Pork: Investment in pig herd growth

Investment in pig herd growth

angieconscious / pixelio.de

CHINA, Bejing. Nearly 25 mill. pigs will be added to China’s herd between 2015 and 2018 by a handful of leading companies in investments worth $10.74 bn.

A string of 35 projects 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.

The biggest investment is by Chuying Agro-Pastoral Group Co with $66 mill. and $86 mill. projects in Jilin and Inner Mongolia respectively. Choosing its location because it is 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.

Other 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 mill. t.

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, the firm announced it would issue up to $230 mill. 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 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.

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 5% 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 $150 mill. in Cofco Meat, with a trio of other private equity firms adding another $120 mill. State-owned Cofco currently produces about one million of the 700 mill. 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.

Source: Chinese Ministry of Finance