Pig industry attracts Chinese feed firm investment

Long recognised as China’s leading aquafeed producer, Guangdong Haid Group Co appears to be diversifying into the pig sector by committing nearly RMB4 billion (bn) to several mega projects with local governments in southern and central China that include both feed and pig production.

The move appears to mirror similar moves by Haid peers like New Hope, the country’s leading animal feed producer. Local governments are keen to sign deals with major firms that will deliver income to impoverished rural areas, while also creating jobs in laboratories and management, as well as distribution and marketing.

An agreement with Qingyuan local government in southern China will see RMB1.5bn invested for a “full-chain​” project of breeding, feed production and meat processing.  The company already has a Haid Biotech Co in Qingyuan, producing 30,000 tons of feed per year.

Haid recently inked a similar agreement with local governments in Nanning in the southern province of Guangxi, which has been striving to attract investment into what remains a relatively impoverished part of the country.

Meanwhile, a Haid subsidiary, Guangzhou Yi Tun Pig Industry Co, signed an agreement in December with the regional government in Zixing in Hunan province for a ‘government-company-farmer’ partnership arrangement that will see 200,000 pigs produced per year.

Another agreement will see a similar RMB1.8bn full-chain project built in Shaoguan, a region at a strategic juncture between the provinces of Guangdong, Hunan and Jiangxi – all significant pig production bases, with prosperous Guangdong a key consumption base.  

Haid bred 400,000 hogs in 2017, but will double that figure in 2018 according to company projections. Meanwhile, in January, the firm opened a feed plant in Vietnam with a 50,000-ton annual production capacity.

Guangdong Haid hit sales of 8.49 million (m) tons of feed in 2017, up 15.8% year on year. But growth was strongest in pig feed: it shifted 15.5m tons, up 35% on the previous year, while sales of feed to fish farmers rose 20% to 25m tons. The company is enjoying higher margins by promoting more “higher-value, performance-related​” feed products as farms become more professional, explained Li Jia Feng, analyst at Anxin Securities who covers the firm.

Investors have been bullish on Haid, which is listed on the Shenzhen stock market, given it increased its revenues by 21.2% last year and upped profits attributable to shareholders by 40% year on year. But it remains to be seen if the company will be able to continue strong growth while also financing its major new projects. Haid’s debt-to-equity ratio is currently a manageable 27%, but that could rise as the company expands.

There is another factor that might explain Haid’s diversification into pigs: growth in China’s feed production has been levelling off after a decade of large increases in output. Feed production doubled between 2005 and 2012, with growth averaging between 8% and 12% between 2005 and 2016, but that growth has since flattened off. Meanwhile, Haid and other, larger firms have sought to market new higher-priced products offering higher performance. 

China’s feed sector is a legacy of state-collective ownership, which was replaced in the 1990s by a rash of private operators: by 2006, the country had 15,000 feed companies. Since then, authorities have chided the sector to consolidate and standardise. This has cleared out small-scale firms, with some of them being picked up by players like Haid.