Tuesday, May 6, 2014

Smithfield, Shuanghui's "foreign brother"

China's Shuanghui Company acquired Smithfield Foods last year and became the world's largest pork company. Now Shuanghui is launching a plan to market Smithfield pork throughout China this year.

On April 26, the first Smithfield sales counter was opened in Luohe City, a small city in Henan Province that is the home base of Shuanghui. This was said to be a new "homecoming" for Shuanghui's "foreign brother." Another "Smith" brand counter was opened at a Lianhua supermarket in Zhengzhou.

Shuanghui has a plan to roll out pork from Smithfield throughout China over the course of 2014. In May they plan to open 10-to-15 special "Smith" meat counters, boost it to 20-to-30 in June, and sell nationwide in the second half of the year.

The plan is to import 5000 metric tons of Smithfield pork into China in 2014. The author points out that would be equal to about 1 pound for each person in Zhengzhou.China has been a net importer of pork since 2008. According to the article, China's pork imports were up 13.4 percent in 2013.

In the past, imports were mainly frozen pork used in processing plants. Imported pork was seldom available in retail markets. Shuanghui hopes to import chilled pork and pitch it as a high-quality, convenient product. They have done a lot of research to overcome logistical problems in order to get the pork from the Smithfield processing plant to the meat counter in China within three weeks, with the temperature controlled during the whole process.

China's pork industry is in a consolidation process. Less than half of processing capacity is utilized. Shuanghui has sales of 50 billion yuan, but that's reportedly less than 5 percent of the Chinese pork market. During 2012-13, China's Ministry of Commerce required all pork companies to be re-licensed, which resulted in 5000 companies being shut down. COFCO, China's largest state-owned agribusiness is rumored to be in negotiations to acquire Jinluo, another of China's leading pork processors, but neither side is confirming the rumor. Previously, it was rumored that COFCO was in talks to acquire Yurun, but negotiations stalled.

Shuanghui's first quarter report said the company slaughtered 3.9 million hogs during January-March 2014, up 38 percent from the same period in 2013. Operating income was up only 5 percent, but profit was up 40 percent. Meanwhile, hog producers have been losing 300 yuan on every hog they send to the slaughterhouse this year. Sounds like Shuanghui is benefiting from lower Chinese hog prices.

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