China’s Biggest Pork Producer Gains as Scandal Hits Small Farms
Stock Chart for Henan Shuanghui Investment & Development Co Ltd (000895)
Henan Shuanghui Investment & Development Co. (000895), China’s biggest pork processor, plans to boost output more than 50 percent this year as consumers look past a safety scare linked to small farmers and demand for meat surges as incomes rise.
As Shanghai cracks down on distributors following the discovery of thousands of dead pigs floating in the city’s main waterway, Henan Shuanghui is preparing to spend 5 billion yuan ($805 million) on expansion this year, said Zhang Taixi, president of the Luohe-based company in north central China’s Henan province.
“China’s demand for meat will certainly keep growing in multiples,” Zhang said in an interview on March 15 in the provincial capital Zhengzhou, where the company held a briefing on food safety. Annual per capita meat consumption is about 40 kilograms (88 pounds) and is likely to double in the next few years as China catches up to more developed economies, he said.
The 9,000 dead pigs found in the Huangpu river last week actually point to improvements in food safety and the problems small-scale farmers are having in meeting stricter health standards, according to Zhang and Alice Xuan, a livestock analyst at Shanghai JC Intelligence Co. in Shanghai. The animals, mainly piglets and from the upstream city Jiaxing, died from porcine circovirus and dysentery, the country’s head veterinarian, Yu Kangzhen, told Xinhua News Agency March 17.
“The government is stamping out illegal trade in dead hogs,” Xuan said. “Some poor farmers didn’t see any other choice but to throw them away.”
Zhang said his company is buying up small abattoirs and that Henan Shuanghui plans to slaughter 52 percent more hogs in 2013 than last year. He forecasts sales by value to rise almost 30 percent to about 53 billion yuan.
Henan Shuanghui will invest this year in a new processing plant in Anhui, a facility that makes food-packaging materials and a farm that will raise 500,000 hogs a year, helping double the company’s own supply of animals, Vice President Li Hongwei told reporters. The company will still depend on other farms to supply 90 percent of the meat and hogs it processes, Li said.
Urban disposable incomes in China, the largest consumer of pork, tripled in the last 10 years and the government seeks to double per capita income across the country by 2020.
There were 448 million hogs in China’s farms in January, more than six times the number in the U.S. at the end of December, agriculture department data from both countries showed.
Hog prices in China have fallen 11 percent this year to 14.52 yuan per kilogram on March 6, according to data from the National Development and Reform Commission. Futures for June settlement in Chicago were at 88.80 cents per pound at 2:12 p.m. in Beijing and the most-active contract has gained 3.6 percent this year.
In March 2011, Henan Shuanghui was forced to shut a plant and apologize to consumers after China Central Television aired a program that showed it purchased pigs fed with clenbuterol, an illegal chemical that makes hogs grow leaner meat.
“The problems stemmed from the lack of management of the industry’s upstream -- there’s not a lot we can do but inspecting head by head,” Zhang said in the interview. “If we find problematic pigs, we reject them.”
The company’s shares have surged 27 percent this year and rose 0.2 percent to 73.27 yuan in Shenzhen trading.
Henan Shuanghui also formed an international division to seek global expansion, Zhang said. Executives will go to the U.S. in April to look for investment projects in meat-processing and food production, he said, without providing further details.
In Shanghai, authorities dispatched hundreds of officials daily to inspect markets and delivery trucks, and no diseased pork was found, the government said on its website. The city hired two incinerators to help dispose of the carcasses, it said.
The city said in a March 17 statement it had dispatched two vice mayors to lead the cleanup and vowed to ensure the drinking water isn’t contaminated and that the diseased animals don’t get into the meat supply.
A court in Wenling city, about 350 kilometers (220 miles) south of Jiaxing, sentenced 46 people in prison for illegally purchasing, slaughtering and selling diseased pigs and processed diseased pork from 2010 to 2012, the official Xinhua news agency reported March 13.
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