The following is an extract from the most recent McKinsey Report How might China surprise us in 2013?
It contains ten predictions from Gordon Orr, a McKinsey director based in Shanghai
8. Investment in overseas agriculture is the “next big thing”
In China, a trend that starts as a trickle often becomes an overnight flood. Outbound investment in commodities and premium agricultural products, for instance, will reach a tipping point in 2013: China has shifted rapidly from a trade balance on agricultural goods to a deficit that’s currently around $40 billion and growing at 50 percent a year. This transformation reflects increased demand in China for basic cereals to feed its expanding livestock populations and a slow-to-restructure domestic industry that can’t supply the need. China is now the second-largest importer of rice and barley and a top-ten buyer of corn.
Chinese companies lease hundreds of thousands of hectares from Argentina to Kazakhstan to grow soybeans.Outbound investors also eye a growing opportunity for premium fruits and vegetables of the kind sorely lacking in China. I don’t mean only state-owned enterprises spending their spare cash. Many private Chinese entrepreneurs, who have been wildly successful in areas from real estate to technology, have identified the food chain as their next big thing.
Investing outside rather than inside China is attractive not only for the reasons already mentioned but also to diversify assets geographically and to avoid the high prices paid recently for assets in the domestic food chain. In the last few months, for example, the Shanghai Zhongfu Group diversified from real estate in Shanghai by investing around $728 million in a sugar-cane project in Western Australia. And at a major conference in Beijing in December, Chinese private-equity firms met with senior executives of US food companies and representatives of US state agricultural bureaus to discuss ways of increasing China’s investment in US agriculture.