Interpac Business and Migration Solutions Melbourne Australia

(Apr.29)

Foreign expansion will help it build supply chain and gain expertise

BEIJING - China National Cereals, Oils and Foodstuffs Corporation (COFCO), the country's largest oils and food trader, plans to aggressively expand its vineyard ownership overseas on the heels of two recent purchases, senior company officials said.

"The next purchase might happen in Australia or the United States, and we are also eyeing other places," Wu Fei, head of COFCO Wines and Spirits branch, said in an interview with China Daily.

China has become a big market for imported wine in the past decade. COFCO has been expanding internationally to diversify its portfolio and compete with international brands.

It purchased Chateau Viaud in Bordeaux, France, in February after a previous purchase in Chile.

Sales revenue of the company's wine and spirits business was about 3 billion yuan ($460.7 million) in 2010, according to Wu.

The overseas expansion will help the company build a broader supply chain and gain expertise in wine-making, but China remains the vital market for its wine, said Chi Jingtao, COFCO vice-chairman.

"In the food sector, China is the largest potential market in the world," Chi said, adding the purpose of going global is to better serve the domestic market.

Though it is a State-owned company, COFCO has been exposed to a fiercely competitive market for many years amid the many foreign food manufacturers operating in China, Chi said.

"For us, overseas purchases are not a matter of fundraising, especially given the yuan appreciation. I believe money is not an issue for Chinese companies going overseas," Chi said.

The biggest challenges are cultural integration and team integration, said Chi, who used to head COFCO's human resources department.

"We keep the local employees in their jobs after the acquisitions, because they are more knowledgeable about cultivating grapevines and wine-making. Our focus is mainly on marketing and sales," he said.

China's wine production is expected to reach 2.2 billion liters in 2015, compared with 1.09 billion liters last year, according to the China Alcoholic Drinks Industry Association (CADIA).

CADIA said in the draft of its 12th Five-Year Plan (2011-2015) released on Tuesday that sales income from the wine industry in China will be around 60 billion yuan in 2015, up 85 percent from last year's 32.5 billion yuan.

Although the wine industry in China is much smaller than the beer and liquor sectors, and even a slightly smaller than the rice wine segment, it maintained double-digit growth in the past five years. The association said the wine industry is expected to grow faster than any other alcoholic beverage sector in the coming five years.

To promote the development of the wine industry, CADIA called for tax cuts on grape planting. The grape is classified as an industrial raw material instead of agricultural product in China and is thus ineligible for the tax benefits agriculture products receive.

Wang Yancai, chairman of CADIA, said a proposal has been submitted to the central government and is expected to receive approval by the end of this year.

China's wine consumption doubled between 2005 and 2009, with imported wine consumption increasing almost fourfold, according to the organizer of VINEXPO, an international wine and spirits exhibition held each year in Bordeaux. The organizer also said the imports would account for 56 percent of the wine consumed in China in 2014, compared with 14.7 percent in 2009. Data from General Administration of Customs shows that China's wine imports hit a record $1.33 billion in 2010, up 53.44 percent year-on-year.

(Source from Chinadaily)