The companies, which have a combined annual pig production of 1.5 million pigs, are pooling investment of RMB530 million into a new firm, which will aim to slaughter two million pigs per year.
The slaughtering and processing facility is being built by Hubei Jin Chu Lianhe Yu Zhong Science & Technology Co, a venture set up by another breeding firm, which is in turn jointly owned by 10 of the largest pig breeding companies in Hubei province, the capital of which is Wuhan.
The new plant is the latest in a series of investments by the Jin Chu Shou Chuang Pig Breeding Co cooperative, which started out when 10 firms joined forces in 2015 to combine breeding and procurement of inputs such as feed, at a time when China’s pig prices were rebounding.
The goal behind the breeding firm was to reduce production costs and improve quality through joint purchasing of feed and other inputs, explained company chairman and founder Lei Xian Zhong. Hubei lacks a large, listed pork company, so smaller firms need to combine in order to compete. “We must reduce price volatility” said Lei. The cooperative approach meant member firms were spending RMB100 less on young pigs for fattening, he added.
The link-up of the firms could also improve the competitiveness of local pork against imports, and the adoption of the Jin Chu model across China, through combined purchasing of inputs like feed, would ensure the average prices of pork were reduced by CNY5 per 500g, according to Lei. “This will make our pork very competitive against frozen imported pork,” he said.
Branding and standardisation of production are priorities for the 10 firms who are working towards the establishment of an “ecological, safe food” regional brand, according to Lei.
Operating out of the Jiangxia district of the city, the slaughtering plant could be the start of major consolidation in the Hubei region. Chinese pig producers continue to suffer from low pig prices – part of a cycle that typically swings with the clear-out of breeding stock by smaller players. Consolidation of Chinese pig farms has gathered pace in recent years, facilitated by government backing for the so-called ‘dragon head’ firms or major regional champions, which are seen as key to raising standards in the industry.
Several dragon head firms have announced major expansion in pig numbers: Chuying Agro Pastoral, for example, has signed deals with 100 cooperatives in north-eastern China and aims to produce four million hogs in the region as part of the government push to move pig production closer to corn production areas in northern China; and Da Bei Nong has long stated its goal to become one of the world’s leading companies by producing 100 million pigs a year.
However the cooperative-style Jin Chu model in Wuhan could prove an alternative route towards consolidation and to reducing price volatility in the sector. China’s pig producers continue to operate in a very cyclical market, with a lack of pricing awareness often the reason behind farmers selling out in a downward price cycle.
China had a hog inventory of 435 million pigs at the end of 2017, more than three times the number of hogs in the EU, which has the world’s second-largest herd.