FEED Business Worldwide March, 2012
China's slow - motion swine supply chain integration
by David LIN in Shanghai
Recent years have seen China's hog farming and slaughtering sectors undergo rapid development and achieve remarkable growth in respective domains. Strangely, despite rapid development's tendency towards integration, the farms and slaughterhouses have rarely crossed paths in their business dealings.
Demarcation between hog farming and slaughtering
Hence, while commercial hog farms in China have attained solid progress in integrating upstream feed production, hog breeding and raising, they are rarely involved in downstream slaughtering or pork processing.
Similarly, via mergers, acquisitions and internal growth, China's hog slaughtering enterprises have made great strides in capacity expansion and meat processing capabilities downstream from themselves, yet few have ventured into hog farming.
Yurun Group, the country's largest hog slaughtering firm, slaughtered 35.6 million hogs in 2010, all of which were procured through external sources.
Shandong--based Jinluo Meat Products Group, China's second largest hog slaughtering company with a slaughtering capacity of 22 million hogs in 2010, only started hog rearing in 2008. Currently the company has four hog farms which yield just 1.8 million hogs annually, equal to just 8.18% of its total yearly production.
Shineway Group, which ranks third in slaughtering capacity with 11.36 million hogs slaughtered in 2010, currently produces only tens of thousands of hogs under its wing.
The fact that so few leading meat processors raise their own pigs demonstrates the slow pace of China's pork chain integration.
Meat processing more profitable than swine farming
The main reasons slaughtering enterprises are unwilling to produce hogs include heavy capital investment, high risk involvement and slow returns. For while the last five years have produced industry changes conducive to consolidation, they have also impacted hog farming's rate of return, with huge up--and--down fluctuations seen since 2007.
At this time, the cost of building a slaughterhouse is significantly lower than the amount required to build a hog farm of the same capacity. Along with high volatile feed costs and unstable live hog prices, this gives slaughtering and meat processing much higher returns than hog rearing.
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