China Agriculture View

BEIJING, Dec. 28 (Xinhua) — China’s grain yield this year is expected to hit a record high of 530.8 billion kilograms, which would represent the sixth consecutive year of output growth, said a statement released on Monday after the conclusion of the Central Conference on Rural Work.

China Organic Agriculture, a company headquartered in the Liaoning province in China engaged in the trading and distribution of agricultural products, has entered into an agreement to acquire 60% of the stock of Changbai Eco-Beverage for RMB70m or $10.25m. The closing is expected in March of 2010.

Changbai is a producer and distributor of blueberry product, located in Jilin Province of China. Changbai produces around one hundred blueberry related products, including soft drinks, health care products and honey mixed products.

Changbai currently distributes its products within three provinces in northeastern China and plans to expand into other regions over the next two years. The company said that upon completion of this acquisition, it will utilize China Organic Agriculture’s countrywide sales network, and is expected that as a result of this acquisition, it will be able to expand its market more rapidly than originally anticipated, thus increasing both its brand awareness across China and its revenues.

Li Jinsong, CEO of China Organic Agriculture’s, said: “We believe that the opportunities in the blueberry industry are enormous as blueberry based products will become increasingly in demand in China with the growing interest in healthy food alternatives.

“Now that we have an agreement, assuming the satisfactory conclusion of our financial and legal due diligence, and receipt of all necessary government approvals, China Organic Agriculture’s distribution network and broader-based relationships will enable Changbai to expand its business and more quickly penetrate this growing market with this promising beverage and product group.”

Over the last ten years, the Chinese swine industry has been rapidly expanding, with the support of local and international investors who have recognized the profit potential. The U.S. Grains Council has been working closely with local producers through the industry expansion, aiding in not only feed ration advising, but also in helping produce a model for modern facilities and management.

USGC Consultant Dr. Steve Pohl and Jason Yan, USGC technical program director in China, met with representatives of Besun Group, a Chinese swine producer, two years ago as they were in search of guidance in building a 20,000-sow operation. With Dr. Pohl and the Council’s expertise, the Besun Group was able to follow an outline for an efficient facility. The Council has continued its support of the operation, offering guidance with further details in managing the facility and employees.

“Besun Group is now finishing four of its seven planned 3,000-sow farms in the Shaanxi Province. The building style and pig flow model has become a model for other companies planning expansion in China,” said USGC Senior Director in China Cary Sifferath, noting more than 20 large swine operations have visited Besun Group for firsthand looks at their facilities.

With the expansion of the industry comes a need for an increased amount of feed ingredients. This week, Council Consultant Dr. Ken Stalder traveled to China to meet with swine producers, offering his expertise in swine management and nutrition. Dr. Stalder focused on genetic improvement, selection methods and the economic benefits to such techniques.

The Chinese government pledged Monday to push forward the transformation of its economic development pattern next year while maintaining stable and comparatively fast economic growth.

Participants at the three-day annual Central Economic Work Conference agreed that the global financial crisis highlighted the urgency to transform China’s economic development pattern.

They agreed that the government should coordinate efforts to maintain stable and comparatively fast economic growth and speed up the transformation of the economic development mode.

The Central Economic Work Conference, held once a year to set the tone for next year’s economic development, comprises policy-making officials from central and provincial-level governments, including President Hu Jintao and Premier Wen Jiabao.

The conference outlined six major tasks for next year’s economic work: to improve macro-regulation to ensure stable and relatively fast economic growth, advance economic structure adjustment to lift quality and efficiency of economic growth, boost rural development momentum, deepen reform and opening up to enhance momentum and vigor of economic growth, promote stable export increase, improve people’s livelihood and maintain social stability.

The government would continue efforts to boost domestic demand, especially expand people’s consumer demand, and make consumption contribute more to boost economic growth, according to a statement released after the conference.

The government would also seek to push recovery of exports and promote balanced international trade, it said.

More efforts would be spent to deepen economic system reform and enhance the momentum and vigor of economic growth.

The government vowed to balance the tasks of ensuring a stable and relatively fast economic growth, adjusting economic structure and managing inflation expectations next year.

This was the second time the government mentioned about managing inflationary prospects in a national event after a State Council meeting in October picked the issue as one of the key points in macro-regulation for the rest of 2009.

The country would maintain the continuity and stability of macro-economic policy and continue implementing the proactive fiscal policy and moderately easy monetary policy.

It has been over a week since China announced its decision to lift the country’s ban on U.S. pork, but negotiations continue over the terms for U.S. pork exports to resume, according to a U.S. Department of Agriculture official.
 
“Negotiations are ongoing,” said the USDA official, who asked not to be named. “They are looking at the lingering issues in order to resume pork trade.”

