State-owned ChemChina is to pay 39 billion euro for Swiss seeds and pesticides group Syngenta as China seeks greater food security.
When you consider that a fifth of the world's population resides inside China's borders it is no surprise that they're shifting their focus on how exactly they aim to feed those mouths in the future
It is the largest ever foreign purchase by a Chinese firm as the Beijing government moves to improve and secure food supplies for its people.
The background is that years of intensive agriculture along with overuse of chemicals has degraded land and poisoned water supplies, leaving China increasingly vulnerable to crop shortages.
Beijing wants to boost food productivity to cut reliance on imports amid limited farm land, a growing population and higher meat consumption.
Alastair McCaig, market analyst at IG, said: “When you consider that a fifth of the world’s population resides inside China’s borders it is no surprise that they are shifting their focus on how exactly they aim to feed those mouths in the future. The land population equates to about 10 percent of the global coverage so they are going to need to increasingly show an interest and an increased performance as far as their crops are concerned, especially when you consider in yesteryear [China’s] mindset on land was not as environmentally friendly as many of its western counterparts.”
Syngenta’s boss John Ramsay, called the ChemChina offer “very appropriate and attractive” to his company’s shareholders, but added its board would have to consider any rival offers.
He said he does not think there will be problems with getting the deal through regulators.
Syngenta is already the largest supplier of crop chemicals, excluding seeds, in China with a six percent share of a fragmented market, the group’s chief operating officer Davor Pisk said.
The agreement is the latest move in China’s quest for Western technology and distribution networks.
Similar deals include last year’s buyout of Italian tyre maker Pirelli by ChemChina. In January, ChemChina announced the acquisition of German industrial machinery maker KraussMaffei Group for about $1 billion (906 million euros).
“We are increasingly hearing noises about how Chinese investors and the Chinese community at large are trying to diversify their portfolios outside China’s borders, looking at investing in a more global community. It helps increase their tradability with the rest of the world. It helps open up the doorways as far as business is concerned but it also helps them get their funds outside of their borders and away from Chinese regulators and I think that is something we will see increasingly,” IG’s Alastair McCaig added.