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Insight: China's COFCO makes painful cuts in drive to lead global food trade


By Saul, Gus Trompiz and Hallie Gu

LONDON/PARIS/(Reuters) - China's International is in the throes of a staffing upheaval as the group pursues its professed ambition of sitting at the top table of global agricultural traders.

But doubts persist among some in the industry over whether the trading firm will really challenge the existing four dominant players in grains, oilseeds and sugar. In the end, they suspect, it may prioritise securing strategic supplies for over commercial aims in an era of rising trade tensions.

National Cereals, and began building its foreign commodities operations in 2014 and formally launched the International Ltd (CIL) trading division in April last year. Its assets include port facilities in and Romania, sugar mills in and grain silos across the globe.

Last month Yu Xubo, of the Beijing-based parent Group, laid out a bold expansion. "We aim to become the largest by 2020, not only in assets we own and revenues we make, but also in the quality of our assets, business operation, and return on investment," he told the official Daily.

Group, which has interests that include hotels, and some of China's leading and drink brands including Great Wall wine, reported revenue of 344.796 billion yuan ($53 billion) in the first nine months of 2017.

Reflecting progress towards its targets, by the middle of last year the group was already the second biggest grain exporter from Argentina, one of the world's top producers.


is securing its global supply lines, moving into mining ventures in Africa, expanding its ocean shipping fleet and buying ports around the world. This effort is accelerating under Xi Jinping's trillion-dollar Belt and Road projects connecting to and beyond.

But International - in which Singapore, London-based and the World Bank's commercial arm also hold stakes - has spent most of the past year integrating past purchases rather than expanding.

This process has been painful at a difficult time for all traders. Four years of bumper global grains and oilseeds harvests have squeezed profits at the established players: Archer Daniels Midland Co, Bunge, and Louis Dreyfus Co, known as the "ABCDs" due to their initials.

"It has been a challenging period," said one source with knowledge of International's But the source told the worst was over, with the poised to try to take market share from rivals. "The big ambition is still there - to be the new C of the ABCDs."

International has been trying to integrate two purchases, together worth more than $3 billion, that it agreed three years ago - of Rotterdam-based and the agribusiness of Singapore-listed

This has meant heavy job losses. A said last month that over 2,500 jobs had been shed in its Brazilian sugar operations alone, with further cuts expected there, although this was separate from the integration process.

Group has also sent a team of managers from to take pivotal roles in operations across the globe, including in Canada, and Europe, company memos seen by showed.

A for Geneva-based International said around 50 of its staff are former Group employees, although he noted this was out of a total workforce that exceeds 13,000. The declined to comment further on human resources issues.

Johnny Chi, who held top positions with Group in China, has overseen the departure of several top staff at Nidera, from which the inherited big losses. These included a $150 million financial hole in its Latin American operations and $200 million in unauthorised trading losses on its desk.

Company memos show Chi has been followed by Frank Feng, appointed for and Lucas Shi, who has taken the same role at a regional level in the "Southern Cone" countries including Another recruit from is Dong Guo, who has become

Sources said teams have been shrunk or removed in and This followed a management reshuffle in after the accounting irregularities.

The firm has also hired high profile figures from the industry, with Pierre Lorinet, former at trade house Trafigura, and Serge Schoen, an ex-Louis Dreyfus chief executive,


Whether the firm has achieved a turnaround yet is unclear. No profit and loss accounts are available for International, in which the parent holds 48 percent and the sovereign wealth fund Investment Corp 12 percent.

International announced in November an agreement to sell its crop seeds business to Swiss-based - which has been bought by - but did not disclose price terms.

"The seeds sale has boosted the balance sheet," a second source said. "2017 has been an effective year and International is back on track and can start thinking again about growing."

has said it will pursue partnerships to expand overseas after signing a supply deal with U.S. cooperative Promark last year.

One former International who left in the past year said the firm had been struggling over how to cut costs and ensure future revenues after shedding people who had been making it money. Other problems lay in overcoming cultural differences across its global operations.

"It's a big machine. It doesn't think like a business. It thinks like a government," the former told Reuters, declining to be named.

The for International Ltd (CIL) said "differences in corporate culture are normal in the context of a merger of companies".

"CIL is currently deploying a new common corporate culture across all CIL locations which was developed by various CIL management in 2017," he added.


Chi has played down suggestions that the firm is torn between competing objectives, unsure whether to pursue its own commercial aims or the strategic interests of its home country. In November, he told it did not want to be "just a procurement platform for Corporation or China".

But some remain sceptical. "What International should strive for is to be the most efficient procurement office for - the feeding of China's population is of the utmost strategic importance," said Jean-Francois Lambert, founding partner of consultancy. "This is in fact their prime objective."

With such powerful Chinese shareholders, the firm has the financial clout to become an ABCD "if they want to", said Jay O'Neil, at

International had overpaid for the investments in and Noble and not got the results it was looking for, he told However, he noted the possibility that the purchases were designed to let and diversify supplies of soyabeans and to "protect them from potential political issues with the U.S.".

has repeatedly complained about the size of China's trade surplus with the United States, and accused the country of stealing U.S. intellectual property.

The views of International's shareholders remain unclear. Group did not respond to requests for comment while Investment Corp declined to comment, as did and China-based firm

state investor said it did not direct the business of its portfolio companies, while the World Bank's commercial arm IFC said its investment aimed to drive world supply efficiency.

If International sticks to Yu's stated commercial ambitions, it cannot achieve this through internal growth and will have to return to the acquisitions market, Kansas State University's O'Neil said.

"I do not see them as taking a significant percentage of market share away from others until and unless they buy into one of the ABCDs. And if they do that, well then they will be an ABCD."

($1 = 6.4940 Chinese yuan renminbi)

(Additional reporting by Sybille de La Hamaide in Paris, Karl Plume in Chicago, Rod Nickel in Calgary, Sumeet Chatterjee in Hong Kong and Anshuman Daga in Singapore, Editing by and David Stamp)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Sat, January 13 2018. 09:23 IST