Corn Products signs on corn starch venture in China, a first

Related tags Corn products international Maize China

Joining the growing ranks of ingredients companies taking root in
China to defend their market position, US starch and sweeteners
firm Corn Products International has linked up with Shandong Juneng
Electric Power Group Golden Corn Development company to manufacture
modifed corn starch, writes Lindsey Partos.

A response to growing demand, the $2.1 billion Corn Products International firm will take a controlling interest in the new joint venture that will manufacture modified corn starches for the Chinese market.

"Establishing what we expect will be our initial manufacturing presence in China is aligned with our company's strategy of growing businesses in new, high-growth regions,"​ said Sam Scott, CEO of Corn Products International.

Only a small amount of whole maize kernel is consumed by humans. Maize oil is extracted from the germ of the maize kernel and maize is also a raw material in the manufacture of starch. A complex refining process converts the majority of this starch into sweeteners, syrups and fermentation products, including ethanol.

Refined maize products, sweeteners, starch, and oil are abundant in processed foods such as breakfast cereals, dairy goods, and chewing gum.

China is drawing in more ingredients players as their international food maker clients move into this fast growing region to gain a slice of the $275 billion spent annually by the 1.3 billion Chinese consumers.

Eager to defend existing markets and carve out new positions, Danish ingredients giant Danisco, for example, last year linked up with one of the largest xanthan gum suppliers in China, the Henan Tianguan group.

Again in the area of gums, US agri-giant Cargill will expand gum manufacturing capabilities in China. Working with its joint venture partner Shandong Huanghelong Group, the company recently announced a significant capacity increase at its Zibo production facility in Shandong province.

In a recent bolt on acquisition, US firm Hercules bought Quantum Hi-Tech, a Chinese CMC producer. CMC - carboxymethylcellulose - is an ingredient sourced from cellulose fibres and used by the food industry in a wide variety of applications including ice cream, yoghurt and bakery products.

Last year cultures leader European firm Chr Hansen cut the ribbon on a new cultures facility in Beijing. The company claims to have captured more than 40 per cent of the market for dairy cultures in China and expects continued growth, also within cultures for wine production.

According to investment bank Goldman Sachs, this defensive move by companies to protect, and build on, market share is crucial to the ingredients industry as China steadily increases its exports, threatening profitability in many product areas - notably for ingredients.

For the food companies China has not been so problematic, as food production tends to be domestically based. However, we are beginning to see a threat in ingredients, claims the report.

According to Goldman Sachs, both Danisco and UK sugar firm Tate & Lyle have commented on increased competition from China as having a negative impact on their ingredient operations.

"If China's ingredient industry expands at the breakneck speed of the rest of the economy then we might expect further margin pressure from this area,"​ warned the report, referring to the current squeeze food manufacturers and retailers are imposing on their supplier base.

Sending the price to record highs, global corn stocks dropped to 20 year lows last year as the world's leading corn crop producers, led by the number one corn supplier the US that produces 250 million tonnes a year, saw crops beaten by severe weather conditions. In Italy and France alone the hot summer in 2003 destroyed 25 per cent of the harvest.

"The key corn focus for the last 12 months has been availability and price,"​ Gerald Mason, an economist at the UK industry group Home Grown Cereals Authority (HGCA) recently explained to

In the US, since the 1970s the raw material has been the source of the popular sweetener high fructose corn syrup (HFCS) - commonly known as isoglucose in the EU - and used extensively by soft drink manufacturers, among them the giant Pepsi and Coca Cola. Corn Products International is a key supplier of the soft drink sweetener.

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