereals and China Mengniu Dairy, along with the Coca-Cola joint brand, covering all the main categories of daily consumption, including foodstuffs, sugar, cotton, meat products, dairy products, wine, tea and more. Its business has also expanded to include financial services and real estate development.

And the quality of its goods has also grown. According to Lu Jun, Chairman of COFCO, the company has over 4,200 staff members working on examining the quality of the food, with a complete industrial chain. At Mengniu Dairy, only 30 seconds are needed to trace information relating to material suppliers and product examiners.

Meeting new demands

Living a much more prosperous life, many Chinese people have shifted to eating their way to good health for better consumption experiences. Since consumers living a fast-paced life have embraced online food purchasing, COFCO launched its e-commerce platform Womai in 2009. As online retailers of fresh products have mushroomed in recent years, Womai has gained a foothold in the rising market competition.

Xiao Xin, a 27-year-old product manager at a Beijing-based social network company, has been a regular customer of the website since 2014, when she was introduced to it by her colleagues.

"I buy imported fresh products such as meat and fruits on Womai about twice a month and spend 100 yuan ($14) to 200 yuan ($28) each time. After placing an order, I can get the products in one day," she told Beijing Review.

According to Xiao, high-quality products, affordable prices and fast delivery have made Womai a frequent option for her. Notably, its fresh products are packaged with enough dry ice, which is very customer-friendly.

She recalled her best shopping experience on Womai last year when she bought a 5-kg box of cherries at 298 yuan ($42), much cheaper than those sold in brick-and-mortar stores for 100 yuan ($14) per kg. "They tasted really good, totally beyond my expectations," she said.

Wang Guanxiong, an Internet industry expert, said Womai has an advantage in terms of its supply chain since COFCO has rich suppliers and self-owned distribution channels, which can help ensure the quality of food and retain customers. But to further stand out in the domestic market, it needs to improve logistics and better meet customers' needs.

"It would be better if Womai could provide more diversified products, especially popular foods such as snacks in small packages for the post-1990s generation," Xiao said.

Along with meeting customer demands, COFCO has also helped farmers sell their products without intermediate costs, while adding to its own supply of green food.

In 2018, Wang Fuqiang, once a corn farmer living in Bayannur, north China's Inner Mongolia Autonomous Region, signed a contract with COFCO to plant wheat on 13 mu (0.87 hectare) of his land. As part of the agreement, the company offered him seeds and technical guidance.

"For each mu of wheat, I earned 80 yuan ($11.4) more than growing corn," Wang said. This year, he decided to cooperate with COFCO's contract wheat farming program again with his entire 28 mu (1.87 hectares) of land.

Since 2016, COFCO has started to develop service platforms in major grain-producing areas across China, including the three northeastern provinces of Heilongjiang, Jilin and Liaoning as well as Inner Mongolia, to connect farmers with the market to improve their income. By the end of 2018, it had signed contracts with 148,600 rural households on 226,700 hectares of land.

The company has transformed its regional depots into grain banks for farmers to store and sell their harvests. Through an app, the prices and volumes of stored grains can be easily checked.

According to Chen Tao, a COFCO manager, these platforms have provided stronger support for farmers to expand their production and have ensured their income. They have helped reduce their losses due to grain mildew and also cut transportation costs.

Womai provides another shortcut for farmers to sell their products more directly. The website promotes agricultural products from many poverty-stricken regions, such as pears from Weixian County in north China's Hebei Province, to boost sales.

By November 2018, total sales of agricultural products from impoverished areas on Womai had topped 22.83 million yuan ($3.2 million).

A staff member at COFCO W&W International Co. Ltd. serves wine samples to a visitor at an expo in Germany on March 20 (XINHUA)


As part of the efforts to increase the competitiveness of state-owned enterprises (SOEs) and improve their financial performance, China launched mixed-ownership reform in 2013 to bring in private and foreign capital. As one of the pilots selected by the State-Owned Assets Supervision and Administration Commission of the State Council, COFCO started the reform in 2016 by restructuring and divesting nonessential businesses, and pushing core businesses to go public.

China Tea was the first of COFCO's wholly owned subsidiaries to complete the reform in August 2017. Currently, COFCO holds 40 percent of the company, with 15 percent going to its employees. The rest of the stake is held by various investment companies, including 3 percent by Mitsui & Co. based in Japan.

According to Zhao Shuanglian, former Chairman of COFCO, mixed-ownership reform focuses more on transforming the role of state capital than changing the ownership structure, which has injected impetus into the company. "China Tea can provide valuable experience for other SOEs in their reforms," he said.

The ongoing reform has improved COFCO's market performance. According to company sources, its profit surged from 6.15 billion yuan ($865 million) in 2016 to 12.9 billion yuan ($1.8 billion) in 2018. Last year, the company managed 560.6 billion yuan ($78.8 billion) of assets.

Overseas presence

As COFCO continues its reform, it has also beefed up its presence in the global market, particularly in the countries participating in the Belt and Road Initiative.

According to the Ministry of Agriculture and Rural Affairs, China's agricultural trade with other Belt and Road participants totaled $77 billion in 2018, with imports from these countries reaching $42.82 billion, up 16.4 percent year on year.

COFCO has developed agricultural trade with 54 Belt and Road participants, which contributes more than half of its total annual imports. It has also exported malt, starch, citric acid and tea to these countries. In October 2013, it started to import high-quality rice from countries such as Thailand, Cambodia, Myanmar and Laos.

According to COFCO President Yu Xubo, the international trade in agricultural products can help improve China's food security since it has not yet achieved full self-reliance. Imported agricultural products can also meet people's rising needs for diversified food.

During the First China International Import Expo in November 2018, COFCO signed contracts to import agricultural products from 84 suppliers in 29 countries and regions around the world.

Currently, COFCO's trading partners have expanded to over 140 countries and regions. By developing international supply chains, it has linked the dining tables of people in China with global fields and farms.

It has also purchased and built ports, logistics companies and storehouses in the world's main grain-producing regions such as Australia and some American and Black Sea countries. In 2017, it signed a long-term cooperative agreement with China COSCO Shipping Corp. Ltd. to support its grain shipping worldwide.

By 2020, COFCO's operating revenue from foreign markets will represent more than 60 percent of its total, with over 50 million tons of grain provided by its trading partners, according to the company.

Copyedited by Rebeca Toledo

Comments to lixiaoyang@bjreview.com

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