Ag Policy Blog

Taking a Look at China's Next Steps in Agriculture

By Chris Clayton , DTN Ag Policy Editor

During the 2013 Senate Ag Committee hearing into Smithfield's sale to the Chinese firm Shuanghui, Sen. Pat Roberts, R-Kan., -- now the committee chairman -- asked Larry Pope, then Smithfield's CEO, "Did you realize you were the victim of a Chinese Communist plot?"

Most people in the hearing room laughed.

Pope didn't see a Chinese Communist plot either. He did see a very good payday for helping transition Smithfield to Chinese ownership. According to a company filing, Pope collected $46.4 million in total compensation from the Smithfield sale. http://dld.bz/…

While the Smithfield purchase got a lot of attention at the time, the floodgates have opened for Chinese corporate investment around the world, particularly in agriculture.

Chinese leaders have figured out that a key to staying in power is ensuring the country's burgeoning middle class gets a modern food system. Chinese companies also realize the falling yuan (renminbi) means their money is worth more buying assets overseas.

DTN began looking at the U.S-China relationship regarding agriculture and food security when news broke in early February that ChemChina was buying Syngenta. About that same time a group of Chinese investors called Chongqing Casin Enterprise Group announced they were buying the Chicago Stock Exchange. The stock exchange has miniscule volume of the U.S. stock market volume, but the exchange is a high-tech company wired directly into the major U.S. financial markets. The Chicago Tribune, in an editorial, noted that international investment in the city is a good thing, though the paper said the purchase demands added scrutiny. "But China is at once a trading partner and an adversary of the United States. That raises legitimate questions about this purchase, even whether it represents a security risk." http://dld.bz/…

DTN will have multiple articles over the next several days looking at U.S. agricultural investments, research and development in China, as well as the battle over distilled grain and other commodity exports to Asia.

Over the past decade China has gone from being a relatively small importer of U.S products to being the top destination from 2011-2015. U.S. ag exports to China grew 125%, according to USDA and hit $25.9 billion in 2015. Roughly one-third of all soybeans grown in the U.S. were exported to China. USDA projected earlier this year that exports would fall to roughly $17.5 billion, a sharp decline due partly to the strong U.S. dollar.

Over roughly the same time, Chinese companies have come to wield heavy influence in agriculture around the world. Smithfield's parent company, WH Group, can lay claim to being the world's largest pork producer. When China blocked several U.S. packers from exporting to China in 2014 and last year, Smithfield benefited and was responsible for as much as 97% of pork exports from the U.S., according to WH Group.

The Chinese National Cereals, Oils and Foodstuffs Corp., COFCO, another state owned company, has been increasing its investment mainly in Brazil over the last few years. Asian grain companies such as COFCO now control most of the grain and oilseeds moving out of South America.

ChemChina, once the Syngenta purchase goes through, will not only have a pipeline of biotech traits for crops such as corn and soybeans, but ChemChina will be the largest agro-chemical company in the world as well.

Sen. Debbie Stabenow, D-Mich., in 2013 asked if the roles were reversed could Smithfield buy a Chinese meatpacker. The answer is no. U.S. companies remain restricted on what they can invest in when it comes to Chinese companies. Since 2008, the U.S. has been trying to get a bilateral investment treaty with China that still isn't complete.

Much like 2013, a handful of senators have asked for a review of the ChemChina-Syngenta deal by the Committee on Foreign Investment in the U.S. called CFIUS. ChemChina and Syngenta have said they plan to submit materials to CFIUS even though this is a case of a Chinese company buying a Swiss company -- both of which do about $3 billion to $4 billion in business in the U.S.

The CFIUS process is an area where the Chinese and U.S. governments have a great deal in common. They both share a great love of secrecy. For instance, we don't know if USDA or the Food & Drug Administration got to play any role in reviewing the Smithfield merger. We do know that neither FDA nor USDA are among the government agencies asked to be part of the committee in the CFIUS law. USDA's press secretary says Secretary of Agriculture Tom Vilsack isn't allowed to discuss anything about CFIUS. In other words, USDA's press office maintains USDA is sworn to secrecy about a committee they aren't even included in. The Treasury Department, which runs CFIUS, stated that "off the record" they have nothing to share about the committee.

Beyond bureaucratic committees, there's the curious case of Mo Hailong. He's a Chinese seed company executive for the Beijing Dabeinong Technology Group (BDN) who was caught stealing seeds from seed-corn fields in Iowa and Illinois growing biotech varieties of Dupont Pioneer and Monsanto seed. He and others were caught trying to smuggle those seeds out of the country.

Mo's case also highlights the extent to which some Chinese agribusinesses went to procure U.S. agricultural technology.

Mo pleaded guilty to one count of conspiracy to steal trade secrets and agreed to forfeit land to the federal government. Cases against five of Mo's co-conspirators are still tied up in federal court. Mo's sentencing hasn't been scheduled, but the court fight in Mo's case throughout 2015 was over Mo's motion to exclude evidence tying him and his company to the Chinese government. Prosecutors argued that Mo wasn't just trying to make money for his company, but wanted to be viewed as a national hero. FBI agents recorded several conversations with Mo talking about the importance Chinese officials placed on crop seeds. "The leaders in China are paying a lot of attention to the seed industry," Mo said in one call.

Before Mo was caught, FBI agents said he shipped over 340 pounds of corn seeds from Iowa to his home in Florida. Authorities aren't certain where the seeds went from there, but you can speculate.

Conversations in the court documents show Mo and a conspirator -- a Chinese plant breeder -- talking about "using the foreigners' technology to beat them." In another call, Mo's counterpart in China noted the seed he had "collected last year" had "produced very nice results so far." After some American workers at a seed warehouse wouldn't give seeds to one of Mo's colleagues, Mo lamented his colleague had gotten careless and "underestimated the enemy." A seed researcher and co-conspirator for DBN told Mo in a phone call that something had to be done because "Pioneer's prowess has shaken the Chinese government. There is a serious need for a national hero."

That almost sounds like a Chinese Communist plot.

2013 Senate hearing "Smithfield and Beyond" transcript: http://dld.bz/…

Follow me on Twitter @ChrisClaytonDTN

Comments

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RSimpkins1489533924 4/12/2016 | 11:50 AM CDT
My comment yesterday exactly!!!! The selling of America. Good job you morons.

Chris Clayton