Asian Agribusiness Consulting

Exclusive-China's COFCO Likely to Sit Out Global Grains Race as It Digests Acquisitions

As the world trade in farm commodities faces a shake-up, one of the groups widely expected to play a leading role - China's COFCO - will probably have sit out the industry consolidation after all.

Sources with knowledge of COFCO's expansion strategy say the state-run conglomerate is struggling to integrate businesses it bought three years ago, deals which made it a significant global agricultural trader but are now hindering its ability to swoop on rivals.

Illustrating the problems, the sources said that at times different arms of the agribusiness had tried to compete against each other in commodity deals. On top of this, several senior staff had recently left its trading operations while a heavy group debt burden presented another impediment to further mergers and acquisitions.

"For now, the focus is on reorganisation and digesting the acquisitions," said a COFCO official, who declined to be identified. "Thoughts of further aggressive M&A or building assets are on the backburner for at least a couple of years," the official told Reuters.

Spokespeople for COFCO Group and its newly-formed COFCO International trading arm did not respond to requests for comment.

One of about 100 conglomerates controlled by China's central government, COFCO Group has interests that include hotels, real estate and some of China's leading food and drink brands including GreatWall wine.

It trades more than 78 million tonnes of grain a year, according to state media, and in 2014 agreed to buy Dutch grain trader Nidera and the agribusiness of Singapore-listed Noble Group for more than $3 billion.

The deals gave COFCO assets in some of the top grain, vegetable oil, sugar and coffee producing regions. They also allowed it to start challenging the "ABCD" quartet of agricultural commodity traders - Archer Daniels Midland (ADM), Bunge, Cargill and Louis Dreyfus Company - which have long dominated the global business.

These firms were once highly profitable but in recent years record stocks of commodities such as corn, soybeans and wheat have sliced margins and dampened trading opportunities.

A first sign of sweeping change for the industry emerged last month when Swiss mining and commodities group Glencore Plc made an informal approach to Bunge to discuss "a possible consensual business combination".

While Bunge said it was not engaging in such talks, some kind of industry consolidation seems unavoidable and some people had said Glencore's move might spur COFCO into M&A action.

"For the past year I've expected that it would be COFCO that would go after Bunge. This may motivate them further," Jay O'Neil, an agricultural economist at Kansas State University, said last month.

Sources familiar with COFCO's thinking, however, also played down this possibility. "The company has suffered a lot because of the lengthy process of going towards one group," one of the sources said. "It will take some time to repair the damage of the last couple of years."

As COFCO Group is a state-owned enterprise, any acquisition would also need Chinese government approval, which could be a lengthy process.

COFCO INTERNATIONAL

COFCO unveiled its new division, COFCO International, on April 24, bringing together Nidera and its Swiss-based grain arm COFCO Agri under new chief executive Johnny Chi.

According to its website, the company aims to expand its business globally and "strengthen worldwide origination, logistics and trading capabilities" supported by COFCO's unique position in China.

The company has increased staff numbers in Geneva, home to COFCO International's headquarters and the centre of its grains and oilseeds business. Its Rotterdam office separately plays a core role in trading activities.

Since the start of the year, COFCO has tried to replace two top officials at COFCO Agri, who sources said left due to disagreements over the direction of the group.

Company memos seen by Reuters showed that there has also been a string of departures in recent weeks, including head trader Wolfgang Stiehler, who had joined Nidera only in January this year to provide strategy also. Stiehler did not immediately respond to a Reuters request for comment.

Other officials who have left included traders, back office staff and local country managers, the memos showed.

A second source said Nidera and COFCO Agri had recently tried to compete for the same grain deal. While the duplication was eventually prevented, there were other similar instances and it was unclear whether those were stopped. "How is this supposed to happen if it's one company?" the source added.

"The transition into a merger is looking more difficult than people thought. The merger is complex and will not be quick," a third source said.

Two of the sources said separately that COFCO Agri was still buying grains from bigger rivals such as ADM, even though COFCO International was operational. This was due to the need to hedge deals, or to ensure they are completed promptly, one of the sources said.

DEBT AND CASH

Another obstacle to more acquisitions is COFCO's debt and cash position. Data from its results showed the group's total debt had risen to 51.88 billion yuan (5.96 billion pounds) in 2016 from 50.63 billion yuan the previous year.

