Chilled pork and imports unlikely to thrive in China

Chilled meat industries and foreign exporters would face an uphill climb in China, according to the head of a major hog and premix feed company in China. 

 

Agfeed, in announcing its results for the second quarter, released a statement from Chairman Dr. Songyan Li in Q&A form detailing his views on the industry.

 

Chilled meat and imported meat are unlikely to find wide acceptance in China as there is an ingrained culture eating fresh pork, he said. 

 

Even US retail giant Walmart sells pork "the Chinese way" in the form of daily slaughtered, unpackaged fresh pork, he noted. 

 

Li cited the Chinese Ministry of Commerce's website, which said China imports frozen pork only under "extreme circumstances" and are "short term."

 

Both the Sichuan earthquake and the Beijing Olympics are classic examples of such short term needs: the Sichuan earthquake flattened hundreds of pig farms while tightened security for the Games created transport bottlenecks which prevented hog supplies from reaching the major consumption areas of Beijing. 

 

Culturally, there is no broad market acceptance for imported frozen pork in the Chinese marketplace, he added. 

 

Frozen pork typically goes to hotels and restaurants in China since retail shoppers are largely turned off by pork that is not from daily slaughtered hogs because frozen pork is culturally considered "not fresh."

 

Moreover, prices of imported pork can be up to 50 percent higher than locally produced pork.

 

This meant locally produced pork would still have a firm grip on the market.

 

This is also one reason why Agfeed, already a major feed and hog producer in China,  is currently not interested in moving into the hog slaughter or chilled meat packing market to complete the integrated chain. 

 

On the margin side, there are already tens of thousands of hog slaughter houses and meat packers in China that struggle to survive due to their low margins, Li pointed out.

 

At the current stage of China's hog/pork industry, the other businesses of the chain have a much lower net income margins than hog production, he said. 

 

When hog prices go up, margins of meat processors get squeezed since retail consumers do not immediately accept their higher pork prices. Furthermore, chilled meat has a short shelf life which easily translated into losses.

 

When hog prices go down, the price for chilled pork goes down also and margins are squeezed again.

 

He also noted that many local markets in China experience shortages in electricity which makes hog slaughtering or chilled refrigeration difficult and expensive.

 

The deal killer would be the fact that the vast majority of Chinese consumers are not ready for more expensive and packaged chilled pork.

 

More than 90 percent of all pork sold in China today at the retail level is off unpackaged, fresh and daily slaughtered hog carcasses. Consumers do not distinguish meat quality by the brand name, he said. 

 

Slaughterhouses are also highly volatile due to their inability to control hog input costs and they deal with highly competitive and price sensitive consumer markets.

 

If China's hog/pork markets evolve into an integrated model similar to the one in the US, perhaps decades from now, AgFeed will take a closer look Li said, noting that it took more than 40 years in the US to see integration of hog production and chilled meat retail markets,

 

Li said that one reason Agfeed could thrive as a hog producer was the fact that its large-scale presence gave it the ability to manoeuvre for better hog prices and greater discounts on raw feed materials which helped offset commodity price increases. Its strategy of acquisitions and concentrating on high-income areas like Shanghai and Guangdong also meant rapid growth for the company.

 

For the remaining of the year, the company is working with global genetics companies to improve its pig genetics and hoping to acquire at least four more pig companies.