Recently, the government agency overseeing state-owned companies announced policy priorities for 2023 which include improving food security and supply chains. With the government more focused on food security, including through state-owned companies, it’s important to review state-owned companies and their role in the market.
Previously, Sinograin was responsible for government stockpiling while COFCO intended to operate as a market-driven enterprise. This caused issues as there was often overlap in their business and mandates. Sinograin became a major player in the crushing industry, competing with COFCO, while COFCO was also able to store grain for the government.
In August, the two companies created China Enterprise United Grain Reserve to manage reserves.
This company’s mandate is simply to store the government’s stockpiles. This also includes reserve rotation of corn, wheat, rice, soybeans, cotton, and edible oils. The company also announced plans to add a storage capacity of 30 million tons from 2021 through 2023.
This makes the company the least market driven as its goal is to store government stockpiles to meet government goals around food security.
In contrast, COFCO is a “market-oriented” business that also serves the purpose of importing grain for the country. On the food side, this includes imports as well as the processing and retail sales. The company also has its own brands of food products including pork, sugar, milk, and a wide variety of other products.
While the majority of COFCO’s revenue comes from agriculture-related business, it is also involved in a broad range of other commercial activities including real estate and liquor production.
Sinochem is a major player in the chemical space, and its agricultural operations include fertilizer, seeds, pesticides, and animal nutrition products. The company merged with ChemChina which has previously purchased European seed producer Syngenta.
While all of these companies are state-owned, the government has been trying to have these firms operate based on market principles rather than state direction. Many state-owned companies were relatively inefficient and saw low returns on assets. They have become more competitive due to marketization and competition from foreign firms, but they also ultimately are supposed to support broader government objectives.