June 17, 2011


FMD could consolidate South Korea's animal feed industry



The recent outbreak of food and mouth disease (FMD) in South Korea could speed market consolidation in the animal feed industry, according to a number of industry experts and deal-makers.


Animal farming and agricultural companies such as Easy Bio System, Farmsco, CJ Feed, and Sajo Bio Feed could be potential buyers, given their past and ongoing merger and acquisition activities, the sources and sector analysts suggested.


Large companies considering economies of scale and small companies seeking investments have been driving market consolidation in the animal feed industry since the early-2000s, said Jin Ho Hong, a sector analyst at IBK Investment Securities.


There were 40 animal feed producers in early-2000, but that number has shrunk to 30, said Soon Chan Hong, a market research officer at Animal Feed Association. Consolidation had slowed in recent years, but with South Korean companies now experiencing the fourth and largest animal disease outbreak since the year 2000, merger and acquisition activity is picking up pace, Hong said.


Losses to farmers resulting from the FMD outbreak could reach US$14 billion. It affected both farmers and animal feed manufacturers. Market consensus is that recovery will least take twelve to eighteen months. In the meantime, smaller animal feed producers may not be able to withstand losses, said Hong and the industry sources. According to the data collected by the Animal Feed Association, animal feed production in April fell by 15-20% compared with the month of March.


Easy Bio System, which bought a 70% stake in the stock farming company Sunghwa Food for US$20 million in October last year, is about to close another deal with an animal feed company, a company source said. He declined to name the company or give the deal's closing date. Easy Bio, a US$125m market company, has been growing via multiple equity investments and plans to maintain its momentum, said the source, adding that now is a good time for "cherry picking."


Farmsco, an affiliate of the chicken manufacturer Harim, has been approached by several undisclosed small-sized players, a person familiar with the company said. He declined to comment on whether Farmsco would be interested in acquiring any of them. However, he confirmed that the foot and mouth outbreak had resulted in decreased revenues, without giving the exact figure, and said smaller companies would suffer much greater difficulties.


There are plenty of companies on the market, he said, but none of the industry sources wished to disclose names, saying that would be "stabbing companies that are already bleeding."

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