China’s Evolving Market for Meat

Last week 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.