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China seeks to secure food supply

March 5, 2014

China remains heavily dependent on grain imports to feed its population.  Chinese leaders often complain about being at the mercy of international commodities traders and worry about price manipulation and gouging.  The official monopoly China National Cereals, Oil and Foodstuffs Corp (Cofco) is now making moves to take control of the nation’s access to food imports.  The Financial Times reports (registration required) that Cofco has purchased a near-century old trading house as the first objective in a 5 year plan of mergers, joint ventures and acquisitions to create a global commodity broker to rival the largest in the West.  Cofco, however, will not arbitrage price differences to earn profits – it will focus on securing a food supply for its home territory.

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For all of its advantages at the beginning of the 20th century, China has a few key disadvantages.  It is short on both energy and food, and must import vast quantities of both from distant locations.  It has long and vulnerable sea lines of communication, and it does not have the navy to secure them.   For all the basic power games that China (and Russia) like to play in recent years, the US remains the only nation that commands the seas and China, in particular, is highly vulnerable there.

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