Major investment in pig processing site in Northern China

By Rod Addy

- Last updated on GMT

Charoen Pokphand has made a massive investment in Northern China
Charoen Pokphand has made a massive investment in Northern China

Related tags: Inner mongolia, Meat, Pig

Thai conglomerate Charoen Pokphand’s (CP) Chinese business is investing CNY3.6 billion ($531m) in a site intended to process one million pigs annually in one of the country’s less populated regions. 

The animals will be sourced from six pig breeding bases in Inner Mongolia.

Tighter environmental enforcement has made pig breeding sites harder to find. But a formal launch, hosted with the local government of He Lin Ge county and Inner Mongolia Zheng Yuan Livestock Co, saw the activation of the first phase of project comprising 150,000 pigs.

CP executives were joined in the ceremony by local officials who are banking on windfall gains in tax and jobs from the project.

“Chinese pig production is moving from south to north,”​ noted Li Yao Ting, the mayor of He Lin Ge who said the project would supply the surrounding region of Inner Mongolia, neighbouring Shanxi province and Beijing with “green ​[as in ecological], safe and quality”​ pork.

Li Yao Ting promised the project would create 3,000 jobs locally and ultimately bring CNY200 million (US$29.5m) in taxes into local coffers every year. A statement from He Lin Ge government also pointed to CNY25m ($3.7m) in land transfer fees paid by CP to acquire land from local farmers.

CP has cooperated closely with local government on the project. Importantly, it will be a pork “demonstration zone”​ showcasing model pig handling and slurry treatment facilities.

CP would work with “local government and society”​ according to a local government statement about the launch event.

China’s use of “demonstration zones”​ – ostensibly to promote better standards – has been criticised by US trade officials as granting unfair advantage to Chinese producers in the form of government supports.
The local government in He Lin Ge has been promoting the livestock sector under a slogan of ‘Steady Lamb, Increase Beef and Expand Pig [Production]’.

The slogan reflects how a surge in sheep production in recent years has lowered Chinese lamb prices even as demand for beef and pork have grown in the past year.

CP isn’t the only breeder bringing new supply on line in China where pork production is projected to fall by up to 6% this year due to low sow inventories, according to Rabobank in its Pork Quarterly report for the fourth quarter of 2016.

The bank has projected a recovery in pig numbers from the second half of next year as new farms come online.

Chinese pig numbers are, however, unlikely to rebound as quickly as in past cycles due to an ongoing government crackdown on pollution by the pig sector.

High in nitrogen and potassium, untreated pig manure has been blamed for mass eutrophication of Chinese rivers. Rabobank projects that production will grow by only 2-3% next year, still below numbers seen in 2015.

That suggests prices for pork will remain strong. In addition, local players are racing to open new breeding facilities, while complying with environmental regulations that have seen mass closures of facilities in heavily populated southern areas like Guangdong province.

The Tangrenshen Group is building a facility with local government in Da Ming County in Hebei province near Beijing to produce 30,000 “improved breeding” piglets per year.

Others betting on China’s appetite for pork include Zhejiang Huatong Meat Products Co, in which CP China has a 5% stake. It’s investing US$64m in a pig slaughterhouse with annual kill capacity of 500,000 hogs. The firm’s signature brand is Jinhua ham, a familiar presence in Chinese supermarkets.

CP China boss Zhou Yong Shun this week introduced the company’s 500 individual packaged meat products and convenience meat snacks to local government leaders. He was speaking at an agricultural products fair in the huge central Chinese city of Wuhan.

Renowned for strong connections to Chinese officialdom, CP (which operates under the Mandarin name Zheng Da in China) has significantly increased activity in northern China with several poultry projects underway in the region. It was one of the very first investors in China after the country opened up in the late 1970s.

CP has prospered in China thanks to the connections of long-time company boss and Chinese-Thai billionaire Dhanin Chearavanont, chairman and CEO of the Charoen Pokphand Group.

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