Healthy Food, Healthy Profits

Celestial NutriFoods of Daqing brings protein powder and other soy products to millions of Chinese consumers. Now its founder has set his sights on biofuel

For more than two millennia, the Chinese have known that eating tofu is healthy. Ming Dequan figured if he could bottle the beneficial parts of tofu's main ingredient, soybeans, and sell it, he could make a fortune. Ming spent most of the 1990s researching soybeans in a lab under China National Petroleum's subsidiary, Daqing Petroleum. He finally came up with a protein powder derived from soy beans, but the state-owned oil company had little interest in selling health foods. So Ming found a Hong Kong investor to back him, quit his job, and started Celestial NutriFoods in 1999 to sell his soybean protein powder shakes.

The first several years of Celestial NutriFoods' strategy to create a new market for soy protein-powder beverages were spent painstakingly educating consumers and promoting the product. But in 2003, Celestial NutriFoods got a few breaks. The severe acute respiratory syndrome (SARS) crisis and a scandal over fake milk powder that killed more than a dozen babies sent demand for Celestial NutriFoods' soy protein powder beverages soaring as Chinese consumers suddenly became more aware of health concerns. The Daqing company's sales and profits in 2006 quintupled, to $156 million and $49.3 million, respectively, from the end of 2002.

Around the same time, technocrats in Daqing—the city in China's northeastern Heilongjiang province that's known as China's oil capital—were wrestling with how to keep their economy competitive as oil fields inevitably start to dry up. (Daqing's oilfields account for 40% of China's oil output. But since 2001, China National Petroleum, which manages the Daqing oilfields, has been gradually reducing oil production to prolong the oilfields' production.)

Entering the Soybean Zone

Daqing officials decided to take advantage of the oil revenues still flowing into their coffers to invest in a second key industry: soybeans. After all, four-fifths of China's soybeans are grown in Heilongjiang. The local government built a 1.2 million square meter "Soybean Zone" devoted to the soybean industry, and bestowed on soybean companies such as Celestial NutriFoods preferential policies.

After listing its shares on the Singapore exchange in late 2004, Celestial NutriFoods poured the money it raised into tripling the production capacity of its Soybean Zone plant, which is painted turquoise. The company's sales have skyrocketed in the past three years as the factory ramped up production. Even so, Celestial NutriFoods is having a difficult time meeting the ravenous demands of China's 1.3 billion consumers. "Even by running our production lines at full capacity, we are unable to satisfy the market's demand. The market is too big," says Ming, who is chairman and CEO.

Health Food for Your Car

While Celestial NutriFoods is enjoying the fast growth phase many companies go through during their early stages, weighing heavily on Ming's mind is how to keep the company from becoming stagnant. Celestial NutriFoods has branched out from making powdered soy beverages to soy manufacturing protein-based noodles and soy biscuits to sell in 10,000 supermarkets throughout China, including Wal-Mart (WMT) and Carrefour (CRERF). This year it also started making industrial products, such as soy functional protein, biochemical feedstuff, and lecithin to sell to meat processing plants, dairy companies, and noodle makers to augment protein content.

Ming's next venture has brought his career full circle. Last year Celestial NutriFoods formed a joint venture with Japan's Daiki-Axis and its Chinese subsidiary Shanghai Nikki Environment to turn its soybean oil by-products into biodiesel for cars in China and Europe. Production of their biodiesel venture is scheduled to start by the end of this year. "Right now, the market desperately needs biodiesel fuel," says Ming.

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