There are two distinct components of our strategy: operations and corporate finance. Together formulated to provide our shareholders with superior long-term growth and value.
Operating Strategy
Our
operating strategy is anchored by our philosophy of: “AgFeed, Government,
Farmer” whereby AgFeed provides the modern and safe production methods and
procedures and local government acts as a partner to AgFeed in procuring and
establishing our farms. The local
government and AgFeed, in turn, together act in partnership with local farmers
to secure the necessary financing, provide the necessary guidance, technical
and nutritional support in order for the farmer’s to improve their
productivity, yields and profit in “finishing” hogs within AgFeed’s production
system. All part of maximizing the
throughput and quality provided to and by our finishing facilities.
In response to the market dynamics described below our operating strategy is to: modernize, consolidate and grow while becoming one of China’s leading fully integrated pork producers.
Pork is a vital food staple in China and is the primary source of protein in the Chinese diet. China is the largest pork market in the world and is growing rapidly. We have strategically positioned our business, operationally and financially to take advantage of these market dynamics and to become a leading integrated hog producer in China.
Our strategy is predicated on core market dynamics. The duel imperatives of government regulation assuring food safety and the security of the food chain together with growing consumer demand for reliably safe food are driving consolidation and market growth. It is vital for producers to be positioned to comply with the evolving regulatory framework and the demands of the consumer. Investment opportunities will expand as the mode of operation in both animal husbandry and animal feed production evolve from traditional modes to modern, industrial scale and highly professional enterprises. This will lead to a much smaller number of larger integrated market participants. Scale will become increasingly important. The growing urbanization of China will also act to further consolidate markets and will require industrial scale market participants in order to efficiently and effectively serve a much more concentrated distribution system.
At its core the market dynamics upon which our operating strategy is based has been driven by key government actions and policies that recognize pork production as a key social, political and national security issue. National self-sufficiency in key agricultural staples and the safety of the food chain are policy imperatives. A food safety law came into force in 2009 providing the legal basis to act on matters of food safety and has lead to policies regarding forcing bio security compliance, genetic improvement, animal feed standards and detailed disease reporting.
Overlying these market dynamics is, of course, the dynamic growth of the Chinese economy and middle class all fueling growing demand for our products.
The
clearest examples of our modernization and growth initiatives have been in our
hog production business. In this segment
we have established strategic partnerships accessing Hypor
and PIC for genetics
and M2P2's expertise in hog production methods
and procedures. Through these
partnerships we have been able to introduce improved genetics and breeding
techniques and procedures to our existing 31 farms that are intended to improve
our yields and productivity. These initiatives also greatly improve our
bio-security and the safety of our product. These partnerships underpin our growth plan whereby we have
already commenced development of 7 “greenfield” sow farms where we can
introduce the most modern, safe and efficient production methods which will
result in yields 30% greater than even our efficient Chinese farms and 70%
greater than the average Chinese farm.
The ongoing establishment of new western style (technologically
advanced) farms will drive our future growth. These farms will be of a size and standard that will allow
us to safely serve the rapidly growing urban market.
Our harvest/processing strategy is to leverage the same partnerships in order to fully integrate our production system further assuring food safety while at the same time securing additional profit/hog processed through our system.
Corporate Finance Strategy
As an integral part of its strategy AgFeed has put in place a corporate structure that provides an opportunity for the market to value each of the company’s operating units independently of the whole.
The sum of a company’s component parts can often achieve a market valuation that is greater than the whole.
As an independent public company, the company’s component operating units will have the ability to attract capital and investors separate and apart from AgFeed and will offer investors the choice of investing in a “pure-play” animal nutrition business, or a hog production business, a hog processing business, or a holding company which also has a significant interest in each operating company.
AgFeed believes that this strategy not only unlocks value for our shareholders, but also opens up financing alternatives that may not otherwise be available.