Separately, the parent group's cash and cash equivalent position dropped to 1.28 billion yuan in 2016 from 4.13 billion yuan in the previous year. COFCO group's operating profit fell to 0.85 billion yuan in 2016 from 1.96 billion in 2015.

COFCO International's shareholders also include Singapore state investor Temasek, China-based private equity firm HOPU Investments, Standard Chartered and the World Bank's private sector investment arm IFC, according to regulatory statements.

Temasek, HOPU and Standard Chartered all declined to comment, while COFCO's investor relations department declined to provide details about the size of shareholdings in COFCO International. An IFC spokesman confirmed it had invested in the company but gave no details of the stake.

SOUTH AMERICAN GROWTH

Since first investing in Nidera, COFCO has reported several major problems, including a $150 million financial hole in its Latin American operations and $200 million in unauthorised trading losses on its biofuels desk in the region.

However, it has also made progress there. Data seen by Reuters showed COFCO, through Nidera's and Noble Agri's existing operations, has become the second biggest grain exporter from Argentina, behind Cargill.

In Brazil, data showed that COFCO had moved up to the no. 4 grain exporter slot in 2016, ahead of Louis Dreyfus.

"It's a new company with a lot of people coming from other firms," said Joseph Reiner, COFCO International's Brazil-based global head of coffee. "Growth has to be sustainable, considering resources and results," he told Reuters.

COFCO is already gaining prominence in the sugar market. Last month it sold the bulk of sugar - primarily sourced from Brazil - against the May ICE futures raw sugar contract. This was the second-largest delivery against the contract.

COFCO is estimated to rank as Brazil's no. 6 sugar player. Marcelo de Andrade, Sao Paulo-based president of global sugar at COFCO International, said the firm had looked at possible purchases of sugar mills in Brazil "but decided to abort any deals".

"At the moment we are not looking (at buying) any more and we are keen to fill as much as possible our current crushing capacity," he told Reuters.

Source:Reuters Date: 2017-06-03

China to increase co-operation to improve food safety

Increased international exchanges and cooperation are required to improve food safety, according to senior officials at the eighth Belt and Road Eco-Agriculture and Food Safety Forum in Beijing on Thursday.

"With economic globalization, food safety is a global issue and can only be ensured with the adoption of unified global standards," Zhang Baowen, vice-chairman of the National People's Congress Standing Committee, said during a keynote speech at the forum.

"Countries participating in the Belt and Road Initiative can increase exchanges and cooperation to promote standardization in agriculture and food safety, and promote their trade among the nations involved."

The forum is a key activity of this year's China Food Safety Publicity Week－held across China in June every year since 2011－which opened on Thursday. The event is aimed at promoting food safety awareness among consumers, and urging improved supervision of food safety by authorities.

"We are fully aware of the importance of international cooperation in ensuring food safety," said Sun Xianze, deputy head of the China Food and Drug Administration. "Food production and supply chains have been extending across borders and no one country can deal with food safety on their own."

He added that countries participating in the Belt and Road Initiative are generally developed in terms of their agricultural sector, and they have common interests and needs in the protection of agricultural ecology, innovation of food technology and food safety risk management.

Trade volume of agricultural products between China and Belt and Road countries exceeded $43 billion last year, accounting for 23.6 percent of China's total, according to Qian Keming, vice-minister of commerce.

China will increase trade in agricultural products with Belt and Road nations and promote industrial cooperation in the sector so exchanges and cooperation benefit all countries, Qian added.

Food safety in China has improved in recent years, and inspections show that more than 97 percent of major agricultural products, including vegetables, poultry and aquatic products, were up to standard in the first half of the year, according to Ma Aiguo, chief husbandry expert at the Ministry of Agriculture.

Sun said Chinese authorities face many challenges in the supervision of food safety, adding that China has about 500,000 food producing enterprises and more than 2.4 million restaurants.

The variety of food products in China also poses challenges to supervision, he added.

Source: China Daily Date: 2017-06-30

Mongolian Milk Producer Issues Country's Largest-ever Corporate Bond

A Mongolian dairy producer has issued the local stock exchange's largest ever corporate bond, testing market appetite following an economic bailout and the potential election of an unpredictable new president.

Suu, which means milk in Mongolian, sold 6 billion tugrik ($2.55 million) of debt as it aims to boost production and refinance dollar-denominated debt accumulated during the country's short-lived economic boom. The one-year bills have an annual interest rate of 17.5 percent.

