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Beyond the Export Boom: Opportunities for Agribusiness Investment in China

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When Howard Wu’s son was born in 2009, he celebrated by doing what many proud Chinese fathers do: he broke into his cache of powdered milk formula.

For months before his son’s birth, he had hoarded tins of powder from abroad, adding to his stockpile every time he flew to the United States or Australia on business. Since a 2008 tainted-milk scare killed at least six babies and sickened thousands of others, prices of foreign formula in China have skyrocketed. Some supermarkets in Shanghai—where Wu is a partner at law firm Baker & McKenzie—even keep foreign formula behind glass.

“This is one arena where foreign companies have an edge,” Wu says. “Perception-wise they are viewed as having a higher safety standard [than domestic companies]. Any middle class resident living in a first-tier city will not buy domestic baby formula.”

As a result of food safety concerns and rapidly growing demand, China has become the number one market for US agricultural exports, according to the US Department of Agriculture. In 2012, US agricultural exports to China accounted for $26 billion—or one-fifth—of all US exports to China. Shipments of dairy products grew from $137 million in 2009 to $706 million in 2012, while the value of US soybean exports surged to $13 billion.

But even as exports continue their meteoric climb, American agribusiness firms are eyeing other forms of investment in China. Some are pouring money into livestock production, while others are investing in services like quality control and certification. Still others are seeking local partners for organic production ventures.

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