Why Are China's Property Giants Buying Pig Farms?

This month, China Vanke Co., the third-largest Chinese home builder, announced that it plans to hire an experienced pig-farm manager. This wasn’t some new corporate motivational gimmick. Vanke really aims to start raising pigs — 250,000 a year, in fact.

It may seem like a strange way to diversify for a company previously renowned for its work with prefabricated concrete. But as China’s real-estate market goes into a deep freeze, strong demand for its favorite protein is proving irresistible to companies better known for clearing land than cultivating it. As is so often the case in Chinese real estate, however, things aren’t entirely what they seem.

Even before the coronavirus, China's property developers were struggling amid a slowing economy and heavy debt burdens. The pandemic made everything worse: In the first two months of 2020, net homes sales plunged by 35% and 105 small and mid-sized real-estate firms went bust. In March, Vanke's chairman flatly stated that "survival is a real issue now" as the company warned that it would be late delivering 39,000 homes due to construction delays. Within weeks, the company was looking for qualified pig farmers.

Ignore, for the moment, that Vanke is a property developer, and this has a certain logic to it. In a given year, China consumes about half of the world's pork. Pigs are such an important staple that the government maintains a strategic pork reserve. And thanks to an outbreak of African Swine Fever in 2018, which killed as much as 60% of the country's sow herd, prices have been soaring.

What was bad for consumers has been a boon for China's biggest pork producers. Between August 2018 and March 2020, shares in Muyuan Foodstuff Co., China's second biggest hog producer, surged 345%. Today, the market value of the country’s biggest pig producers approaches that of its top real-estate developers.

China, moreover, has a storied tradition of companies investing handsomely (and sometimes ruinously) in industries totally unrelated to their core businesses. More often than not, those investments are driven by government policy. For example, in 2018 China Evergrande Group, another major real-state developer, established a (money-draining) electric-car unit under the auspices of its health-care subsidiary, hoping to capitalize on handsome state subsidies.

Pork, though a less stylish industry than electric cars, has also drawn the government’s interest. In this case, officials have sought to phase out the small-scale farms that dominate the domestic industry and bear an outsized responsibility for pork-related scandals, such as the "dead pig tide" that notoriously floated down Shanghai's Huangpu River in 2013. In their place, the government envisions large, corporately managed pig farms that produce safe and easily regulated products. For Vanke, a relatively minor investment in this official priority would presumably help grease the wheels when seeking state approval for future real-estate projects.

Corporate China has long been wise to this dynamic. In 2009, video-gaming giant NetEase Inc., best known for bringing games like “World of Warcraft” to China, entered the pork business. Today it operates three high-tech farms (with a fourth in the works), and its chief executive officer is an evangelist for the healthy and bucolic lifestyle of his herds (allegedly, they roam tea gardens). More recently, tech heavyweights Alibaba Group Holding Ltd. and JD.com Inc. have been thinking of ways to bring artificial intelligence to the pig-farming business.

Unlike NetEase, Vanke has been entirely forthright that its pig-farming venture is more about money than public service. In this, it's not alone. Two of Vanke's biggest competitors in real estate, Country Garden Holdings Co. and China Evergrande (of the flailing electric-car startup), also recently entered the pork business, along with at least one scandal-plagued travel agency desperate to cover its payroll.

It's too early to judge whether these interlopers can improve on China's millions of small-scale pig farmers. More likely, they’ll compete against each other until the real-estate market recovers, then return to selling housing rather than hogs. That's not a bad outcome. China desperately needs to invest in improving its food supply. If its once-booming real-estate developers are willing to provide that capital, it could be to the benefit of everyone. Except, of course, the poor pigs heading to slaughter.