Investors were drawn to the bond because of the stability brought to the local currency, the tugrik, following a $5.5 billion rescue package from the International Monetary Fund (IMF), said Dashdorj Bilguun, who worked on the underwriting at Golomt Capital.

"It stabilizes the currency," said Bilguun of the IMF deal.

The tugrik was in free fall last year, declining by nearly a quarter as a result of falling investment and weak Chinese demand for commodities.

Coal and copper sold to China were leading drivers of Mongolian growth, but the IMF is now encouraging the landlocked Asian nation to diversify and develop agriculture and tourism in order to protect it from boom-bust cycles.

Suu is eyeing China as a potential customer for its dairy products, but Mongolian agriculture remains underdeveloped because of a lack of infrastructure and the remote location of herders.

About 30 percent of Mongolia's population still practices a traditional nomadic livelihood that can be traced back to the 13th century, when Genghis Khan was building history's largest empire.

Bilguun said the bills were 12.6 percent oversubscribed despite investor concerns about the potential victory of presidential candidate Khaltmaa Battulga from the opposition Democratic Party, who won the most votes in an inconclusive first round of elections this week.

Before the election, Battulga was calling for more state control in mining, including the Oyu Tolgoi copper-gold mine run by Rio Tinto.

Shares in Mongolia-based firms plunged this week after the election, with Turquoise Hill Resources and Aspire Mining falling by around 5 percent and the Mongolian Mining Corp losing 14 percent since Monday.

An analyst with a Hong Kong investment firm familiar with Thursday's bond deal said the government had turned a corner after the IMF agreement was secured.

"The atmosphere has changed," said the analyst, who asked not to be named because he was not authorized to speak to the media. "There will still be pains, but hopefully the worst has passed."

Source: Reuters Date: 2017-06-30

Mongolian Milk Producer Issues Country's Largest-ever Corporate Bond (2)

A Mongolian dairy producer has issued the local stock exchange's largest ever corporate bond, testing market appetite following an economic bailout and the potential election of an unpredictable new president.

Suu, which means milk in Mongolian, sold 6 billion tugrik ($2.55 million) of debt as it aims to boost production and refinance dollar-denominated debt accumulated during the country's short-lived economic boom. The one-year bills have an annual interest rate of 17.5 percent.

Investors were drawn to the bond because of the stability brought to the local currency, the tugrik, following a $5.5 billion rescue package from the International Monetary Fund (IMF), said Dashdorj Bilguun, who worked on the underwriting at Golomt Capital.

"It stabilizes the currency," said Bilguun of the IMF deal.

The tugrik was in free fall last year, declining by nearly a quarter as a result of falling investment and weak Chinese demand for commodities.

Coal and copper sold to China were leading drivers of Mongolian growth, but the IMF is now encouraging the landlocked Asian nation to diversify and develop agriculture and tourism in order to protect it from boom-bust cycles.

Suu is eyeing China as a potential customer for its dairy products, but Mongolian agriculture remains underdeveloped because of a lack of infrastructure and the remote location of herders.

About 30 percent of Mongolia's population still practices a traditional nomadic livelihood that can be traced back to the 13th century, when Genghis Khan was building history's largest empire.

Bilguun said the bills were 12.6 percent oversubscribed despite investor concerns about the potential victory of presidential candidate Khaltmaa Battulga from the opposition Democratic Party, who won the most votes in an inconclusive first round of elections this week.

Before the election, Battulga was calling for more state control in mining, including the Oyu Tolgoi copper-gold mine run by Rio Tinto.

Shares in Mongolia-based firms plunged this week after the election, with Turquoise Hill Resources and Aspire Mining falling by around 5 percent and the Mongolian Mining Corp losing 14 percent since Monday.

An analyst with a Hong Kong investment firm familiar with Thursday's bond deal said the government had turned a corner after the IMF agreement was secured.

"The atmosphere has changed," said the analyst, who asked not to be named because he was not authorized to speak to the media. "There will still be pains, but hopefully the worst has passed."

Source: Reuters Date: 2017-06-30

Phnom Penh in the grip of fear for contaminated pork

The meat section in Phnom Penh’s O’Russei Market on most mornings is crowded with housewives selecting the best pork cuts – from shoulders, loins and fillets – for dinner.

For Srey Leak, the mornings in O’Russei are the best time for shopping for her family’s meals and buying the right kind of pork is of utmost importance to her.

