China's COFCO to control state food firm Huafu in efficiency drive

[BEIJING] China's top agribusiness firm COFCO will take control of fellow state-owned firm China Huafu Trade and Development Group, a regulator said late on Wednesday, as part of Beijing's reforms to boost the efficiency of the state sector.

COFCO, the China National Cereals, Oils and Foodstuffs Corp, is one of a handful of companies chosen to lead the reforms. It has greater autonomy than most state-owned companies and is mandated to be more market-oriented.

Huafu, which manages Chinese reserves of foodstuffs such as sugar and meat, will be managed by COFCO, rather than coming under the government's direct control.

The move would have no immediate impact on the sugar market, said Zhan Xiao, sugar analyst at Xinhu Futures. China holds an estimated 6 million tonnes of sugar in state reserves but after buying up the sweetener at high prices, it is likely unwilling to finance further purchasing this year.

Beijing is also shifting away from stockpiling of foodstuffs to other policy tools to support domestic growers after its reserves purchased farm products at artificially high prices, driving demand for cheaper imports. It is currently trialling direct subsidies for cotton and soybeans and could expand the support to sugar. "In China, most agricultural products, apart from grains, will no longer be stockpiled," said Zhan.

The merger has been approved by the cabinet and will make Huafu a wholly-owned subsidiary of COFCO, according to a notice on the government's State-owned Assets Supervision and Administration Commission (SASAC) website. Huafu has registered capital of 1.33 billion yuan (US$217 million), with sugar storage capacity of 1.6 million tonnes, according to its website.

China has launched an ambitious series of reforms aimed at boosting the efficiency and transparency of state-owned enterprises (SOEs). In July, Beijing named COFCO and five other central government conglomerates to pilot reform measures.

Moody's has described COFCO as a "role model" for SOEs. It controls a large number of listed companies overseas and in China, including COFCO Land Holdings Ltd.

The company has swallowed several smaller domestic firms in recent years as China's modernising agriculture sector drives consolidation. Earlier this year it also acquired a majority stake in Noble Group's agribusiness.

On Tuesday, the Ministry of Finance said state companies had suffered from rising operating costs, particularly financing expenses, even as revenues rose.

REUTERS