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China to Bolster Agriculture Trade Ties with Africa to Feed Its Rising Population (Press Release)

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November 23, 2011, Johannesburg, South Africa

Africa will in the next decade increasingly play an important role in China’s long-term food security agenda as demand for food in the world’s most populous nation threatens to outstrip its supply, according to Standard Bank research analysts Simon Freemantle and Jeremy Stevens.

In their latest paper “China’s Food security challenge: What role for Africa?” published this week, Mr Freemantle and Mr Stevens write that China is facing serious strains on both the demand and supply side of its agricultural sector and will in the next few years have to look externally to supplement its sources of food supply.

“Rising incomes and urbanisation are leading to dramatic increases in food consumption in China. China now consumes the second most amount of food in the world, behind the USA. It is expected that by 2015, China’s total food expenditure will double to over US$1-trillion. Meanwhile, China is facing increasing strains on agricultural supply. Urbanisation and industrialisation are swallowing up farmland, and diminishing water tables. Between 1996 and 2006, China lost 9-million hectares of farmland,” they write.

 While for now China can and will look to its own sources to provide for the bulk of new demand, it is increasingly evident that China will be unable to ensure low-cost food for its large population without ramping up external sources of nutrition. Consequently, the authors note, Beijing is expected to increasingly align its aid and outward investment in agriculture to access new opportunities.

They comment: “In Africa, two core areas create an allure for China. First, given the manner in which the continent’s agricultural sector has persistently underperformed, the provision of develop-mental and technical assistance allows Beijing an important avenue in fostering and building deeper bilateral ties. And, second, Sub-Saharan Africa’s (SSA) immense and largely untapped agricultural potential is being increasingly viewed by China as a cog in an unfolding and inclusive food security strategy. For now, China’s strategy is overtly developmental, and, though commercialism inspires many of the cooperative farming projects, profits are generated almost entirely in local and regional markets.”

They note it is already clear that Beijing is seeking to build deeper relationships in agriculture with land-rich and politically stable countries that are friendly to China, such as Mozambique where China has made expansive agricultural investments.

They add that investments, backed by state-directed assistance, in these countries will increasingly look to produce the types of crops—such as soybeans and cotton—for which demand in China is elevated. Collaboration will also be pronounced in coffee, tea, rubber, wine, sisal; and tobacco production—emphasising select strengths already evident in Africa in the production of some of these commodities.

“Most of these initiatives will look to bolster China’s agricultural trade ties with Africa, though some, as has been evident in nascent moves in Latin America, will position Chinese firms to control the external source of production,” they write.

Mr Freemantle and Mr Stevens conclude that for Africa, managing Chinese interest in the agricultural sector will be critical. They note that Africa desperately requires capital and skills to elevate food security.

“The continent suffers from an acute lack of skills and capital in unlocking its inherent potential. Yet, as has been evident in many of the land leasing deals signed in SSA over the course of the past decade, too often investments are poorly structured, undervaluing the agricultural assets at stake. Managed well, partnerships with China can be meaningful. However, domestic food security must be placed first. Then, and leveraging Chinese aid, crops suited for China’s demand dynamics can and should be emphasised. Increasingly, green technology will provide cogent opportunities.”

Ends

For more information contact:

Moliehi Molekoa

Magna Carta

+27 11 784 2598

Moliehi@magna-carta.co.za

Ursula Mabope

Magna Carta

+27 11 784 2598

ursulam@magna-carta.co.za

About Standard Bank Group:

Standard Bank Group is the largest African bank by assets and earnings. We aim to build the leading African financial services organisation using all our competitive advantages to the full. We will focus on delivering superior sustainable shareholder value by serving the needs of our customers through first-class, on-the-ground operations in chosen countries in Africa. We will also connect other selected emerging markets to Africa and to each other, applying our sector expertise, particularly in natural resources, globally. We operate in 17 countries on the African continent, including South Africa, and 13 countries outside Africa with an emerging market focus.

Standard Bank has a 148-year history in South Africa and started building a franchise outside southern Africa in the early 1990s. In recent years, Standard Bank has concluded key acquisitions on the African continent in Kenya and Nigeria. Africa is at our core and we will continue to build first-class on-the-ground banks.

The group’s 51 000 employees in all regions deliver a complete range of services across personal and business banking, corporate and investment banking and wealth management.  Standard Bank’s Corporate & Investment Banking division offers its clients banking, trading, investment, risk management and advisory services to connect selected emerging markets to Africa and to each other. It has specific global sectoral expertise, particularly in natural resources, with value propositions in: mining and metals; oil and gas; power and infrastructure; and telecoms and media.

Standard Bank Group had total assets of over ZAR1 379-billion (about US$203-billion) at 30 June 2011. Standard Bank’s market capitalisation at 30 June 2011 was ZAR159-billion (about US$263-billion).

The group’s largest shareholder is Industrial and Commercial Bank of China (ICBC), with a 20, 1% shareholding. In addition, Standard Bank Group and ICBC share a strategic partnership that facilitates trade and deal flow between Africa, China and select emerging markets.

For further information go to www.standardbank.com

Or if related to CIB deals:

For further information go towww.standardbank.com/cib

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