“I’m really paranoid that the meat sellers might sell me pork from diseased pigs,” Ms Leak told Khmer Times.

“I always seek assurances from sellers that they are selling local pork from Cambodia, and from nowhere else,” she added.

According to the scientific journal Nature Communications, almost every pig carries harmless strains of the S. suis bacterium.

However, the journal points out that a more virulent group of strains of the bacteria have been found to exist in pigs from Vietnam, which cause swine diseases and are a major driver of antibiotic use for prevention.

“Increasingly, this group of strains is also implicated in serious human diseases such as meningitis and septicemia,” said Nature Communications.

China stopped buying live pigs from Vietnam in November, citing quality concerns and this has resulted in an oversupply of pigs in Vietnam causing hardship to Vietnamese farmers.

For Cambodia, the smuggling of live pigs from Vietnam through unofficial border crossings seems to be a perennial problem.

Por Leangkong, director of Camcontrol’s Takeo provincial branch, said recently that if those bringing live animals through the borders can’t show proper documents to indicate their pigs are free from disease, they won’t be allowed in.

“However, we can’t do anything if they’re coming in through unofficial crossings,” he said.

Lim Sreng, a pork and beef seller in O’Russei Market, complained about her business being affected by rumours that diseased pigs from Vietnam were “freely” entering the country.

“My shop does not sell that kind of pork and I have a trusted pork supplier in Phnom Penh,” she said.

Ms Sreng said an increasing number of customers to her stall are asking her to give a firm assurance that the pork she sells is from Cambodia.

“This request is from those who don’t know me, which is troubling because it seems they don’t trust my pork.

“For my old customers, it’s not much of a problem,” she added.

Sen Sovann, director-general of the Agriculture Ministry’s general-directorate of animal health and production, said the ministry is working hard to address these rumours circulating on social media.

“We are vigorously checking all slaughterhouses in Phnom Penh to make sure the pork they sell is safe for human consumption,” said Mr Sovann.

“Our officers are also checking the meat sold in markets and so far we can say with assurance to the public, that it is safe.

“There is no infected pork in Phnom Penh,” he stressed.

Seeking to allay public fears, the Mong Riththy Group, which owns one of the largest pig farms in Cambodia, recently started to sell pork branded as “Mong Riththy Hygenic Pork”.

The agricultural conglomerate is marketing this pork in Phnom Penh and Preah Sihanouk province.

“We want to assure the public that our pork is free from bacteria and is safe,” said Mong Riththy, the group founder and CEO.

“Once the public knows that they are getting their meat from a registered company, they would feel less frightened,” he added.

According to the Cambodia Pig Raising Association, about 8,000 pigs are needed to supply the local market every day. About 7,000 pigs are currently supplied by local farmers, while about 1,000 are imported from neighboring countries.

In late April, Agriculture Minister Veng Sakhon said in an announcement that his ministry will implement sanitary regulations to ensure all live-meat imports comply with animal health laws.

The ministry announcement stated that these measures were to prevent the spread of animal diseases that could be passed on to humans.

“All businessmen and companies that intend to import live animals, slaughtered animal meat and processed meat must have a valid license from the general directorate of animal health and be registered with the Ministry of Commerce,” read the announcement.

While the ministry’s announcement might offer some solace, Ms Leak, however, is not taking any chances.

“I’ve decided to cut down my family’s pork consumption and we’re instead eating more fish and chicken,” she said. “It’s better to stay safe than be sorry later.”

Source: Khmer Times Date: 2017-06-30

China's Orchids bloom for export boom

Foshan Dingliang aims to be a key player after sending its first batch of seedlings to the competitive US marketplace. 

Weng Minqiang has to get the temperature and humidity just right for his butterfly orchid seedlings.

Environmental conditions inside his greenhouse complex in Foshan's Shunde district of Guangdong province are crucial to meet export regulations in the United States.

"It is a very precise procedure," said Weng, general manager of Foshan Dingliang Phalaenopsis Industry Development Co Ltd, a company he set up. "Export rules are demanding."

This will be his first US order, a batch of 10,000 seedlings, worth $30,000.

To mark the occasion, Weng even held a special ceremony in Shunde district on June 21.

"The butterfly orchids were given the green light by United States authorities after they passed a strict inspection and went through a quarantine period to meet the import standards required," he said.

