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PepsiCo increases its stake in agricultural technology
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16:54, July 20, 2009

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Indra Nooyi's business tour across China last month was the longest trip to a single overseas market for the celebrated PepsiCo chairman and CEO.

During her recent 10-day tour, Nooyi's schedule was filled with meetings with government officials, business partners, consumers, employees, customers and business partners.

She also attended a new plant opening ceremony and visited several agricultural bases.

"Despite the current uncertainty in many parts of the world, we have no doubt that China will remain a powerful engine of global economic expansion," said the India-born Nooyi.

She became CEO and chairman of PepsiCo in 2006, and was ranked No 1 in 2007 and again in 2008 among Fortune Magazine's 50 Most Powerful Women in Business.

Her positive views on China's economy have been reflected by her company's growing commitment to the emerging market.

In addition to manufacturing facility expansions, PepsiCo is increasing its investments in agricultural development here.

Agricultural efforts

As a large buyer of agricultural commodities such as corn, oats, oranges and potatoes, PepsiCo is working with local farmers to secure stable supplies of high-quality raw materials.

The US-based company also is helping farmers adopt advanced agricultural technologies and increase their incomes.

Nooyi met Chinese Commerce Minister Chen Deming during the visit to China in June, and he encouraged PepsiCo to invest more in agricultural development here.

In Chongqing, where PepsiCo's new plant opened on June 26, Mayor Bo Xilai suggested that the Fortune 500 company use local sweet potato resources to develop potato chips for China's consumer market and, at the same time, support Chongqing's sweet potato farming.

"We are seriously considering these suggestions," said Nooyi, 54, adding that agriculture is an important part of PepsiCo's strategy in China.

Nooyi announced a four-year, $1 billion investment plan for China during her previous visit to the country last November.

"This is the largest, most ambitious development effort we've undertaken in our nearly 30 years of doing business here," she said.

During the last 12 years, the producer of Frito-Lay snacks and Quaker foods has invested 200 million yuan ($29.28 million) to establish five farms in Inner Mongolia autonomous region and in Guangdong, Guangxi and Hebei provinces.

Win-win strategies

It proved to be a win-win strategy. The company's four food-processing plants in China have witnessed robust progress, the company said, declining to provide specifics on that rate of growth.

The average per capita annual income of more than 10,000 farmers involved in the projects reached 25,000 yuan last year, compared to the national average income for farmers of 4,761 yuan.

Nooyi did not elaborate on the company's plans for coming years, except to say that PepsiCo is carefully studying the market and plans to implement future plans step by step.

Agriculture projects that are developed will focus on high-quality, environmentally sustainable operations, and also on increasing the technological skills and income levels of participating farmers, the company said.

The potato farm in Inner Mongolia was cited as an example.

Covering more than 1,300 hectares, it was developed in the desert. Water-saving irrigation and crop-rotation methods have been adopted, and local farmers receive regular training on modern, environmentally friendly technologies.

Production per hectare at the farm is 39 tons, much higher than the average of 18 tons per hectare in China.

The food sector has become an important profit engine for PepsiCo, since the snacks sector makes up more than 60 percent of the company's revenues.

In China, food accounts for nearly 20 percent of PepsiCo's business, but the company said China is the fastest-growing market for PepsiCo's food segment.

Nooyi, a vegetarian, has led PepsiCo to focus on a heavier concentration of healthier foods with efforts such as the development of corn-based Doritos and the acquisition of Quaker and its oats-based products.

Ding Pin, a food and beverage industry analyst for Haitong Securities, told China Business Weekly that PepsiCo is striving to bolster its healthy snack business by becoming more involved in the raw materials supply chain in China.

"It's a move that's favorable to the company, as well as to local farmers and the Chinese government," Ding said.

PepsiCo, which had sales revenues exceeding $43 billion last year, is also strengthening its foothold in China on the soft drinks front.

PepsiCo's chief rival, Coca-Cola, generated sales revenues of $31.94 billion globally last year.

New plant

PepsiCo opened a new plant on June 26 in Chongqing, a municipality in southwestern China.

The soft drink giant said it also plans to fund a variety of major capital programs to grow its manufacturing capacity in China, particularly in interior and western areas.

Over the next two years, five new beverage manufacturing plants are expected to open in Kunming, Zhengzhou, Quanzhou, Lanzhou and Nanchang.

The Chongqing facility is PepsiCo's first overseas "green" plant, which was designed to use 22 percent less water and 23 percent less energy than the average PepsiCo plants here.

PepsiCo, meanwhile, announced plans to strengthen its local research and development capabilities and broaden its portfolio of Chinese-designed and developed products such as Tropicana juices, Lay's Lychee potato chips and Cao Ben Le ("happy herb" in Chinese) drinks.

The company has built 22 bottling plants and a concentrates facility in China, with total investments exceeding $1 billion so far.

China is the largest overseas market for PepsiCo's beverage business.

Soft drink rivals

In May, meanwhile, Coca-Cola unveiled a three-year plan to invest $2 billion in China to expand its manufacturing and marketing activities.

The amount exceeds its total investment to date of $1.6 billion over the past 30 years.

Coca-Cola opened two new plants in June in Jiangxi province and Xinjiang Uygur autonomous region at a cost of 100 million yuan and 110 million yuan, respectively.

Coca-Cola currently operates 38 bottling plants in China, and another bottling plant in Inner Mongolia is under construction.

Last year, China passed Mexico to become the third largest market for Coca-Cola.

"The vast middle and rural areas of China are to become the next arena of competition for the two soft drink giants," Ding said.

He added that non-sparkling drinks likely will become the focus of both companies.

Tropicana, the top non-sparkling juice brand by sales in the United States for PepsiCo, also is being promoted heavily in China.

Coca-Cola's Minute Maid juices are the top non-sparkling brand for Coca-Cola in China with a 30 percent market share, Ding said.

The two companies' juice-focused strategies are timely, analysts said.

Global market research company Euromonitor International reported that juice sales in China are expected to jump 94 percent between last year and 2012.

Source:China Daily

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