Thursday, November 18, 2021

Pork Conglomerate Corporate Welfare

The tentacles of subsidies and government aid are entwined with the world's largest hog farmer. China's Muyuan Food Group--an ostensibly private company--has sold more than 31 million swine through October this year. If Muyuan hits the top range of its targeted output of 35-to-45 million head this year--it will come close to matching the entire production of Brazil or Russia. 

Last week local communist party authorities in Nanyang City of Henan Province--Muyuan's hometown--issued a document calling for 15 policy measures to support Muyuan with the goal of propelling the company into the Fortune-500 list of the top companies in the world. The policies feature measures that are invisible to outsiders. They include central government transfer payments for hog-producing counties and manure utilization demonstration projects, easing up on land-use planning and environmental assessments, local government loan guarantees, aid for constructing breeding centers, industrial parks, logistics hubs, slaughterhouses and subsidiary companies operating in ancillary industries like feed-milling and equipment manufacturing. 

First, the document orders local county and district authorities to continue implementing policies launched in 2019 to restore hog production capacity from losses during the industry's African swine fever crisis. This includes behind-the-scenes coordination that orders land-use planners, environmental departments, financial regulators, banks, insurance companies, vaccine manufacturers, and transportation officials to incorporate Muyuan's giant hog farms and ancillary operations in their plans and give them favorable treatment. 

The document orders local leaders to expedite and streamline license applications for building farms and slaughter facilities, business licenses for breeding farms and feed mills, inspection and quarantine permits. Officials are instructed to coordinate with environmental departments--presumably to prevent any delays or hold-ups. 

Local officials are instructed to make land available for Muyuan to finish building its planned layout of breeding and commercial farms, slaughterhouses, feed mills, and industrial parks. Leaders must facilitate the transfer of farmers' land and village collective land and solve conflicts over land use. Grass roots leaders and common people are to undergo "thought work" to smooth out the land transfer process.

County and township meat and animal inspectors are expected to design their work with Muyuan's needs in mind, ensuring that animals are slaughtered in a timely way and qualified for slaughter.

Authorities are ordered to provide guidance to Muyuan in implementing measures apparently meant to certify disease-free zones: "Non-regulated animal disease zones" and "African swine fever-free zones."

An emphasis on breeding and promoting local specialty breeds reflects a priority set 11 months ago that called breeding stock the "silicon chips" of hog production. Local officials are ordered to provide unspecified support in constructing Muyuan's chain of breeding farms -- grandparent farms -- multiplier farms -- commercial finishing farms to meet the demand for breeding animals. Muyuan's plan includes protecting a local breed of "Nanyang black pig" and incorporating its genetics in specialty commercial breeds.

China has big ambitions to be a first-mover in application of information technology and artificial intelligence in farming. Officials are ordered to spend money on to help Muyuan incorporate information technology, R&D on intelligent equipment, big data, cloud computing, Internet of things platforms, explore 5G-plus, real-time weather monitoring, and digitization of production and management systems. 

Four counties in Nanyang's region are pilot areas for manure utilization. The pilots will engage a Muyuan subsidiary company as a "third party" in manure treatment--with policy support funds. The projects are expected to demonstrate treatment and use of animal waste, using it to replace chemical fertilizer and to improve land quality in a green "circular" model.

Human resource development includes training motivated, educated rural people in technical and business skills to meet Muyuan's needs for high quality farmers and employees. 

Equipment needed for swine farms and associated activities will be included in the local list of items eligible for the farm machinery and equipment subsidy. 

Nanyang will guide Muyuan in supporting construction of high-efficiency water-conserving irrigation projects and high-standard fields to preserve national food security. Presumably, this is a quid-pro-quo for turning huge swathes of farmland over to Muyuan for its hog farms and...industrial parks--another featured rural development strategy this year.

Local officials will "guide" Muyuan to build industrial parks focused on meat, agricultural and livestock equipment manufacturing, a "food city", an agro-ecological demonstration park, and e-commerce off-line exhibition center, and a smart logistics park.

A Nanyang City meat industry upgrade plan aims to create the largest hog-producing, meat processing, cold-storage, and farming-livestock equipment manufacturing centers in the country, plus add an international livestock technology exchange center in Nanyang. 

This year Henan Province issued a document endorsing government credit guarantees for farm loans. Officials intend to propel hog industry development via behind-the-scenes coordination of banking and insurance regulators, the Agricultural Bank, Postal Savings Bank, and by creating a government guarantee company to leverage bank loans and investment.

Last, but not least, is control of information. The government will closely monitor everything Muyuan does and will issue propaganda through news media to "rationally guide market expectations." Officials will guide Muyuan Group to follow national hog industry policy, adjust the hog population structure, and continually raise and improve hog production capacity. 

The local support announcement comes after a patch of losses for Muyuan and other big pig companies in China due to excess capacity and plunging prices in 2021. One commentary described a "crazy" month of October in which hog prices plunged to 10.5 yuan per kg, then rebounded to 15.8 yuan by the end of the month. Muyuan's share price lost half its value during the crash in hog prices from March to August. A 35-percent rebound in September-November paralleled the rebound in hog prices.

data from finance.Yahoo.com

Muyuan dumped over 5.25 million hogs into the market during October--up from 3.1 million head sold in September. The average sale price was 11.88 yuan/kg (about $.86 /lb), well below Muyuan's breakeven price of 15 yuan/kg ($1.06 /lb.) By comparison, the average U.S. hog price is currently $.75 per lb. The breakeven price for China's most successful hog conglomerate is 40 percent above the U.S. price.

The commentator estimated that Muyuan might have lost over 2 billion yuan (around $312 million) during the month of October by selling 5.25 million head below the breakeven price. Eight of the other nine big pig-farming companies also upped their sales in October. 

The commentator wondered what was behind the odd business decisions and price fluctuations. He speculated that the companies are making a "last stand" at the end of the year to optimize the numbers for their annual reports for skeptical investors to prevent share prices from tanking.

1 comment:

Neha shree said...

Thanks for sharing informative information in this blog.

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