The seedlings will be packed in a container and will travel by sea. It will be the first shipment from a Chinese company and Weng confessed he was nervous.

"I hope it is a good beginning," he said.

Still, Weng is confident that this is just the start of an incredible journey, which will see other Chinese horticultural nurseries from the region break into the US market.

After all, he has a track record of success. Last month, his company Dingliang Biological Technology exported 1,000 butterfly orchid plants, worth about $3,000, to Canada.

It was a crucial, first step. But the big prize is the US as annual imports of butterfly orchids to the biggest economy in the world is 50 million, with 23 million seedlings, which are worth between $46 million and $115 million depending on their size.

"Before we moved into the market only the province of Taiwan sold medium butterfly orchid seedlings to the US," Weng said.

But now his company along with other Guangdong growers hope to export more than 1,000 containers, holding at least 20 million seedlings, worldwide in the years ahead.

His plans might sound ambitious, but the rewards outweigh the risks, although Weng declined to reveal detailed financial figures such as sales and revenue.

Butterfly orchid seedlings in the US alone sell for between $2 and $5 each, which is about 50 percent higher than domestic prices.

"Production costs for exporting them are also higher than moving them around the country here," Weng said.

Xian Yangfu, deputy head of Foshan's Shunde district, acknowledged that local government is pushing to develop high-tech agriculture.

"Exports in flowers are expected to play a big part in the district's economic growth in the future," he said.

Butterfly orchids, cultivated in Shunde, have been exported to Southeast Asia, the United Kingdom, Australia and New Zealand.

Located in the western part of the Pearl River delta, the region is known for its flowers and plants, which are sold across the country and overseas.

Yang Guohai, deputy director general of Guangdong Entry-Exit Inspection and Quarantine Bureau, confirmed that tighter inspection procedures and quarantine requirements would help to promote exports in high quality flowers and plants.

"We should be able to export more than 20 million medium butterfly orchid seedlings worldwide in the years to come," Yang said, adding that 11 Chinese companies involved in the sector have been given the green light to export to the US.

Source: China Daily Date: 2017-06-29

ChemChina completes $43 billion takeover of Syngenta

It has recently been revealed that ChemChina’s $43 billion takeover of Swiss Company Syngenta has now been officially completed.

ChemChina originally placed its bid on the Swiss company in early 2016, following on from two failed bids by Monsanto in the previous year. Since then, the transaction has had to receive approval from the relevant competition authorities.

As the transaction with the Chinese state-owned company was confirmed, Syngenta outlined its new ambitions and priorities going forward.

The company aims to profitably grow market share through organic growth and collaborations, and is considering targeted acquisitions – with a focus on seeds.

The goal is to strengthen the company’s leadership position in crop protection and to become an ambitious number three in seeds, Syngenta added.

It is hoped that further expansion in emerging markets, notably China, will be one of the key drivers of the next phase of growth for the company.

The stepping up of digital agriculture offers, as well as ongoing investment in new technologies to increase crop yields – while reducing CO2 emissions and preserving water resources are also expected to play a major role.

The Chairman of ChemChina, Ren Jianxin, reaffirmed that the Swiss company’s operational independence will be maintained and that the existing management team will continue to run the business.

“Together with its board, management and all its employees, we will work for the benefit of growers, to enhance food security and fight famine around the world – based on principles of technological leadership, environmental safety and sustainability,” he said.

A Historic Transaction

Meanwhile, the transaction has been described as historic by the Vice Chairman of Syngenta and Lead Independent Director, Michel Demare, for many reasons.

“Not only is it the largest acquisition ever made by a Chinese company, but also it is a deal focused on growth. All our stakeholders are benefiting from this change of ownership.

“Syngenta will continue to be headquartered and to pay taxes in Switzerland, with major manufacturing and R&D (Research and Development) sites in the country.

“Syngenta remains a standalone company, with a new owner which has a long-term visionfor our industry and will invest accordingly,” Demare said.

The company is set to maintain the “highest corporate governance standards” with four independent directors on the board. Together, ChemChina and Syngenta will make a significant contribution to global food security, he added.

‘A Vital Role In The Food Chain’

Syngenta plays a vital role in the food chain to safely feed the world and take care of the planet, the company’s CEO, Erik Fyrwald, explained.

“With ChemChina we have a stable new owner which will help us to achieve this ambition. At the same time we will sustain our focus on productivity and on improving the customer experience.

