Overcapacity hurts food processing innovation

It is time to do something to prevent a quagmire, says Cargill China official

Overcapacity in agricultural processing has slowed the industry's development, hurting investments, R&D, innovation and earnings, according to an industry leader.

Robert Aspell, president of Cargill China, said massive investments have been made in recent times, mostly by Chinese companies, in the food-processing segment.

The 150-year-old Minneapolis-based Cargill is an international producer and marketer of food, agricultural, financial and industrial products and services.

"Whether it's processing soybeans or rapeseeds or some livestock production, a lot of people have invested in this industry without a proper plan and (without) proper skills," said Aspell, who has been appointed for a 10-year term.

Speculative trading has driven investments in these industries, he said. China does not need more basic corn milling or soy processing facilities. "We have enough capacity for the next 30 years. Huge over-capacity is hurting innovation, earnings," said Aspell.

Cargill, he said, has been advocating that it is time to do something different to avoid a "perpetual financial quagmire ... The industry has not been as profitable as we would have liked, and the industry overall has not done very well. So it hurts investments and innovation, research and development".

Despite the slowdown in China, the company saw some encouraging signs. "At least in agricultural business, we're starting to see more discipline, more professional management versus more speculative type of activities," he said.

He urged more investments in technology to modernize farming and supply chains for efficient transport of grain within China.

For the year ended May 31, Cargill's profit fell 13 percent year-on-year to $1.58 billion while revenue shrank 11 percent to $120.4 billion.

Cargill's "2020 Growth Aspiration" plan targeted sustainable economic and social growth by investing heavily in the past five years in China in food ingredients, oils, and value-added products such as sweeteners and poultry.

Cargill's employee count has gone up from 4,000 since its entry into China in 1970 to over 11,000 to date at more than 50 locations.

In terms of focus areas, Cargill has three major goals: commodities, food ingredients and livestock supply chain, said Aspell.

Cargill, he said, tracks economic development of countries and their diets. China has followed the expected trend except that meat consumption has grown much stronger than anywhere else, he said.

"China has surprised us over the last 10 years. We're seeing it now to kind of start slowing down whether it's for meat or vegetable oil." That is why Cargill wants to urge the industry to think about new investments, and the government to consider supporting the industry as demand for food, especially oil and meat, is slowing, said Aspell.