China’s giant crop takeover has failed

There comes a point where you have to stop throwing good money after bad.
That moment is already well past for Sinochem Corp and China National Chemical Corp, or ChemChina, the state-owned Chinese giants that have been edging towards a merger for four years. The two chemicals companies are working on a structure that would allow them to combine without triggering a fresh round of foreign-ownership investigations over their Swiss-based Syngenta unit, the Wall Street Journal reported this week.
That’s a waste of effort and ingenuity. Rather than twist themselves into knots trying to honour the misguided strategy behind ChemChina’s $46 billion purchase, the pair need to cut their losses — and their debts. As Shuli Ren has written, state-owned enterprises are facing a wave of defaults and deleveraging. Meanwhile, offshore equity investors are hungry for fresh initial public offerings. Selling the seed company back into the international markets from which it was bought is the best way of killing all these birds with one stone.
The logic behind the 2016 acquisition was simple: The country has a fifth of the world’s population and just 7% of its agricultural land, so has to use about a third of the globe’s agricultural chemicals to feed itself. This is pushing its environment towards breaking point, as Clara Ferreira Marques has written. Diplomatic relations with major food exporters such as the US, Australia, and Brazil are difficult, so China needs to build its expertise in crop technologies and genetically modified seeds if it’s to have a hope of maintaining food security. The fate of the Soviet Union, which fell in part because of its dependence on imported grain, is a grim reminder of what could go wrong.
Put that way, the amount that ChemChina paid for Syngenta — the country’s biggest-ever outbound takeover — seems a small price to control one of the four companies that dominate the global market for seeds and crop chemicals.
The trouble is, it hasn’t worked. Five years after the deal was first proposed, Syngenta’s sales in its ostensible new home market are still a fraction of the total. Just $300 million of its $10.6 billion in crop protection sales last year came from China. In seeds, the total was $35 million out of $3.1 billion.
After years of food-safety scandals, China remains deeply skeptical about the genetically modified crops where Sygenta has an edge. One 2018 study found that 47% of people had a negative view of such products. Some 14% even considered them a form of bioterrorism. While the country imports substantial volumes of GMO foods from overseas, commercialisation on domestic farms is still in its infancy, and attracts unusually strong public dissent. Meanwhile, most of Syngenta’s intellectual property remains back in Switzerland, so China hasn’t even bought itself a leg up the technological ladder.

—Bloomberg