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China's 1.4b mouths behind ChemChina's Syngenta pursuit
[KUALA LUMPUR] The logic behind what would be the biggest acquisition by a Chinese firm comes down to the growing gap between two numbers - population and available agricultural land.
China has 21 per cent of the world's population with just 9 per cent of its arable land, according to Jefferies Group LLC. That's where China National Chemical Corp's purchase of Syngenta AG comes in.
The Basel, Switzerland-based company's position as the world's largest pesticide maker and its yield-boosting genetically modified crops will help increase the amount of food China produces per acre and give it muscle to take on rivals including Monsanto Co.
With about 1.4 billion mouths to feed, China needs a sharp boost in farm productivity, which has been hurt by damaged soil, contaminated water, and overuse of fertilizer and pesticides.
President Xi Jinping has singled out boosting agricultural output among the country's priorities and urged the country to take the lead in developing GMO crops. China has bought agricultural assets globally, from farms to sugar mills, to ensure food supply as its population increases and becomes wealthier.
"With the stronger demand for food, food security becomes an important policy consideration for the Chinese administration," said Nirgunan Tiruchelvam, director of research at Religare Capital Markets in Singapore.
"A deal of this scale can be justified from that fundamental basis where people are looking for better food security. It's likely we'll see further deals of a similar magnitude in the next few years."
ChemChina offered to buy Syngenta for more than US$43 billion, offering US$465 cash a share, according to a statement on Wednesday. That's about 20 per cent higher than Syngenta's last close of 392.30 Swiss francs (S$552.26) on Feb 2.
Syngenta is one of a handful of companies that dominate the production of GMO crops - others include Bayer AG and Dow Chemical Co and DuPont Co, which said in December they will merge. Syngenta has one of the broadest seeds portfolio in the industry, including 6,800 varieties of its own proprietary genetics.
"China is interested in development of genetically-modified crops, especially engineered seeds that would help farmers reduce the use of chemicals and fertilizer," said Wei Ruan, senior chief economist at Norinchukin Research Institute in Tokyo.
"Biotechnology from Syngenta would also help boost agricultural production in China and make producers meet expanding demand from Chinese consumers."
With less land to use, farmers worldwide will turn to technology including fertilizer and genetically-modified seeds, to grow enough food to meet demand, HSBC Holdings Plc predicts.
While China is the world's second-biggest corn producer, its yields are 44 per cent less than those in the US, the top grower, US Department of Agriculture data show.
China is already seeking to improve productivity by using fertilizers more efficiently, HSBC said in a 2014 report.
While no domestic food-grain crops are bioengineered, China does buy them including from the US where more than 90 per cent of soybeans are GMO. The government is already laying the groundwork for domestically-grown GMOs, starting a campaign in 2014 that includes media and seminars to increase public understanding of biotech and combat the perceived risks.