Competition in Rice Industry Heats up

The two edible oil brands in China Jinlongyu and Fulinmen have extended their wars into the rice industry of China.

The two veterans in small-packed edible oil Jinlongyu and Fulinmen have fought through the edible oil industry to the rice industry. Yihai Kerry and China National Cereals, Oils and Foodstuffs Corporation (COFCO), which are the owners of the two brands, hope to come to the top with the help of industry chain strategy.

In the second half of 2009, the rice of Jinlongyu and Fulinmen began to be sold all over China, starting both companies’ competition in this field. Chen Bo, general manager of Yihai Kerry Foodstuffs Marketing Co., Ltd, said: “Yihai Kerry is one of the biggest oils and grains companies in the world. Previously our primal product in China was edible oil. Now part of our focus has been shifted to rice and flour.” COFCO, which was engaged in importing rice from abroad in the past, also extended into the upstream and downstream industries. COFCO board chairman Ning Gaoning hopes that his company can take 15%-20% of the rice market in China.

According to the statistical data, more than 240 million tons of rice are consumed in China every year. However, the branded small-packed rice only takes 2%. Both Yihai Kerry and COFCO are eyeing on this blank market with great potential. 20 years ago, Wilmar International (parent company of Yihai Kerry) brought the small-packed edible oil into China and put an end to the era of bulk oil. Now, Jinlongyu, which is the best edible oil brand in China, is trying to copy its successful experience into the rice field. Its old rival, Fulinmen, wants to defeat Jinlongyu with its years’ experience of COFCO in grain industry.

Jinlongyu’s hope of win

In truth, Yihai Kerry has prepared for the entry into the rice industry for 5 years. Chen Bo said: “For rice industry, Yihai Kerry is always developing the circular economy which covers all the procedures from orders to processing and then to sale. We are also engaged in the industries of generating electricity from rice husk and expelling oil from rice bran and got certain achievements in these fields. Now, the solutions to the technological problems of rice bran oil have been found. In 2010, our rice bran oil will come into the market as one of our high-end products.”

Presently, Yihai Kerry has the following rice brands: Jinlongyu, Xiangyan, Xiangmanyuan and Jinyuanbao. It is also increasing its strength in the processing of beans, corn and coarse cereals. Yihai Kerry has built the contract agriculture pattern in several cities in Southeast China. By now the company has already signed the contracts with the farmers owning more than 19.34 hectars of paddy fields, exerting the control over breeding, cultivation, processing, branding and comprehensive utilization of byproducts.

In its 2008 financial report, Wilmar International described its business in China as “having taken the leading place in the small-packed oil and trying to extend into the other industries to improve the existing structures and capabilities.”

As Chen Bo said, Wilmar International has spent 800 million yuan (USD 117.2 million) in founding the global research and development center in Shanghai. “We integrated the global R&D resources of Wilmar International which could help to improve the level of processing grains and oils.”

Fulinmen’s plan of striking back

In the edible oil field, COFCO’s Fulinmen is always second to Jinlongyu. In 2008, Jinlongyu edible oil saw the sales of 2 million tons, taking 30%-40% of the market; however, the market share of Fulinmen was only 10%. Fortunately, Fulinmen has more experiences in rice industry for it was engaged in this business much earlier than its competitor.

Now, COFCO is shifting from simple rice importation and trade to focusing on the domestic market through building and acquiring rice processing factories. On November 14, 2009, COFCO Rice (Dalian) Co., Ltd was founded. The annual output can reach 230 thousand tons of rice each year.

Ning Gaoning said: “In the future, COFCO will continue to make the company in Dalian as the base to consummate the structure of rice processing in Southeast China. We’ll commit ourselves to developing the rice processing projects, improving the rice industry chain and reinforcing the ability of rice supply.” Then, according to him, COFCO is drawing a plan of a rice processing project whose annual output can reach 200 thousand tons.

Half a year ago, COFCO spent 4 billion yuan (USD 585.83 million) in building a comprehensive grains & oils base in Tianjin with the hope of making it become the largest grains & oils base in North China. In May, COFCO signed the contracts with the farmers from Southeast China and Jiangxi. Now, 20% of the rice purchased by COFCO comes from the farmers having contracts with it. In the future the proportion will be increased further.

Apart from Fulinmen, COFCO is also devoting to establishing the core brands of Jindi and Wuhu. Its aim is to increase the market share of its rice in the whole country to 15% or 20%.