“We are excited by the global prospects and particularly those in China – where we will utilise and build on our technology and know-how to promote the highest agriculture, food safety and environmental standards, as well as to increase productivity,” Fyrwald concluded.

Source: Agriland.com Date: 2017-06-29

Norne: Sooner or later Chinese importers will look to Norway salmon M&A

With the Chinese market now open once again to Norwegian salmon sales, investment bank Norne Securities believes it is only a matter of time before importers start looking at mergers and acquisitions to secure supply.

One hundred Norwegian seafood exporters recently met with 300 importers in China, to mark the opening of seafood imports from Norway again. The Norway’s Seafood Council is targeting 156,000 metric tons of salmon exports to China by 2025; one of every seven salmon farmed in Norway now, Norne notes.

"Sooner or later some of China’s seafood importers are likely to differentiate from competitors at home to go beyond contracts to secure supplies," said analysts Karl Johan Molnes and Rytis Mikelionis.

Chinese firms may do this either with a full acquisition, or via a 50/50 joint venture; there is precedent for both, set by Japan when it too wished to secure supply.

In 2014 Mitsubishi Corporation took over Cermaq, for approximately NOK 8.880 billion ($1.4bn). More recently, Norne noted, Japan’s Yokohama Reito and Norway’s Hofseth International paired up to buy a trout farmer, Fjordlaks Aqua.

"China has money, but it does not have Japan’s experience that has been active along the Norwegian coast sourcing seafood, teaching Norwegians how to treat and package shrimps, mackerel and salmon since the early 1980s," Norne suggested.

Bakkafrost's CEO, according to Norne, believes that only Norway can build a market in China.

From an investment point of view, Norne suggested holding onto shares in those companies the shareholder believes could be acquired; the rest, it said, should be sold.

"Strip away the biomass adjustment and focus on the estimated adjusted earnings per share from abnormal high prices and high costs," the bank wrote.

"The valuation of the sector has been around PER [price-earnings ratio] 10 on adjusted consensus numbers since after the companies starting making significant profits in 2014. Value investors recognize that there is now more downside than upside in the earnings level, and have thus already sold their shares."

The table below shows how certain listed companies are expected to perform regarding enterprise value/ earning before interest and tax, and dividend yield.

"Because of the high correlation between salmon prices and salmon stocks the sector is a 'trading sell' until salmon prices are lifted above NOK 60 [per kilogram] per week around the start of 4Q17."

China market has bounced share prices back.

The market has, so far in Q1 2017, been worried about the salmon sector, shown by falling share prices in the listed Norwegian salmon farmers. 

This has mainly been caused by an early downward readjustment of forward prices.

However, falling share prices was halted by the announcement in early April that China would open to Norwegian seafood imports. "Both salmon prices and salmon stocks have rebounded sharply on the news in April and May," Norne added.

The bank descried the recent meeting between Norwegian exporters and Chinese importers as impressive, but suggested "short term progress indicated might be slower than needed to lend much support to salmon prices this year".

"The bullish view: if the salmon prices rapidly rebound from the low 50’s and stay above NOK 60/kg before the end of 3Q17, we are likely to upgrade our recommendations yet again to 'trading buy' into 2018."

"The bearish view: the longer time it takes for salmon prices to get back up to NOK 60/kg in 2H17 the more earnings per share estimates will have to come down, and stocks will fall even more than our target prices."

Source: undercurrentnews.com Date: 2017-06-29

China's youth create a stir in pork industry

China's frozen dumpling makers are finding a quick route to winning new sales - increase the vegetable content and cut down on the meat.

This departure from traditional pork-rich dumplings is a hit with busy, young urbanites trying to reduce fat in their diets often heavy in fast food.

"They [consumers] like trying new healthy products once a week or fortnight. It's a big trend for Chinese mainland consumers, especially those aged 20 to 35," said Ellis Wang, Shanghai-based marketing manager at US food giant General Mills, which owns top dumpling brand, Wanchai Ferry.

For pig farmers in China and abroad, this is a difficult trend to stomach. The producers and other market experts originally expected pig meat market growth to continue until at least 2026.

In the wake of this prediction, Chinese hog farmers have been on a building spree, constructing huge modern farms to capture a bigger share of the world's largest pork market, while leading overseas producers have been changing the way they raise their pigs in order to meet Chinese imports standards. Some have, for example, stopped using growth hormones, which are banned in China.