The fact that U.S. pork exports haven’t begun flowing again to China has some industry representatives concerned, especially because the severity of those”lingering issues” and the degree to which U.S. and Chinese negotiators are split over them are unknown.China banned U.S. pork earlier this year after a human outbreak of swine flu, or H1N1 influenza.

China was a major importer of U.S. pork in 2008, according to USDA data that showed $580 million of U.S. pork exports to the country.

 U.S. and international scientists have said studies show that the H1N1 virus cannot be transmitted to humans by eating pork.

 Joe Schuele, director of communications for the U.S. Meat Export Federation, said the group advised its members that China’s original communications that it was lifting its ban might be “premature.”

U.S. negotiators, Schuele said, are taking care “to make sure that we don’t have a lot of unworkable conditions that are going to cause problems for our
exporters.”

The U.S.-based National Pork Producers Council is “hopeful” that U.S. exporters will be able to begin shipping pork to China again soon, spokesman David Warner said, but acknowledged that it is primarily up to China now to follow through with its promise.

  “We support the U.S. government’s efforts to get the Chinese to open their market to U.S. pork, and we’re frustrated that this hasn’t gotten done yet,”Warner said.

Source: dailypost

The world’s attention is on Copenhagen. For Rabesoa Maximin, an agricultural official from Madagascar, this is only half right.

For Maximin, who is taking a three-week training course on China’s hybrid-rice cultivating technique in Changsha, capital of Central China’s Hunan province, climate change may be an urgent challenge but the global food crisis has been more devastating to a developing country like his.

Since 2008, a growing shortage and the rising price of food have put many developing countries, especially those in Africa, in dire need of more grain.

Once a rice exporter, Madagascar transformed into a rice importer in 2008 due to its expanding population, shifting climate and the country’s still primitive rice-cultivation technique.

Hybrid rice, a technique invented by Chinese academician Yuan Longping and the application of which has helped Chinese farmers harvest 300 million tons more in aggregate output during the past two decades, has become the most sought-after technique for agro-technicians and government officials from developing countries. Maximin is one of the best examples.

“Madagascar has a perfect environment for rice cultivation,” said Maximin on the sideline of his training courses, attended by 43 other agricultural officials from 27 developing countries. “If we adopt a hybrid rice technique nationwide, we expect to see our rice production double in two years and become a rice exporter soon.”

At present, the average rice yield in Madagascar is 2.3 tons per hectare in comparison with China’s average yield of 7.2 tons per hectare for hybrid rice and 5.6 tons per hectare for inbred rice.

“I can’t wait to go back home to spread the technique as rice has become a grain crop of strategic importance to our national economy,” said an excited Maximin, whose training course comes to an end today.

The training course Maximin attended was offered by the Yuan Longping High-Tech Agriculture, a State-owned company named after “the Father of China’s Hybrid Rice”.

It is one of more than 30 training courses the company has been offering since its establishment in June 1999.

The company aims to train 5,000 foreigners, establish 10 breeding centers and expand overseas cultivation bases to 10,000 hectares in 10 years so that countries receiving China’s technical assistance in hybrid rice could breed new crop varieties and reap harvest on their home turf, said Wang Xiusong, director of the company’s international exchange center.

“Without skilled technicians and well-informed government officials, hybrid-rice breeding and cultivation techniques could not be spread far across the world, let alone ease global grain crops shortage,” said Wang.

By September when it was designated as China’s first training base for the spread of hybrid rice breeding and cultivation technique by the Ministry of Commerce, the company has trained more than 2,000 government officials and agro-technicians from 50 countries through more than 30 training courses, Wang said.

The training course Maximin attended is the sixth offered by the company this year, Wang said.

“If the acres under hybrid rice reach half of the total rice planting area, the world’s total rice output could increase by 150 million tons a year, enough to feed 400 million more people,” said Yuan, the revered 80-year-old Chinese agricultural scientist to the boisterous applause of Maximin and other trainees on Friday during his keynote speech in English.

According to the British “Daily Telegraph” reported that December 4, the Royal Botanic Gardens (also known as Kew Gardens) and botanist who discovered after years of research, including tomatoes and potatoes, including a variety of vegetables are in fact “flesh-eating” plants, they eat insects and Venus fly-trap technique worthy of par.

The findings of the International Plant academic circles have expressed shock and joy, because for many years that scientists have only tomatoes and potatoes to absorb nutrients from the soil. In addition to the soil in fact, the above-mentioned two kinds of vegetables, stems soft parts of insects, firmly hair can “stick”, etc. It died out in the earth, the tomatoes and potatoes can “bites” of. Scientists believe that this phenomenon is the evolution generated, is a lot of self-fertilizing plants a way, so that even tomatoes and potatoes that have been human “domesticated” plants have been a long time inevitably retained this characteristic. In some cases, the soil is very poor, these plants can not provide the necessary nutrients, so they can only be through “trap” Insect to normal growth.

