China’s meat firms invest in pig herd growth

By Mark Godfrey

- Last updated on GMT

China's pork sector is going through major expansion, but there are concerns over profits
China's pork sector is going through major expansion, but there are concerns over profits

Related tags Henan Pork

Nearly 25 million pigs will be added to China’s herd between 2015 and 2018 by a handful of leading companies in investments worth RMB70 billion ($10.74bn).

A string of 35 projects each worth more than RMB30m in value will stretch from the border with Russia in the north to the Vietnamese border in China’s deep south, according to a document compiled by the Chinese ministry of finance.

The projects listed on the document have either been signed or have reached construction stage and are graded by scale, company and investors.

According to the document: “The key characteristic of the projects is that they are being conducted by firms which are highly integrated breeding and feed producers.​”

Eco concerns

Most of the new projects are concentrated on north eastern and northwestern parts of China “due to environmental concerns and resources constraints,​” adds the paper.

The biggest investment is by Chuying Agro-Pastoral Group Co with RMB 4.31 ($66m) and RMB 5.6 billion ($86m) projects in Jilin and Inner Mongolia respectively.

Choosing its location because it’s in China’s north-eastern corn growing region, near Russia, the Jilin project will add four million hogs to Chuying’s annual head count. Chuying Agro-Pastoral Group Co has focused on breeding piglets, boars and commodity hogs but is also involved in poultry breeding. The firm has sought to expand its feed and meat processing arms.

Two million pigs

The third and fourth biggest projects are both being undertaken by Wen’s Foodstuffs in Hunan (five million pigs) and in Guizhou (four million pigs) provinces respectively. Based in Guangdong province, Wens Foodstuffs Group is one of China’s biggest employers with 35,000 staff and stands among the top ten producers of animal feed in the world in 2015 with 6.5 million tonnes.

The other big investor is Muyuan Foods Foodstuff Co Ltd, which has several projects underway in Henan province and in Hubei province. To fund the five projects it has underway, the firm on February 19 announced it would issue up to RMB1.5 billion yuan ($230m) in medium-term bonds. The largest of the projects under construction will add two million pigs to the Muyuan herd.

China’s pork sector has already attracted huge investments in recent years. Headquartered in the huge central Chinese city of Zhengzhou, Chuying raised RMB1.5 billion in a new share issue late last year. However, while China’s pork sector is clearly going through major expansion there are concerns over profitability. Muyuan for instance has a share price to earnings ratio of 62.1 per share.

Further expansion

While there has been much worry about over-capacity on the meat processing side of the business, government appears to believe the need to achieve scale means there’s room for further expansion in pig herds. Only five percent of Chinese pig numbers are controlled by large, professional companies, notes the document from the department of finance, which has long paid subsidies to so-called “dragon head” or regional champion enterprises.

Outside investors appear to agree. Leading US private equity firm KKR & Co in 2014 invested around US$150m in COFCO Meat, with a trio of other private equity firms adding another US$120m. State-owned COFCO currently produces about one million of the 700m hogs consumed each year in China but aims to increase that figure six fold by 2020. The firm is focusing on China’s eastern and northern cities where affluent consumers pay a premium for high-end pork products.

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