As the world’s population expands and diets improve in some of the most populous countries, agri-businesses must grow at a strong clip to keep up with demand.

Despite underwhelming economic performance this year for the BRIC countries, in the realm of agribusiness their importance continues to rise. Brazil is becoming an ever more important supplier, and India and China, with 1.2 billion and 1.3 billion people, respectively, are still the biggest drivers of demand.

“Across China, there is growing demand for better, more sophisticated food—reflecting the changing diet, as more people eat meat and dairy regularly. At the same time, consumers need improved food security, which means improvements in the supply chain are needed,” notes Paul Chen, senior analyst for Rabobank in Hong Kong. As the diet of the citizenry changes, Chinese firms are becoming enthusiastic buyers of foreign agribusiness outfits. China’s sovereign wealth fund, China Investment Corporation, with $500 billion of funds under management, will start investing in agribusiness and land as part of a new diversification strategy. This will mark a dramatic change for the seven-year-old fund, which has previously focused on other sectors such as real estate. Most important, the shift in policy means that CIC will now be active in backing other Chinese commercial entities in buying global agribusiness assets.

This shift in focus for China’s corporations is already in evidence. Last year, Shanghui International bought US firm Smithfield Foods, the world’s largest pork producer, for
$4.7 billion. And in April this year, Cofco, China’s largest grain trader, paid $1.5 billion for a majority stake in Hong Kong–based Noble Group’s agribusiness unit to form a joint venture called Noble Agri. According to Chen, this type of deal—rather than an international land grab, which some market watchers have feared—will become increasingly common. 

Chinese firms are interested in assets—such as warehouses and ports to increase control of the supply chain—know-how and intellectual property, says Chen: “The importance of brands cannot be overestimated here.” He points by way of example to restaurants in China that put on display the brand of cooking oil used—something that would be hard to imagine elsewhere.

China has hardly been the only country focusing on improving the supply chain. France’s Cooperative Axereal, the fifth-largest malt producer in the world and France’s largest grain business, signed a €38 million ($52 million) loan/equity agreement with the EBRD to enable it to improve grain collection in southeastern Europe: €10 million will finance the purchase of new silo units in Serbia, Croatia and Romania, and €28 million will enable stable procurement of grains and seeds from the region.

Indeed, almost everywhere cross-border acquisitions are increasing in number and size as global agribusiness firms seek to increase production and improve management and supply chains: With diets changing and the global population expected to increase from today’s 7.2 billion to 9.6 billion by 2050, food production essentially needs to double by that date.

“It’s a huge ask of the industry and the main reason why it is in the midst of such a huge paradigm shift,” argues Martin Richenhagen, CEO of AGCO, owner of Massey Ferguson and Fendt, among other brands. “People must be prepared for a huge change from an industry suffering from overcapacity to one where demand will be higher than supply.”

He says producers must develop quality products with low soil pressure and low fuel production, as farming moves even more toward mechanization. Eyes will be on those places that have the most untapped productive potential. This includes Africa—which still generally lacks intensive modern farming techniques and where some 60% of the world’s reserve in arable land lies—and of course Brazil, where, Richenhagen says, just 60 million hectares of some 400 million hectares of available arable land are being used.  Along with China and some Southeast Asian countries, Latin America generally will become an increasingly big player in global agribusiness.


Across the industry, further consolidation is expected as mergers and acquisitions proceed, especially in input sectors (supplies and services needed to produce agricultural products), which still remain quite disparate, such as chemicals and fertilizers. 

With rising profitability for the industry more or less a given, the big question is what will happen to prices. Many argue that higher food prices are inevitable. The rising cost of inputs also supports this view—arable land prices in many parts of the US are at close to record-high prices, and that is also true in other producing regions—reflecting strong and rising global demand for quality productive land.

In addition, in the short term, which in this industry means anything from the next few weeks to about six months out, there are other variables that could increase grain, soybean and other crop prices. The adverse weather in one of the world’s biggest producers, the US, along with drought in Brazil, could affect output, and thus prices, while Russia’s disruption in Ukraine (the former “breadbasket of the Soviet Union”) could affect production there later this year.

However, long-term observers also point at the remarkable capacity of the industry to reinvent itself and keep prices down. “Demand will increase, but so will supply: Historically, real food prices have always dropped, and I don’t see this changing,” says Thomas Pugh, commodities and agribusiness analyst at London-based consultancy Capital Economics. He points to increasing crop yields in developed countries, more land going under plough and pasture in less-developed countries, and better inputs, including fertilizers, as downward price drivers. These will all serve to increase profitability, boosting M&A activity at all levels and heightening investor interest in agriculture.



This could be a record year for Brazil’s agribusiness industry, which accounts for almost one quarter of GDP. Almost 200 million tons of grain should be produced, and agricultural exports will likley top last year’s record $100 million level.

The world’s second-biggest beef producer is also a leading exporter of sugar, coffee, orange juice, tobacco, chicken, soybeans and ethanol. Brazil’s advantages are considerable: cheap arable land with potential to double the crop area; nearly three times the fresh water of the US; and weather that—when it behaves—can enable two harvests a year.  

Brazilian investment is going into Argentina, Chile and Uruguay, while foreign agribusinesses are trying hard to break into Brazil’s dynamic market. But poor transparency and corporate governance, fraud and corruption are holding back M&A—the country ranks 77 out of 177 countries in Transparency International’s Corruption Perceptions Index, and corruption costs local companies an estimated annual
$146 billion.     

“The problem is that agribusiness here does not yet have a high maturity level in terms of corporate governance and controls. This means there are many opportunities for fraud,” explains Jose Compagño of Ernst & Young’s investigative and dispute service (FIDS) in Brazil, whose own background includes investigating fraud in the Brazilian subsidiary of a Swedish company.

Brazil’s new anti-corruption law, which came into effect on January 29, is proving complex, open to variable local interpretation and, on paper at least, very tough in its sanctions on the alleged corrupter. In a corruption case intent does not have to be proved: Instead, any firm deemed to have benefited from a corrupt act perpetrated by one or more of its employees is punishable. A further incentive for tightening local corporate governance and compliance is the Clean Companies Act, signed into law last year, which makes a parent company responsible for the actions of its subsidiaries.