Scientists say they have long been seriously underestimated the “carnivorous” plant types and quantities, in fact, there are many people recognized as the most moderate of the plant are very much like “meat” of, for instance, morning glory, tobacco, shepherd’s purse, and cabbage are “carnivorous” plant of the column. Kew Gardens botanist Mark Chase, said: “We usually eat tomatoes and potatoes have hair, especially hair sticky tomatoes are particularly high. They do often start with insects, kill them and eat – the people generally agree that plants could not move, will not harm other organisms, but in fact some plants really like to eat insects. “

HOGS is a Delaware holding company that operates as a vertically integrated processor, distributor, and retailer of pork, fruit, and vegetable products in the People’s Republic of China. HOGS owns 6 abattoirs (leases 3 additional) for the slaughter of locally purchased swine and 11 meat, fruit, and vegetable processing plants. Customers include 47 meat processors, 1,683 school, factory, and military cafeterias, and 3,178 grocery and restaurant retail outlets. 27 domestic and international fast food companies also purchase HOGS’ products. HOGS offers 314 fresh, chilled, and frozen pork and meat products and 20 fruit and vegetable products. 136 products are in the developmental pipeline. No wonder this stock is a Wall Street darling. Want the full story?

HOGS is a compelling growth story. Revenues, net income, and earnings have increased 1162%, 1034%, and 708%, respectively, since 2004. These same parameters have increased 28%, 30%, and 27% for the first 9 months of 2009.

Due to the lack of adequate transportation infrastructure in the PRC, HOGS, like other pork producers in China, operates a regional and local business model. Live hogs, fruits and vegetables are purchased from sources close to slaughter and processing facilities. A network of 66 warehouses and 85 sales offices provide products for retail outlets in 24 of China’s 30 provinces. Despite this fragmented model, the Zhongpin brand enjoys national and international recognition. 42% of revenues are derived from independent proprietary “showcase” stores and supermarket counters that allow for consistency of presentation and quality of product. Although primarily marketed in Tier 1 cities, HOGS has initiated penetration into Tier 2 and 3 markets (populations less than 3 million). International sales presently account for less than 1% of sales. 88% of sales are fresh, chilled, processed and frozen pork products. Fruits and vegetables bring in 5% and other
meat products round out the menu. Selling at only 48% of its total pork processing capacity and a PRC mandate to limit open-air marketing of meat products, HOGS is in a good position to capitalize on the growing demand for pork, the primary meat preference in China. 46% of world pork production and consumption occurs in China.

So where is the downside? HOGS has expanded by taking on significant debt. Here is a company at the mercy of swine disease, particularly the recent H1N1 swine flu, local pig supply, economic downturns, or food contamination scares that is wallowing in $96.8 million of short term and $33.6 million of long term debt with just $26.8 million in cash flow. It has eaten through 58% of its credit line. HOGS’ options are limited in the event of calamity.

Recently the PRC opened 6 state owned abattoirs in Beijing that are considered “safe practice” hog slaughter facilities, suggesting that present meat slaughtering practices in China are inferior to the needs of a developing society. Although HOGS pre-slaughter and slaughter meat inspection procedures are exemplary, this state initiative casts doubt on all pork processors in the PRC and could affect sales.

Although HOGS sells products in 24 of China’s provinces, the bulk of its business is concentrated in the 4 provinces and 3 Autonomous Regions (Beijing, Tianjin, and Shanghai) with large supplies of swine. The lack of road and rail infrastructure in China limits any major national competition but it is also an impediment in HOGS’ attempt to establish a significant national footprint (think Chinese Smithfield) to ward off serious regional or foreign competition. Presently, China must import pork products to meet domestic demand.  

Fundamentals for HOGS are mixed. ROIC, ROE, P/CF, Current and Cash Ratios all suggest a limited business moat and debt inflated return to investors. However a P/E of 11, low D/E, increasing sales & earnings growth, with 28% insider ownership and limited float, support Wall Street’s infatuation with this stock.

My personal investment portfolio is betting heavily on Chinese consumer growth, but I must agree with Jim Cramer that HOGS is too risky for even the most intrepid of investors. China is in the midst of peak pork consumption (winter) so earnings reports for the next two quarters may be tempting to momentum investors. I would only give this stock a second look when I could limit my downside risk and it was selling at $6-7/share or a P/E around 5.

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