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VC, PE firms show appetite for food industry

Updated: 2012-02-14 10:24

By Cai Xiao (China Daily)

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BEIJING - As the Chinese become richer and pay more attention to the quality of food, venture-capital and private-equity companies have started to invest in the country's agricultural sector and cultivate food products' brands.

By the end of 2010, the average per capita consumption of pork by Chinese people came to 33.1 kg, an 85 percent increase from 1990. The figure for dairy products, meanwhile, was 11.27 kg, 6.7 times greater than 10 years ago, according to a report by Southwest Securities Co Ltd.

The report said Chinese people are placing a greater priority on their health, which has directly influenced agriculture production and investment activities in the country.

Beijing Century Chestnut Ecological Agriculture Co Ltd, a company that provides eggs and chickens to large Chinese cities, raised 100 million yuan ($15.8 million) last year from a financial consortium led by DT Capital Partners and Tiantu Capital Co Ltd.

Chen Lihui, a financial consultant for the investment and a partner at SSG Capital Ltd, said institutional investors are putting money into Beijing Century Chestnut Ecological Agriculture because it has its own chicken breed and is setting up a comprehensive system to guarantee food safety, making it a brand that will be fairly easy to promote.

"Brands are now important because people are no longer satisfied with simply having enough to eat," Chen said. "More and more they want high-quality food. Having good brand recognition is also important if the company plans to raise money in the capital market."

Chen said the price of high-quality eggs is about 50 percent more than ordinary ones, and he expressed confidence that such products will prove popular in the market.

He said Beijing Century Chestnut also plans to use the money raised to develop high-quality rice, grains and vegetables.

Kunwu Jiuding Capital Co Ltd, a domestic equity-investment company, is also putting 100 million yuan into a food company's rice business. Kunwu Jiuding said it plans to help build a strong brand for the company, which it declined to name.

"An increasing number of agricultural companies are setting up brands, but the costs of working with supermarkets and shops, as well as marketing activities can also be high," Liu Achang, an investment manager at Kunwu Jiuding, said.

He said he and his colleagues are discussing possible brands for the company Kunwu Jiuding has invested in.

A researcher at the strategic investment department of Beijing Xinfadi Agro Co Ltd, the largest wholesale market for farm produce in the capital city, said supermarkets and other retailers pay most attention to the branding of eggs, meat, and dairy products because such foods are more likely to give rise to troubles.

Recently the capital markets have witnessed a fairly large number of investments into the agriculture business. Since 2006, global investment firms such as KKR & Co LP, Carlyle Group and Blackstone Group have invested in the Chinese agriculture sector.

Blackstone led the pack, spending about $600 million on the China Shouguang Agricultural Product Logistic Park. Domestic investment institutions such as CDH Fund and Hony Capital have also made similar investments.