Making sense of swine producer Zhengbang Group's vision of achieving 100 million head
Chairman of Chinese swine producer Zhengbang Group, Lin Yinsun, is known for setting ambitious goals for his company's swine production capacity. In September 2020 at a seminar, Lin put forward the goal of achieving 100 million head, which if realised, would represent more than 15% of the country's swine production capacity.
If one considers that Zhengbang is listed on the Shenzhen Stock Exchange, and its past history of chanting investment slogans, one might have a better idea of whether such targets are realistic.
Putting things into perspective, in 2013 Zhengbang set its goal of reaching 10 million head by 2016, when its production volume then was 1.15 million head. By 2016, Zhengbang only reached a volume of 2.26 million head.
And Lin's latest goal of 100 million head came barely three years after a press conference at the 2017 China Feed Industry Exhibition announcing his company's goal of reaching 50 million head.
Could Zhengbang then capitalise on the black swan event of African swine fever (ASF) to meet its production targets when the outbreak started in 2018? In the fourth quarter of 2019, Zhengbang launched a plan to import 10,000 breeding pigs. By May 2021, the company had achieved this target with 11,120 head of top breeds from countries such as Denmark and the United States. This would translate to an autonomous pig flow of 3.5 million sows and a swine production capacity of 70 million head.
While ASF is a devastating disease, by the Spring Festival of 2021, it was clear that China's swine herd was recovering – in fact prices are continuing on a general downtrend trend from RMB36 (~US$4.03; RMB1 = US$0.15) per kilogram in February to RMB11 (~US$1.70) to date.
Attributed to falling swine prices, while Zhengbang's sales revenue for H1 2021 rose year-on-year, net profit attributable to shareholders plunged 160% to RMB1.43 billion (~US$220 million).
There are two possible scenarios of how Zhengbang could still meet its production targets. One, by shortening the production cycle and sacrificing body weight for production quantity, meaning competing with other Chinese swine producers on economies of scale. Two, Zhengbang, facing pressure from the capital market, could start eliminating their sow population.
Again, even if Zhengbang could reach its production target of 100 million head, considering that in a typical year China's swine production volume is 650 million head, what would be the implications for the country's swine industry?
- written by David LIN, translated by Ngai Meng CHAN