China increasing investment in South American agriculture

by World Grain Staff
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NEW YORK, NEW YORK, U.S. — A new report by Rabobank's Food & Agribusiness Research and Advisory (FAR) department examines the exponential rise of Chinese investments in South America, particularly in Brazilian and Argentine agribusiness.

Highlights of the report, released on July 28, include:

• China's investment projects in South American agriculture reflect a combination of factors: its interest in securing long-term food supplies and expanding its sourcing options; a move to diversify investment portfolios from U.S. treasuries into commodities; and a possible response to an internal supply-demand imbalance.

• China is further developing its historical trading relationship with Brazil, particularly through investments in oil, energy, minerals and increasingly, agriculture.

• Due to stricter regulation of foreign land ownership in Brazil and Argentina, China has changed its investment model, investing in infrastructure rather than land in exchange for crop offtake.

• The flow of deals with Brazil is expected to continue, provided that a more balanced trade relationship follows; the outcome will have profound effects on Brazil's political and economic trajectory, and will shape how China pursues relationships in the rest of South America.

The volume of investment projects by Chinese companies in South America has been expanding exponentially since 2007. Brazil in particular provides an enormous potential market for Chinese exports, and has historically been a key partner for China in the energy, manufacturing, and other sectors.

China is aiming to secure the supply of agricultural products, especially grains and oilseeds, as it cannot meet its own demand for them. Several agriculture-related deals in South America — including its large concentration of soybean production and vast quantity of available land and water resources — address China's food industry needs.

Banned from buying land outright, Chinese investors have changed their model to one in which deals are structured as infrastructure investments in exchange for crop offtake, rather than direct investment into farmland.

China has an ongoing need to secure soybean and corn supplies that matches well with South America's productive strengths. With grain stocks at historically low levels, the world will continue to look to South America for incremental production. Brazil has more resources that could be put into crop production than any other country in the world.
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