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INTERVIEW: New Hope Liuhe Sets Ambitious Goals in Pig Production
Source: Feedinfo News Service
(dated 10/08/2016)

10 August 2016- The Chinese are expected to import some 2 million tons of pork in 2016, according to Rabobank, as recent contractions in the country's supply of breeding sows have left it unable to supply the needs of the world's largest pork market. At the same time, the country has seen an exodus of small producers from the industry, forced out partially by market pressure and now, increasingly, by environmental laws pushing pig production away from populated areas and professionalizing the industry.

These circumstances combine to create an attractive environment for a major Chinese agribusiness player to enter, and this July, New Hope Liuhe (NHL) announced that it would be making its move. Feedinfo News Service spoke with Dr. Zhichun Yan, Chief Scientist for Pig Production at New Hope Liuhe and Dr. Xubo Bai of New Hope Liuhe’s Directors Board Office, seeking further details about the company’s plans in the pig production sector and other outlets for New Hope Liuhe’s growth.

Of course, New Hope Liuhe is not starting from nothing. According to Dr. Yan, the company has already brought over 500 thousand heads of swine to market in the first half of 2016, and expects this number to increase substantially in the second half, enough to make it the country’s 5th largest producer in its own estimation.  Moreover, the company currently operates slaughtering facilities capable of processing approximately 10 million heads per year.

Yet New Hope Liuhe’s goals in the pig production sector are significantly more ambitious: the company hopes to produce 10 million pigs annually within 3-5 years, and to slaughter as many of these pigs in-house as is logistically feasible. Dr. Yan lays out the details: “We will own those pigs, but might only raise a quarter of them by ourselves, while the rest might be raised at family farms…we will own all multiplier herds, sow herds, and farms to produce weaner piglets, as well as part of the finishing facilities to fatten some 2.5 million heads on our own farms. We will provide all feed, piglets and services to contract family farmers and collect all market-ready pigs back.”

Indeed, the “company + family farm” approach is key to the company’s growth philosophy. Dr. Yan explains that the company will partner with farms with the capacity to raise between 600 and 20,000 heads of swine; “These sizes of family farms would better correspond with the sizes of weaning groups at our breeding farms.” Moreover, while the overall project anticipates that New Hope Liuhe will fatten one in four pigs in-house, Dr. Yan notes that this ratio is flexible, depending on the land availability, labor costs, and agronomy in each area. “Some of our production complexes actually contract all weaners for family farms to fatten.”

"We realize the scarcity of target companies with our high requirements for facility, location and scale." 

    - Dr. Zhichun Yan, 
      Chief Scientist for Pig Production 
      New Hope Liuhe

To organize the various initiatives around its expanded pig venture, New Hope Liuhe has set up a subsidiary company, the Tibetan Xinhao Technology Company. Dr. Yan explains the four sectors making up the company. “One is the previous pig production division of NHL. In addition to that, Silk Road Agriculture Technology Company is a firm providing farm management services to outside pig farms. Xinliu Division will engage in pig production activities conducted via our feed manufacturing companies, most of which would be contract finishing. Xinhao will also be equipped with an investment division taking care of acquisition opportunities.”

Still, Dr. Yan cautions that suitable acquisition opportunities may be thin on the ground, given the current state of the industry. “M&A could be part of our growing efforts [in pig production], however, we also realize the scarcity of target companies with our high requirements for facility, location and scale. We have committed to a model using modern facilities, and we will be growing in areas with competitive advantages in terms of resources.”

On the other hand, New Hope Liuhe remains positive about the benefits that can come from developing partnerships with other companies. Roughly a year ago, NHL announced a partnership with French pork producer Cooperl to develop a fully integrated pork production chain “from genetics to end product, including technical services and environmental management.” According to NHL, the endeavor emphasizes supply chain security, traceability, and the reduction of antibiotics use, “to bring EU best practices in the pork production chain to the PRC.”

An important part of its corporate strategy, international cooperation for NHL is not a one-way street; indeed, growth abroad has increasingly served as a motor for the Chinese company in other sectors of its agribusiness activities. “NHL has led Chinese agribusiness companies in outward direct investment since 1999, when it established the first feed plant in Vietnam…By the end of 2015, NHL had already established 22 subsidiary companies in [Southeast Asia] and achieved annual turnover of USD 1 billion.” The company sees such investment as an outlet for growth as the animal feed niche it has traditionally occupied reaches its peak. “In general, we consider the Chinese feed market to be a mature market with too much oversupply,” notes Dr. Bai. While New Hope Liuhe certainly plans to continue investing in its Chinese feed production capital, this will largely focus on the relocation or technical upgrade of older mills instead of simple capacity expansion, he explains. “However, there are still some opportunities in the structural upgrade of feed supply, such as new kinds of feed for certain animals and for aqua species, more precise nutrition programs for different feeding stages, and so on. NHL will invest continuously to capture these new opportunities to achieve sustainable growth in the future.”

Ultimately, the support that the company will be providing its contract pig farmers could end up turning into something more. According to company officials, New Hope Liuhe has been discussing the further development of its offer of farm-related business services. “In our solutions provided to the farmers, we not only supply farmers with feed and breeders, but also provide guidance and support for farming technology, upgrades for infrastructure and equipment, financing support, and IT and data services,” Dr. Bai explains. Expanding on these opportunities “means that NHL will experience a great transformation from a feed supplier to a comprehensive farming solutions provider.”

"NHL will experience a great transformation from a feed supplier to a comprehensive farming solutions provider."

    - Dr. Xubo Bai 
      Directors Board Office
      New Hope Liuhe

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