Initially established as a Chinese operating company in the mid-1990’s, today AgFeed has transitioned from a company whose sole focus was China to one which has a majority of its operations in the United States and views its business operations and opportunities on a global basis.
The strategic direction described herein reflects a vision that AgFeed began to pursue during the spring of 2010 and was signaled by our announcing the intent to establish a harvest strategy in April 2010 and by our acquisition of M2P2, LLC (now AgFeed USA) in September of 2010. That vision is to align global production resources to provide a reliable supply of safe pork and pork products.
The technology, expertise, intellectual and human capital that allows AgFeed USA to be an industry leader in terms of operating efficiencies and production metrics provides the foundation of our international strategy. Our strategy is to be a leader in transforming hog production in China through the application of the techniques, procedures, processes and designs that have made the US the lowest cost, most efficient producer in the world. The farms we have built in China represent the first steps in the development of modern production systems that will set standards for 21st century enterprise scale live animal agricultural in China. At all times we will employ the highest standards for animal welfare and environmental stewardship, both cornerstones of assuring a safe food supply chain.
Our US based team will form the intellectual core of our efforts through their dedication to continual improvement. We will export their expertise and hard-learned experience to our teams in China who can make adaptations for local conditions to maximize the benefits of our collective knowledge as we build out our China-based production systems.
We seek to maximize profitability and cash flow through operating excellence and maximizing operating efficiency through the application of our established operating skills to each aspect of production throughout the pork processing chain commencing with the breeding and growing of animals, to their slaughter and the processing and finally to the delivery to our customers.
Through our engagement in multiple levels of the pork processing chain, we can reduce costs by improving operating efficiency, and assure safe and proper handling of the product throughout the process. Our goal is to establish AgFeed as a leader in supplying an expanding base of global customers with the highest quality pork while demonstrating leadership in food safety, production efficiency, sustainability and environmental stewardship.
Our strategy requires that we establish a global and vertically integrated controlled production system. We will efficiently breed and raise hogs to market weight and deliver live animals or specified harvested parts to production/consumer marketing partners in core markets. Our global production system will be structured to assure our clients and business partners a reliable supply of competitively priced pork. We expect to initially supply pork from our established production base in the United States and our burgeoning production base in China. Longer term, we may consider establishing production bases or sources of supply in other low cost pork production centers. In the foreseeable future we expect that the transformation of live animal agriculture and its concomitant supply chain will be the engine of our growth.
Reflecting our established base of business, we will 1) seek growth opportunities in our core U.S. market, and 2) complete the roll out of our modern, enterprise scale, production systems in China.
Understanding that China represents the largest market for pork in the world by a factor of 6, and its strategic position to establish a production base to supply southern Asia, the initial thrust of our operating plan is to develop direct supply & marketing relationships that will firmly establish our market position in China. Thus, we leverage the modern enterprise scale production base that we are currently developing in China.
Reflecting our operating (efficiency) leadership in the United States, we will seek opportunities to expand our North American production base to leverage our existing relationships as we opportunistically expand our North American operations and presence. We believe that there will be yet another round of consolidation and rationalization in North American hog production and we will position ourselves to benefit from the opportunities that present themselves.
In the longer-term pursuit of our strategy, we may consider opportunities to establish or acquire production systems in other markets that will be positioned both to serve local market demands as well of those of the burgeoning export markets of pan-Asia. These Asian markets not only demonstrate growing demand, but also a growing demand for safe products; food products that are produced to well-established western standards of food safety from the point of breeding through delivery to the consumer.
The system established by AgFeed in pursuit of this strategy would seek to generate profits from three distinct areas of operation; 1) production, 2) processing and 3) marketing. Production profit would be derived from the profit generated by efficiently delivering a live hog to market. Processing and marketing profits would be derived from supplying pork products to the end user, or branded marketing partner.
Our initial marketing/supply focus will be China due to its impact on global demand for pork, its demographic dynamic, stress on its agricultural system, and it's sheer size.