China’s Food Giant Bares Streamlining Plan to Be More Competitive

China National Cereals, Oils and Foodstuffs Corporation (COFCO), the country’s top food processor and grains trader, has expressed plans on Monday, June 13, to streamline its management sector and give up some of its assets to be more competitive, the Global Times reported.

A statement posted on the website of the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council said that the company will undertake its plan in three years, during which it will reduce its legal entities by 20 percent and cut down losses by more than 50 percent.

At least 65 subsidiaries of the company have been identified for improvement, while 91 others are planned for fostered management. About 102 subsidiaries are set to be restructured through mergers and acquisitions.

"It's surprising that COFCO made the announcement, but it may have realized the problems it faces," Feng Liguo, an expert at the Beijing-based China Enterprise Confederation, said as he noted COFCO's quick expansion in the past years.

Feng said that the results of the streamlining plan will take time considering the various factors involved.

The 21st Century Business Herald said on Thursday, June 16, that COFCO had spent 14.6 billion yuan ($2.2 billion) for 50 mergers from 2005 to 2013, which helped increased the company's assets and payment but later resulted in liabilities.

One of these is the 2015 merger of 70 subsidiaries of state-owned sugar and meat giant China Huafu Trade & Development Group and COFCO, according to the report.

Last year, the company became the world's third largest food company after it earned 405.44 billion yuan, exceeding that of Bunge and Louis Dreyfus.

But despite its size, the company needs to be profitable. While the company has posted a net profit of $200 million in 2015, other companies such ADM, Cargill, Bunge, and Louis Dreyfus earned $1.85 billion, $1.58 billion, $790 million and $210 million, respectively, according to the 21st Century Business Herald.

Without the 4.7 billion yuan in government subsidies, the company would have been bankrupt, the report said.

COFCO aims to earn 750 billion yuan in revenue and gain 15 billion yuan in profit by 2020, according to the statement on the company's objectives during the 13th Five-Year Plan (2016-20), which was posted on SASAC's website in March. The company also said that 80 percent of its business is into food and oil.

Reports said that state-owned enterprises (SOEs) became less profitable as corporate debt increased.

In May, SOEs earned 13.5 trillion yuan in the first four months of the year, down 1.7 percent from the same period last year, data from the Finance Ministry showed. SOEs gained profits of 652.2 billion yuan, down 8.4 percent year-on-year.

Feng, however, said that although it has become a trend for most SOEs to streamline their operations, the situation for each SOE varies.