Over the past 30 years, Japanese multinational grain traders such as Marubeni, ZEN-NOH (National Federation of Agricultural Cooperative Associations), and Itochu Corporation have risen to prominence in the international grain market, rivaling the traditional 'ABCD' giants (ADM, Bunge, Cargill, Louis Dreyfus).

Marubeni's data shows that it sells 12 million tons of soybeans annually to China, accounting for 19% of China's 63 million tons of annual soybean imports. After acquiring U.S.-based Gavilon Holdings, Marubeni's annual soybean sales to China reached 15-16 million tons, exceeding a 20% share.

A Tiny Nation Produces Multinational Grain Giants

In 2012, Marubeni invested $3.6 billion to acquire all shares of Gavilon Holdings, the third-largest grain and energy trader in the U.S. After the acquisition, Marubeni's annual grain handling volume (including soybeans and corn) exceeded 50 million tons, surpassing ADM, Bunge, and Louis Dreyfus, second only to Cargill, the world's largest.

In terms of land area, Japan, with less than 400,000 square kilometers, is a small country, but its influence on the international grain market far exceeds that of China, a major grain-producing country.

In 2013, China's grain self-sufficiency rate was around 90%, but its annual rice exports were 478,400 tons and corn exports were 77,600 tons. Despite being the world's largest soybean importer, China's influence on the international soybean market is minimal.

Compared with China, Japan's grain self-sufficiency rate is almost embarrassing, with an overall grain and oil self-sufficiency rate of only about 40%, and feed is almost entirely imported. However, the influence of several Japanese multinational grain traders on the international market is something Chinese companies cannot match.

In fiscal year 2012, excluding Gavilon Holdings, Marubeni's grain business handled 25 million tons annually, ranking first among Japanese general trading companies and fifth among the world's major grain traders.

ZEN-NOH ships about 12 million tons of agricultural products annually, including corn, soybeans, and wheat. The total exports of corn, soybeans, and sorghum through ZEN-NOH reach 11 million tons per year, about 20 times China's total exports.

The Rise of Japanese Grain Traders

How did Japanese grain traders, whose domestic production is insufficient for their own consumption, thrive in the international market?

Japanese companies recognized the problem of insufficient agricultural supply early on. Japan relies almost entirely on overseas imports for its food, with about 80% of feed raw materials imported. Ensuring a stable supply of domestic food is the top priority for Japanese grain traders.

In 1970, CGB Company, in which ZEN-NOH holds a stake, was established in St. Louis, Missouri, in the U.S. grain belt, with only three employees. Today, CGB has 95 branches worldwide and over 1,500 employees, providing financial and risk management services to farmers, as well as purchasing, storing, selling, and transporting crops. CGB remains one of the companies with the largest market share in U.S. inland waterway shipping.

In addition to CGB, ZEN-NOH established ZEN-NOH Grain Corporation in the U.S., building and strengthening corn shipping infrastructure. On the U.S. West Coast, ZEN-NOH also cooperated with CHS, the largest agricultural cooperative in the U.S., to establish a grain procurement and export system.

Outside the U.S., ZEN-NOH established partnerships with overseas agricultural cooperatives, including ACA in Argentina (supplying corn, barley, sorghum), COAMO in Brazil (soybeans, corn), CBH in Australia (barley, wheat, sorghum, pasture), and INVIVO in Europe (corn, barley, wheat, sugar beets).

Thus, ZEN-NOH established its own grain procurement and warehousing logistics systems in the world's largest grain-exporting country, the U.S., as well as in major grain-producing regions such as South America, Europe, and Australia. This allows it not only to buy grain but also to transport it, enabling cross-border grain flows globally.

Marubeni's path in the international grain market is similar to ZEN-NOH's.

Marubeni's subsidiary, Columbia Grain, was established in Portland, Oregon, in 1978. Its Terminal 5 is one of the world's most automated and integrated grain export facilities, with a grain handling capacity of 1 million tons, making it a leader in the Pacific Northwest grain market.

According to industry veterans, Columbia Grain, located in Portland on the West Coast, is jointly invested by several major Japanese trading companies, with export terminals, warehouses, and rail unloading facilities. However, its management is almost entirely American, primarily receiving wheat shipped by rail from the Midwest grain belt to supply the Japanese market. They have collection points in states along the railway to gather supplies for export orders. Now, through the acquisition of FGDI, they have expanded into soybean and corn production areas further east.

The acquisition of Gavilon Holdings gave Marubeni a significant boost. Marubeni gained approximately 140 grain collection points across the U.S., as well as bases in major producing areas outside the U.S., such as Brazil, Australia, and Ukraine. These bases, combined with Marubeni's existing assets, further expanded its global grain procurement and sales system.

What Can Chinese Grain Traders Learn?

The rise of Japanese multinational grain traders has left Chinese grain industry professionals in awe.

In April of this year, COFCO announced the acquisition of a 51% stake in Noble Agri from Noble Group. Earlier, in February, COFCO announced it would take control of Nidera, a global agricultural commodities trading group. COFCO invested a total of about $2.8 billion in these two acquisitions, setting a record for overseas acquisitions in China's grain and oil industry.

Although compared with Japanese multinational grain traders, COFCO's overseas investments are latecomers, it has taken the first step. However, industry insiders are not optimistic about the emergence of a Chinese Marubeni or ZEN-NOH.

A person who has worked at a multinational grain trader told the National Business Daily that China lacks world-class management teams for multinational grain traders, despite having talented individuals. The executive teams of multinational grain traders are market-oriented elite teams that recruit globally, regardless of nationality or gender, which is not feasible in China's central state-owned enterprises. There are few executive teams in China that can compete internationally with Marubeni and ABCD, and the bureaucratic and semi-bureaucratic atmosphere in central SOEs is strong. Moreover, due to the overall environment, central SOEs have limited autonomy, and going global still requires government approval.

Unlike Japanese companies going global, some Chinese companies and individuals are exploring overseas land purchases or leases for farming. Industry insiders do not consider this model optimal. One insider said, "Chinese companies farming overseas is not the best strategy. Overseas agriculture should focus on cooperation, fully utilizing local land and labor resources, rather than leasing or buying land, which would raise high vigilance among the host country's people and government, leading to many unexpected obstacles."

If overseas land is leased or purchased without controlling logistics, costs will still be higher than those of multinational grain traders. The insider said that at ZEN-NOH in the U.S., the staff are mainly locals. Therefore, they are familiar with local culture and market conditions, participate in procurement, transportation, warehousing, sales, hedging, and other business activities, and control every link of the value chain from farm to export. They do not farm, but their supply channels are unimpeded, and their supply capacity continues to grow, making them a backbone enterprise in U.S. grain exports.

The insider said that COFCO's acquisition of Noble and Nidera is a shortcut to going global and is commendable, but the key is post-acquisition management. These international companies have much deeper expertise than COFCO, and COFCO should learn from them to help it internationalize and become a member of the international grain trading community. Currently, it is China's market and food security that require this, but international companies are focused on the benefits of the international market. Therefore, COFCO must not only focus on China but also look to the world.

Source: National Business Daily

-END-

Click on the titles below to read directly: