Our second modern enterprise scale sow farm at Xinyu produced it's first litter. This facilty was completed and stocked during the winter and early spring of this year and the first breeding took place in early June, 2012. Here are our first images:
The following is the speech given by Chairman and CEO, K. Ivan F. Gothner at the Quarterly Meeting held in Nanning, China.
Last night I attended a screening of a documentary called Valley of the Forgotten (http://valedosesquecidos.com.br/en/) regarding the conflict over land and sustainable development in a remote region of Brazil’s Amazon rain forest. During the panel discussion that followed the screening John Carter (http://en.wikipedia.org/wiki/John_Cain_Carter) of Alianca da Terra (http://www.aliancadaterra.org.br) spoke of his initiative to protect the forest while supporting sustainable agricultural development. John is an American cattle rancher in Brazil. He has brought disparate groups together through Aliance da Terra protecting vast tracts of ranch land and other cropland based upon certifying the sustainable and safe practices associated with the agricultural activities on this land. With growing market demand for safe products produced in a sustainable manner – food safety has lead directly to environmental stewardship and protection – those producers in the region who can not deliver a product to market that is certified by Alianca da Terra are at a significant disadvantage.
We can’t underestimate the importance and power of assuring food safety and its far-reaching impact.
Last week I hosted our new U.S. based Board members on an orientation trip to visit the headquarters of our US hog production business and one of our sow farms. We had a very full two days. The key members of our team, dedicated to achieving excellence every day, were able to fully brief members of the Board on the opportunities and challenges that they see in our business. Each of these individuals are committed to our future. They put their best foot forward and instilled confidence in the work that they have done and the potential that lies in the future. Many thanks to each of; Terry Vogel, Cliff Jones, Steve Price, Adam Daniel, Ron Kaptur, Tracy Rogers and Gerry Daignault for their excellent work and their openness, excitement and frankness when we all got together last week.
I’ve recently returned from a week working with my colleagues in China as they finished their Spring Festival (Chinese New Year) holiday period. Our meetings were positive and we were able to address and consider the significant opportunities that remain before us in China. My trip included an extended and substantive meeting with my valued colleague and fellow board member Prof. Zhang.
I look forward to being more substantive in the coming weeks. However, I would like to share the message that was recently sent out to our entire organization:
While it may be a little late to be wishing everyone Happy New Year from a western point of view, for our team in China this is the time to convey best wishes for the New Year.
It is the year of the Water Dragon. A friend recently described the Water Dragon to me; “Water calms the Dragon’s fire. Water Dragons are able to see things from other points of view. They don’t have the need to always be right. Their decisions, if well-researched, are usually better since they allow others' to become involved.”
AgFeed is embarking on a new beginning. We are completing a period of very difficult self-examination that has been extremely stressful and unsettling for everyone. While there is a great deal of hard work ahead, there does remain significant and exciting opportunities ahead for the company. First, we all must work together to overcome our current challenges, decisively and aggressively putting certain events and practices of the past behind us.
I hope that everyone will help their colleagues see things from other points of view, perhaps from new points of view understanding the standards to which we all must adhere if we are to reach our potential.I understand that there have been many changes within our organization during the past months. While I cannot promise that all the changes have come to an end, I can promise to work closely with colleagues throughout our company to make good decisions for our future.
The eight barn site is completed and six of the barns are stocked with wean pigs from the sow farm.
Updated Images of Western Style Hog Farm
New images of the Boar Stud site in Dahua, China. There are also aerial views of the Isolation site which has the Dormitory located there. It overlooks the Hongshui River with the city of Dahua in the background.
I’ve been told that the title of my last post was perhaps a bit obscure.
Norman Borluag was awarded the Nobel Peace Prize in 1970, an American agronomist credited with starting the “Green Revolution”. Not “green” as in alternate energy, but “green” as in being responsible for introducing high yielding, disease resistant verities of wheat. He is credited with introducing these varieties and modern farming techniques to Mexico, India and Pakistan which resulted in doubling of production in India and Pakistan and in Mexico becoming a net exporter. These increases in yields were originally termed the “Green Revolution”.
The November/December issue of Foreign Affairs is entitled “The World Ahead” and is made up of a series of brief articles addressing the many challenges that are likely to arise around the world. In the words of James F. Hoge, Jr., the editor, “encompassing a long list of simmering conflicts, unsettling trends and mounting global problems”.
From the point of view of AgFeed one article in particular stood out, “The Fertile Continent” by Roger Thurow. While primarily focused on the agricultural opportunities and challenges facing Africa, he points out that “global food production will need to increase by 70-100 percent” by 2050 to merely keep pace with the anticipated growth in population. Thurow asks how the needed rise in food production will be addressed. His focus, in this article tends to be on grain production in the developing world, while ignoring the type of efficiency in other areas of food production that can reduce demand for foodstuffs in some areas of food production freeing it for other uses.
Through our export of our US based techniques, technologies and methods to our western-style hog farms in China we expect to not only significantly increase production yields but also efficiencies. Upon meeting our US production standards we can reduce the amount of corn and soy needed to bring a hog to market weight by 25%. We believe that this kind of progress, the type that AgFeed is exporting, can make a meaningful contribution to the issues that Thurow anticipates in his article.
In fact by our own internal estimates if we could apply this type of efficiency to the entire Chinese national hog heard the annual corn savings would equal the entire annual corn consumption of Mexico.
There remain real savings and productivity improvements in global agricultural.
Among the flood of recent articles regarding the Chinese economy two, in particular, stood out.
The first appeared in The Economist on 28 October 2010. It noted the importance of the Chinese domestic economy and questioned its ability to serve as a significant growth engine for the global economy overall. It is interesting that in spite of China’s impressive growth rate, its ability to pull the rest of the world’s economy forward appears to be fairly limited. Are there sensible parallels to be drawn between the US economy pre-WW II and the Chinese economy today?
The second article appeared online at seekingalpha.com on 14 November 2010. Most striking here is (i) the growth of retail spending – reinforcing the importance of the Chinese consumer and (ii) the inflation figure that has been in large part driven by food prices. Food prices…. Interestingly AgFeed’s drive and mission of bringing efficiency and productivity gains to Chinese hog production could, in the long term, make a contribution to dampening the impact of pork prices on the Chinese CPI. Making significant improvements in the cost of production across a range of agricultural products present exciting business opportunities in China.
As the various members of the AgFeed team travel and talk about our business meeting; business partners, suppliers, customers and investors a common question that we face is to what degree are the Chinese serious about food safety.
The Chinese commitment to food safety should not be doubted. As the policy priorities and discussions surrounding the soon to be announced five-year plan seep into the public sphere there is a discernible increase in the amount of attention food safety is receiving in the press. A recent article in China Daily by Qiu Bo entitled "Taking a Tougher Stance on Food Safety" addresses the issue of increased funding for local level inspection in the 12th Five-Year Plan (2011-2015).
Separately and equally interesting is a more visible aspect of food safety. Just this morning I was having breakfast at a hotel in China, when a 8-10 food inspectors swept into the dinning room and into the kitchen to conduct an inspection followed by camera touting journalists, both print and TV. It is pretty clear that a statement is being made about food safety.
Stephen Roach, a senior fellow at the Jackson Institute for Global Affairs at Yale and the non-executive Chairman of Morgan Stanley Asia published an interesting column today entitled Cultivating the Chinese Consumer.
In the column he points out; “The economic tensions between the United States and China arise because of two things we have in common. First, there is our shared fixation on jobs. In the United States, we continue to struggle with high rates of unemployment and underemployment. In China, policymakers continue to worry about what they term “social stability” — that is, full employment, absorption of surplus rural labor and reduced inequalities consistent with their aspirations for a “harmonious society.” Second, for both China and the United States, there are major imbalances in the percentages of gross domestic product devoted to exports, investment, consumption and savings.”
Roach argues that a significant currency realignment simply will not work and that the U.S. trade problem is not a bilateral problem with China but a “multilateral trade problem with a broad cross section of countries.” He sees more value in U.S, policy actions targeted to greatly increase our savings rate, while from a Chinese point of view he advocates for pro-consumption policies to reduce the Chinese savings rate and increase consumption.
Thomas Friedman published a column today entitled Their Moon Shot And Ours. The column is very bullish about China and its priorities and scarily bearish for the United States. Don’t be misled by the title of the column and think that it is about a space race in the 21st Century. The column is about “big, multibillion-dollar, 25 year game-changing investments.” It’s about thinking well into the future and acting on these thoughts and looking at how we in the U.S. respond to these challenges and how Chinese policy makers react for the future. To remain competitive we have to support change while seeking to change faster than everyone else. Admittedly, we face challenges to the status quo that China does not face in looking forward – but look forward we must. China’s policy makers understand that it must be a leader in responding to changing industrial opportunities. Today it would seem that Chinese policy may well be ahead of U.S. policy in its drive to enhance its competitive position, however, a significant question remains as to the role of government policy in commercial and business innovation and whether or not U.S. industry will act without the support of economic and government policy to respond to global challenges. Will business and political leaders in the U.S. remain so tied to the status quo that they will act in their short-term interests while ignoring the long-term systemic challenges that must be faced to ensure their competitive position into the future?
We are often asked about the food safety laws in China. There is no clearer way to illustrate the importance of these laws and the seriousness with which they are taken than to read last Thursday's article in China Daily. Various government agencies are urging "high voltage" crackdowns with "more severe punishments for food safety crimes".
Last week eFeedLink.com published an article by Eric J. Brooks outlining the evolving and changing market for meat in China. Overall the article supports our strategy of vertical integration from hog production through harvest. Brooks emphasizes the importance of food safety and states “……… suppliers who establish a reputation for safe, healthy meat will enjoy a huge advantage over smaller, less well known rivals”.
In one aspect I am not in total agreement with Brooks. He declares, “safety and product differentiation will trump cost efficiency”. In response to a statement like this I readily endorse the importance of product differentiation and food safety, however, I believe that cost efficiency is vital. Take for example the production of hogs. Feed conversation ratios in China approach 4:1 as opposed to 3:1 in the United States. In light of the harsh reality that China with 22% of the world’s population has only 7% of its arable land driving the feed conversion ratio down is essential. The benefits of bringing the feed conversion ratio down are many but include lower cost of hog production and greatly reduced use of vital commodities (corn & sow) for the production of the key domestic source of protein (pork). Improving the feed conversion ratio in our production pods is a key aspect of our operating plan. Interestingly we estimate that if feed conversion of the entire hog herd in China were improved by 10%, the amount of corn saved annually would be equal to all the corn consumed annually in Mexico.
The New York Times reported today that China had eclipsed Japan as the second largest economic power in the world. David Barboza’s article cogently summarizes the main themes, challenges and opportunities associated with China’s economic growth. China’s economy is not only growing but it is also evolving and developing with equal if not greater speed. Challenges and opportunities are both presented to China’s regional and global trading partners as well as to the Chinese leadership as they fine-tune their economic engine and face the changes it brings to Chinese society and social structures. The growth of the middle class and the opportunities that this presents as consumer demand grows has been well reported. Equally powerful, but perhaps less well reported are the agricultural opportunities presented in connection with growing urbanization and the need to have a dramatically more efficient agricultural sector to feed a growing urban population while assuring food safety.
Posted on efeedlink.com week of 7.26.10: China will give corporate income tax exemption and reduction for "company + farmers" operation mode, said the State Administration of Taxation (SAT) in a document released recently.
"Company + farmers" operation mode refers to companies that have signed contracts with farmers on livestock and poultry breeding and provided them with young livestock or poultry, feed, veterinary drugs and vaccines.
Considering that such companies bear marketing, management, procurement, and sales risks and the relation between the companies and farmers is that of labor service outsourcing, SAT, China's tax authority, decided to exempt and reduce the companies from corporate income tax in accordance with the Implementation Rules on the Corporate Income Tax Law.
The Wall Street Journal reported this morning that Carlyle Group is
making a $175 million dollar investment in China’s second-largest
supplier of animal-feed products by sales.
This just reinforces our view of the growth opportunities available to our Animal Nutrition division.
As The Wall Street Journal article states; “ Food scares have prompted the Chinese Government to support larger-scale farming and the use of commercial feed.” This could be a description of our business plan and our strategy of: AgFeed, Government & Farmer”.
McKinsey Quarterly recently published an article by Anish Melwani and
Werner Rehm entitled “A singular moment for merger
value?” They argue that market valuations are attractive by
absolute and relative standards and companies with the financial and
operating firepower to launch bids can use acquisitions for their
fundamental purpose of achieving long-term strategic objectives and
We couldn’t agree more strongly with their sentiment and will stay alert for opportunities.
Eric Brooks recently wrote for eFeedLink
an industry newsletter (sorry subscription only), “With the recession
over and 2008's financial crisis a fading memory, feed and meat's tight
supply/demand fundamentals are once more reasserting themselves.
Speaking at its Agribusiness Outlook seminar in Singapore, John Baker,
Rabobank's Food & Agribusiness advisory head for Asia noted that,
"Long-term supply and demand fundamentals are beginning to exert a
greater influence on agricultural commodity prices." With financial
volatility declining, "fundamentals are playing an increasing role in
the pricing of agricultural markets."
What we see at AgFeed is that farming, of all kinds, will continue and accelerate its trend from small-scale farms to large scale farms in order to achieve the production efficiencies necessary to supply the growing population. We are at the forefront of this trend for hog production.