Investing in the commodities markets is always a risky adventure in the best of times. Add in a few bad years or weather or economic conditions, and the scenario can get either incredibly profitable or disastrously damaging. Add to that scene a commodity that the world considers its staple food source and anything can happen, unless one has positioned themselves to account for the most improbable profit situations.
China Organic Agriculture Inc., an organic rice grower and wholesale marketer, serves the domestic Chinese rice markets through company-leased rice properties, buying from family-leased rice operations, buying on the open market, and purchasing from third-party growers on fixed contracts. Although there may be issues several years out, the company has effectively shielded itself from rice speculators through these fixed contracts and leasing/contracting a majority of its production/facilities.
The company has now found itself in a positive long-term position after the leasing, through the central government, of 1,600 acres of productive rice-producing land. It engages local labor at these sites and makes use of family rice growing collective units located on 4,660 acres of land – with full-use rights granted by the government. Where available, the company also buys from producers that are able to meet its stringent requirements for organic labeling.
Current rice supply levels are of concern across the globe. The company, however, operates in and serves only China. This will give it a certain advantage for stable sales and a reliable supply base (if it can stem black market theft and speculators.) There may be a certain amount of pressure from outside China to supply rice to other regions of the world. China, however, is fairly stringent in protecting its self interests in this regard and will likely resist overtures from outside its borders.
Whichever direction the world’s rice markets move, China Organic Agriculture is positioned nicely to take advantage of a growing middle-class with money to spend on a better grade of rice. It is also positioned to take advantage of a large customer base that has a long history with regard to rice as a staple.
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