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Tycoons move into farms to diversifyGrowing demand for food in greater varieties - and, above all, safe food - is presenting IT and private equity firms with opportunities for diversificationMandy Zuo13 November 2011When Ding Lei , the chief executive of NetEase, a leading mainland internet company, announced his plans to raise pigs as part of a new business venture two years ago, it aroused great public interest and became one of the hottest topics online.It became less surprising, though, in the following years, as more and more information-technology tycoons felt compelled to invest in agriculture and followed through on their ideas.Early last month, Lenovo announced that its former senior vice-president, Chen Shaopeng, had been appointed to its parent company, Legend Holdings, as a vice-president to develop agriculture business. Before this, the parent company had reportedly invested in a chicken farm in Jiangsu province and two liquor-making companies in Hunan and Hebei.In June, Liu Qiangdong, the chief executive of an leading online-shopping website, 360buy.com, announced his plan to grow more rice in his hometown after he rented more than 45 hectares of farmland last year.Ding’s plan to raise pigs has also panned out, with his farm being launched in Zhejiang in March.Private-equity firms are showing similar interests. Last year, private equities invested nearly US$1.5 billion in agricultural projects in China, exceeding their total investment from the previous four years, the National Business Daily reported, citing statistics from ChinaVenture Group, an institute providing investment-advisory services.Cases that have aroused the most attention include a US$600 million investment by a consortium led by the US-based Blackstone Group in a logistics park for agricultural products in Shouguang, Shandong province. Another example is the launching of a 1 billion yuan (HK$1.22 billion) fund for agriculture investment by the mainland’s leading agricultural company, New Hope Group.Chen Jun , vice-president of the Beijing Agricultural Investment Fund, which was established in 2009 by the half-government-owned Beijing Agricultural Investment Co, attributed the widely shared interest in agriculture in recent years to merger and acquisition opportunities that have arisen as many sub-industries find themselves needing to improve and expand their scope of business.“Most agriculture-related companies in China today are small and specialise in a single business. The business volume of any one of the world’s four grain giants is at least triple that of China’s Cofco.”She was referring to global industry leaders ADM, Bunge, Cargill and Louis Dreyfus. Cofco is the mainland’s largest supplier of agribusiness services and products, as well as a leading food manufacturer.Ma Wenfeng, an analyst with the Beijing Orient Agribusiness Consultant Co, said the lack of large companies in the sector presented an opportunity for investors, noting: “About 40 per cent of Chinese people’s economic consumption is on food.”But food-safety problems are strongly believed to be another inducement for producing better food.“Because everybody is complaining that we don’t have safe food to eat, there’s room for profits if we can offer them safe food,” Lenovo’s board chairman, Liu Chuanzhi, told China Central Television in September when explaining his interest in agriculture.NetEase’s Ding said that one advantage of the pigs he will sell is they will be free from antibiotics. He was quoted by the Nanfang Daily in February as saying that the mainland’s breeding industry used 97,000 tonnes of antibiotics last year. “With this 97,000 tonnes, can you tell how much antibiotic every pig or chicken has eaten? I realised this problem as recently as a few years ago.”
An investment-promotion officer with the International Finance Corporation said: “As people get rich, they want to differentiate themselves from others. Their mindset changes. They pay more attention to food safety and want to eat different foods.”The officer, who declined to be named, added that as more young people in rural areas leave their farms for cities, chances arose for large-scale farming. It also means demand for food is rising.However, investors have to deal with various difficulties if they really commit themselves to the agricultural sector, Chen Jun said. “You have to be patient, since profits for some sub-industries now are really small,” she warned.Shao Nan, a co-director at Olympus Capital Holdings, told China Business News that agribusiness in China was too closely linked to government policies.“Like many other industries, it has to act in accordance with the government’s will.
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