The chief of one of China’s most ambitious beef processing companies has spoken of how his plans are being frustrated by a shortage of cattle, even as demand for beef surges in the country’s urban centres.
Speaking to Globalmeatnews.com, the founder and chairman of the Tianjin DawnRun Beef Group Co Ltd, Lu Xiaosong, said that three of the company’s ultra-modern processing plants in Inner Mongolia Heilongjiang and Jilin were operating at less than 50% capacity. “A few years ago cattle were much easier to source,” he said.
DawnRun is considering importing carcasses from Australia next year, if the supply crunch persists. It contracts half its cattle breeding to farmers to whom it pays high prices. Most cattle DawnRun bought this year were at least 550-600 kg, yielding farmers around Chinese Yuan Renminbi CNY14,000-a-head (US$2,248), according to Lu. That’s high by European standards, he agreed, but input costs are also higher. A calf costs CNY2,000 (USD321).
Supply problems are being exacerbated by smaller farmers exiting beef production to seek jobs in China’s booming cities, and also shifting to pigs or arable crops. Also, bans on grasslands grazing in northern regions have squeezed cattle numbers.
Despite these difficulties, the company claims 2011 annual sales of CNY1 billion (US$160 million) and counts McDonald’s as one of its biggest customers. Lu Xiaosong launched the business in 2008 as Inner Mongolia DawnRun Beef Co Ltd, adding a cattle fattening facility in 2009, in Duolun, Inner Mongolia.
DawnRun acquired Jilin Baoxin Muslim Food Co Ltd in 2010 and in the same year the firm paid CNY100m (US$16m) for 80% of Heilongjiang Nongken Beidahuang Cattle Industry Co. The firm’s three factories use equipment imported from Germany and the Netherlands. Foremen have also been sent to Europe for training, according to Lu.
DawnRun does not ship carcasses: rather meat is sliced or cubed to suit key catering customers and the firm’s own shops – DawnRun has 100 own-name stores (most of them in Tianjin and Shanghai). Another key customer is instant noodle maker Kang Shifu.
Getting into supermarkets, a key distribution point for meat in China, is not a priority for the firm but will be a useful tool for raising the company’s profile, said Lu. DawnRun exports to Hong Kong and the Middle East, although exports have shrunk as domestic demand surges.
Labour is another challenge. “It’s very difficult to find and retain quality workers, particularly given wages have been rising an average 10% a year in the past five years in the northwestern regions where DawnRun’s plants are located. Some processing staff can earn CNY4,000 per month (US$642), above average for locals. Wages are rising and fewer people are opting to work in a meat factory,” explained Lu.
Meanwhile, to address China’s perennial food safety and trust issues, DawnRun has acquired a ‘non-poison’ certificate from the department of agriculture and also has purchased insurance for all its consumers.
And as for its breed of choice: “We like Simmentals because you can use them for meat and milk.”
Lu, who sits on the boards of the China Animal Agriculture Association and the China Meat Association, has plans to look at lamb “down the road”. He noted it would be harder for his business to move into pork since many of his suppliers have a Muslim background, and hence pig meat would be inappropriate.