Wednesday, July 11, 2012

COFCO Launches Pig Feeding Trust

A new form of investment in livestock breeding industry appears in China. Recently, COFCO Meat Investment Co., Ltd. (COFCO Meat) and COFCO Trust Co., Ltd. (COFCO Trust), both of which are subsidiaries of China's largest food manufacturer and trader COFCO (China National Cereals, Oils and Foodstuffs Corporation), have cooperated to launch a new financial investment product–trust for scaled pig feeding–in Dongtai City, Jiangsu Province, according to CCM’s June issue of AgriChina Investor.
According to introduction of the pig feeding trust on the official website of COFCO Trust, the total trust capital is USD2.38 million (RMB15 million), and investors can get float return by the end of the 12-month duration of trust.
Outside investors could subscribe to this financial trust product (one contract referring to a piglet with weight of about 20kg) via COFCO Trust. COFCO Trust entrusts COFCO Meat as investment management agent to manage, care for and fatten pigs, with all the relevant expenses burdened by the trust capital. The fattened pigs (about 100kg each) will be sold at market price, with earnings regarded as trust return.
This trust product is innovative, as this is the first one related to pig feeding and it is a kind of financial investment in a real commodity. On 20 June, 2012, COFCO Trust expressed that the first session of trust has been completed and the ROI was about 6%; the second session of pig feeding trust will be launched in the future.
COFCO Trust expressed that COFCO Meat could concentrate resources and power into the core steps of the industrial chain such as the culture of breeding pigs while introducing outside resources and capital to take part in other secondary steps such as caring, fattening and fattened pig sales.

This mode carried out by COFCO Meat and COFCO Trust could be extended to a new one, the so-called "Enterprise + Base + Farmer + Financial Institute". In this improved mode, farmers (or private companies) feed pigs; COFCO Trust (or other trust companies) provides capital and COFCO Meat offers breeding technology and administration. 

Recently, livestock breeding is a hot field attracting many financial investors and those in other industries. For example, in 2009, Ding Lei, founder and CEO of the leading China-based Internet technology company Inc., proposed his idea of a pig breeding project, arousing great public concerns. Legend Holdings Ltd., China's top PC manufacturer, established an agricultural business department in 2010 and initiated its strategic investment in agricultural industry in 2011. In March 2012, Wuhan Iron and Steel (Group) Corporation, a state-owned steel super giant located in Central China, disclosed its plan to build a pig farm. Later on 11 June, 2012, Shanxi Coking Coal (Group) Corporation, China's largest coking coal supplier, signed a strategic contract with Shuanghui Group to cooperate in pig slaughtering. 

COFCO Trust's pig feeding trust is an innovative product of investment in pig breeding industry. But whatever the investment form is, there are risks in pig breeding industry. Firstly, pork price fluctuates frequently and it is hard to be forecasted, and thus it's hard to ensure the profit level, although sometimes it is relatively high. Secondly, it's hard to precisely control the cost, as feedstuff price also fluctuates frequently. Thirdly, pig breeding needs relevant technologies, which are not easy for new comers to master.

Source: AgriChina Investor 1206

Content of AgriChina Investor 1206:
Huiyuan and BOBC join hands for organic agricultural business
Jiuding Capital invests in another agricultural company
China Soft Capital invests in agricultural informatization solution
Taobao unveils online shopping platform for agricultural produces
COFCO Trust launches China’s first pig feeding trust
Guangdong Tiandi Food to seek IPO in the near future
China aims to keep self-sufficiency in corn
Farmland problem: not only quantity but also quality
Brief introduction to China's agricultural produce future market
Rural area becomes key point in Water Conservancy Planning 2011-2015
Yurun launches two million pig slaughtering and processing plant in Hainan

AgriChina Investor, periodically published on 25th every month, offers timely update and close follow up of agriculture investment in China, analyzing market data and trends, as well as related policies. Major columns include investment environment, investment dynamics, market watcher, market review etc.

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