Diversification of Large-scale Grain & Food Processors

Recently, a number of leading grain and food processors have moved towards increasing diversification and vertical integration. This is a signal of the growing integration of China’s food industry, a trend which is expected to pick up pace in the future and impact dairy markets as a result, according to CCM International’s April issue of Dairy Products China News

The prime example is Yihai Kerry, a leading agribusiness and food company processing oilseeds, grains, edible oils, palm and laurics into a wide range of high-quality food products, feed ingredients and oleochemicals at ~170 plants. The company is a leading player in multiple market segments in China, such as oilseed crushing, edible oil refining and consumer cooking oils as well as rice and wheat flour milling, etc.

On 3 March, Yihai Kerry announced the commissioning of its production lines for soy milk powder and liquid soy milk with capacities of 8,000 t/yr and 12,000 t/yr respectively: the resulting products will be launched in the East China market first, during June.

This is the group’s first involvement with liquid soy milk. It originally entered the soy milk industry early in 2009 when it acquired a soy milk powder processor in Heilongjiang with a capacity of 6,000t/yr; later, in 2011, it set up an 8,000t/yr soy milk powder production line in Qinhuangdao City, Shandong Province.

There are other similar examples, such as V V Group. On 9 March this leading grain and food processor announced that it will participate in the reconstruction of a white spirits company in Guizhou: it is to hold a 51% share of the new company once the deal is completed, which will be by the end of April. Investors seem supportive: after releasing the news, the company’s share price rocketed, reaching the upper circuit limit (10% in China) in the following days.

Also in March, the beverage giant Wahaha indicated its intention to expand into dairy farming in Australia, as well as to grow its health food and beverage business and supermarket operations in China (please see the following article in this issue, Wahaha to Invest in Dairy Farming in Australia?).

Previously we have seen COFCO buying into China’s largest liquid milk processor Mengniu. In July 2009 it acquired a leading stake of about 20% together with Hopu Investment Management– and this year has stepped this up to 28.09% after the quality scare hit Mengniu’s products. This has been the key example of diversification affecting China’s dairy sector: its involvement since then has undoubtedly allowed Mengniu to accelerate its expansion in China and overseas (please see Dairy Products China News Vol.2 August Issue, p7 & Vol.4 January Issue, p9).

The key goal of these large-scale grain & food companies is to optimise their product mix and increase their profitability and competitiveness: such diversification builds an increasingly integrated supply chain. There are also varying specific motives behind the expansion of these large-scale companies into new sectors. For example, for Yihai Kerry,the launch into liquid soy milk can help the company take full advantage of its upstream soy processing. For V V Group, its efforts to develop its white spirit business since 2009 have played an increasingly important role in the company’s development. In H1 2011, the company’s liquor business achieved sales of USD158.64 million – 41% of its total revenues and equaling the proportion of sales made up by its soy milk powder and soy milk business!

Expansion of this type exemplifies the integration of China’s food industry over the last 2 years, and fits well with the 12th Food Industry 5-Year Plan released on 31 December 2011. According to that document, the government plans to perfect food companies’ organisational structure in order to help them become more competitive, to enhance consolidation in the sector and to eliminate businesses with outdated technology. The government also plans to “foster” around 23 food companies with annual sales in excess of USD1.58 billion (RMB10 billion) and 300 famous food brands. It plans for integration to be accelerated in the next 4 years, and the larger agribusiness companies will be the main beneficiaries of this approach (please see Dairy Products China News Vol.5 February Issue, p6, Launch of the 12th Food Industry Five-Year Plan (5YP)).

Source: Dairy Products China News  1204

http://www.cnchemicals.com/Newsletter/NewsletterDetail_22.html

Content of Dairy Products China News 1204:

Diversification of Large-scale Grain & Food Processors

New Zealand Exceeds Trigger Levels Again

Government to Support Leading Agriculture Enterprises

Yunnan Launches Management Measures for Local Food Safety Standards

Yili’s Investment Programme for 2012

Wahaha to Invest in Dairy Farming in Australia?

North Dairy Expands in Ningxia

Xiaoxiniu Biological Faces Challenge to Go Public

Companies Increasingly Target Milk Production

Avante International Launches Infant Formula Products

OZ Care Formula Launch

Auscow Launches New UHT Milk

Dairy Products China News, a monthly publication issued by CCM International on the 30th/31st of every month, brings you the latest information on new market dynamics, company dynamics, new dairy products and consumption trend, new legislations and policies and raw milk supply dynamics that are shaping the market.

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