Despite recent changes, China still consumes significantly more meat than any other country. People here will eat about 74 million tons of pork, beef and poultry this year, around twice as much as the US, according to US agriculture department estimates. More than half of this number constitutes pork consumption. For foreign producers, this has caused a big growth in the market, especially for Western-style packaged meats.

But pork demand has recently hit a wall, well ahead of most official forecasts. Sales of pork have now fallen for the past three years, according to data from London-based research firm Euromonitor International. 

Last year, they hit three-year lows of 40.85 million tons from 42.49 million tons in 2014. Euromonitor predicts they will fall slightly in 2017.

In China, hog prices have come down approximately 25 percent since January, even though official numbers suggest supply is lower compared with last year.

Less meat is better?

Since China began opening up to the world in the late 1970s, pork demand expanded by an average of 5.7 percent every year until 2014. This was due to the booming economy allowing hundreds of millions of people to afford to eat meat more often. 

Now, growing concerns about obesity and heart health have shaped a variety of shopping habits, fueling sales of everything from avocados to fruit juices and sportswear.

"Market demand remains very weak. I think one factor behind this is people believe less meat is healthier. This is a new trend," said Pan Chenjun, executive director of food and agriculture research at Rabobank in Hong Kong.

Sales of vegetable-only dumplings grew 30 percent last year, compared with around 7 percent for all frozen dumplings, data from global marketing research firm Nielsen also shows.

"Demand for vegetable products keeps rising, giving us large room for growth," said Zhou Wei, product manager at No.2 dumpling producer Synear Food.

Guangzhou-based Harmony Catering says that for the approximate 1 million employees eating at its 300 canteens every day, concern over health has become the core reason for reduced servings of meat. 

Harmony's chief clientele - that is, staff members from technology companies, banks and oil majors - are consuming about 10 percent less meat today than they did five years ago, whereas they are consuming around 10 percent more green vegetables, according to Harmony's vice president Li Huang. 

"This is mainly because of media messages, the concept of health has entered popular consciousness [through mainstream communication channels]," he said.

For now, it's mostly urban and white-collar workers paying closer attention to their diets. There's been, for example, a sharp rise in vegetarian food stations at university campuses. 

Besides, the government wants a nationwide shift in eating habits.

Childhood obesity in China is rocketing, and the country also faces an epidemic of heart disease, Harvard researchers warned last year. They blamed the growing consumption of red meat and high salt intake for these problems. 

In April, the health ministry kicked off its second 10-year healthy lifestyle campaign, urging citizens to consume less fat, salt and sugar and instead, aim for a 'healthy diet, healthy weight and healthy bones'.

By 2030, China wants to see a noticeable increase in nutritional awareness, a 20 percent cut in the per capita consumption of salt and slower growth in the rate of obesity, according to a recently published "Healthy China 2030" pamphlet.

Meeting healthy demands

Some companies have been urgently changing the mix of products they sell by going for higher-margin meats rather than volumes. Sales of traditionally less popular lamb and beef have also been increasing.

Li of Harmony Catering says, although servings of pork are down, the firm is including more beef and lamb in meals for diet diversity purposes.

"People usually eat lean beef or lamb, like beef brisket, while pork has both fatty and lean parts, like in 'hong shao rou'," said Beijing-based nutritionist Chen Zhikun, referring to the widely consumed braised pork dish.

China's top pork producer, WH Group, has been going up market by selling more expensive, Western-style products in China, such as sausages and ham. Such products are commonly imported from Smithfield, the largest US pork producer, which was acquired by WH in 2013.

Some producers say that the recent drop in pork consumption can also be partly explained by sharply lower output. A prolonged period of losses during 2013 to 2015 forced farmers to cull millions of hogs, hitting supply and sending pork prices to record levels in 2016.

But for a growing portion of Chinese consumers, price tags on food items are becoming less and less important. A spate of safety scandals in recent years, many of which were related to meat, has made urban Chinese highly sensitive to food quality.

More than 80 percent of people in China surveyed by Nielsen last year said they were willing to pay more for foods without undesirable ingredients, much higher than the global average, which is 68 percent.

"China is in a new stage where consumption of pork and other foods is no longer a simple matter of 'more is better'," said Fred Gale, senior economist at the US agriculture department.

Source: Global Times Date: 2017-06-29