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Market Cap £21.2m
Enterprise Value £2.75m
Revenue £248k
Position in Universe 1233rd / 1912

Flush with cash, Chinese hog producer builds world's largest pig farm

Mon 7th December, 2020 5:21am
By Dominique Patton
    NANYANG, China, Dec 7 (Reuters) - Behind the walls of a
hulking industrial compound in rural China, top pig producer
Muyuan Foods  002714.SZ  is trying to raise more hogs on a
single site than any company in the world - a risky investment
with deadly African swine fever lingering.
    The new farm, which began construction in March and started
operations at the first of its 21 buildings in September,
epitomises the breakneck pace at which huge, industrialised hog
breeding facilities are replacing small, traditional farms, many
of which were wiped out by the worst animal disease outbreak in
recent history.  urn:newsml:reuters.com:*:nL1N2AX0SC
    The shift, under way for years, has accelerated sharply,
fuelled by huge profits at corporate producers since African
swine fever ravaged the country's herd and sent pig prices
soaring to double the previous record.
    Corporate farms weren't spared by the epidemic, but as
prices jumped, they quickly recouped their losses. Muyuan's
profits grew 1,413% in the first nine months of 2020 to 21
billion yuan  ($3.21 billion).
    "We have hit a very favourable period for development. Pig
prices are very high, our profits are really good, and cash flow
is really ample," Qin Jun, Muyuan's vice general manager, told
Reuters at the company's headquarters in Nanyang city in central
China.
    In the race to take share, companies like Muyuan are
designing higher-density automated farms, betting they can keep
disease out while increasing efficiency to satisfy the country's
huge appetite for pork.
    Muyuan's new mega farm near Nanyang, which will eventually
house 84,000 sows and their offspring, is by far the largest in
the world, roughly 10 times the size of a typical breeding
facility in the United States.
    If it works as planned - and other producers follow suit -
the world's top pork consumer could reduce purchases from the
global market, upending a booming meat trade that has supported
farmers across the world.
     
    BIGGER IS BETTER
    With piles of cash, Muyuan and others are building bigger
and faster, aiming to grab market share while the sector
rebuilds.
    Muyuan will spend about 40 billion yuan this year on new pig
farms, Qin said, about eight times what it spent two years ago,
and roughly double the capital automaker Tesla is projected to
spend.
    Small farmers, meanwhile, are struggling to get back on
their feet amid costly new disease-prevention requirements.
    China's hog herd, the world's largest, shrank by around half
in 2019, causing an 11-million tonne pork shortfall that far
exceeded global supplies. Imports of all proteins have since
surged, sending prices from Brazil to Denmark to record highs.
    "It has an experimental element," Qin said of the 3 billion
yuan farm.
    "We will employ fewer people and use more technology," he
said, pointing to "intelligent" feeding systems, manure cleaning
robots, and infrared cameras to detect when pigs have a fever.
    High-rise facilities are increasingly popular in China amid
a scarcity of suitable land. Though corporate producers have an
edge in winning land deals with local governments thanks to
their clout and promises to create jobs by building
slaughterhouses too, Muyuan recently attracted controversy for
planning 55 pig farms on 1,000 hectares of Henan's cropland.
    [https://reut.rs/32XgJex].
    Qin says the issue is resolved and the firm has already
leased land to produce 80 million hogs.
    The mega farm can house five times as many pigs as a regular
farm on the same area. Its density carries huge risk, however,
with diseases including the swine fever virus still circulating
in China, and no vaccine or cure available.
    "Large farrow-to-finish projects with high animal density
are a long-term concern because once a pathogen enters, it's
very difficult to control or eliminate," said Gordon Spronk,
chairman of Pipestone Holdings, a Minnesota-based pig producer
and veterinary services company.
    Muyuan says it has overhauled its production process since
the swine fever outbreak. Grain for feed is sterilised before
being piped into the on-site feed mill from outside, avoiding
possible contamination of the farm by trucks.
    Inside the pig housing, air is filtered, and thermal imaging
cameras are being trialled to check pigs' body temperatures. To
protect the farm's biosecurity, Reuters was not given access to
the farm.
    The new measures are impressive as long as they are managed
properly, said Michael Ellerman, vice general manager at Aspire,
a Suzhou-based pig farm consultancy. 
    Ellerman and Qin both said staffing the high-tech facility
could be tricky. Many of Muyuan's more than 50,000 new hires are
inexperienced, Qin added.
    That will be a growing worry as pig prices fall. Production
costs across the industry are still much higher than before the
swine fever outbreak, but output is lower because of a shortage
of breeding pigs.  urn:newsml:reuters.com:*:nL4N2FC2RL
    "The risk is that prices could fall below cost. If prices
fall below 20 yuan [per kilogramme] next year, some big
companies are going face losses," said Xiao Lin, an analyst at
Shenzhen-based Win & Fun Investment.
    Muyuan's costs are lower than most, at just over 14 yuan per
kilogramme in the third quarter, it says. More automation could
lower costs further.
    But a disease outbreak would undo any gains.
    "At the moment they're okay if there's some losses in the
herd [because of the high prices]," said Pan Chenjun, senior
analyst at Rabobank. "But the risks are rising."

($1 = 6.5342 Chinese yuan renminbi)

 (Reporting by Dominique Patton. Editing by Gerry Doyle)
 ((dominique.patton@thomsonreuters.com;))
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