The Tsinghua-SAIS scholars visited the Chuying Agricultural Group (“Chuying Group”) in Zhengzhou, Henan Province on November 11, 2017. There students met with the group’s securities affairs representative, Ms. Gong Yanyan, with whom they held a broad ranging discussion that covered topics such as: the company’s position in the industry value chain, the characteristics of the company’s development model, and the company’s industrial layout, among others.
Ms. Gong began the talk with a history of Chuying Group. Founded in 1988, Chuying Group started as a family business producing chicken. After the disaster of avian influenza, the group rebounded to achieve a large scale. In 2004, Chuying Group observed the then lower scale of the pig-farming industry and, seeing an opportunity for development, decided to restructure into a pig-producing company. In 2010, Chuying Group developed a strategic plan to vertically integrate across the entire pig farming value chain and began to dominate grain trade, feed production, breeding, slaughtering, meat processing, cold chain logistics, end-point sales, and online business. That same year, Chuying Group was listed on the Shenzhen stock exchange, the first for a domestic pig farming enterprise.
According to reports, since 2010Chuying Group has transformed and developed its entire industrial value chain. Upstream, the company has established mature production procedures such as grain cultivation, raw material storage, and feed processing in the Jilin area. Raw materials such as corn and soy beans are sold, dried, stored, and transported to the company’s feed mill through its own dedicated rail line. For breeding, the company is exploring new models of ecological husbandry while expanding the scale of ordinary pig breeding. The company has set up farms in Xinzheng and Sanmenxia, as well as Linzhi, Tibet, where they raise a high-end “Tibetan pig” breed. The group has also implemented the “Six Unified” production methods of procurement - unified feed, unified supply, unified epidemic prevention, unified processes, and unified sales. In the downstream part of the value chain, Chuying Group has established the brand “Young Shepherd Fragrance (Chumuxiang)” to sell fresh frozen goods, processed meat products, high-end fermented ham, and three other categories of product. Ms. Gong said that Chuying Group’s main advantage in the value chain is its strict quality control. Compared to other vertically integrated meat-processing enterprises, each part of Chuying Group’s raw materials is fully traceable: the pigs are produced according to Chuying’s own breeding standards, and the fodder for the pigs is produced and processed by Chuying itself. As a result, the consumers’ food safety is more secure.
As Chuying began their push for vertical integration, they developed a unique “Chuying Model” that was that was rooted in their pig breeding business. That is, they adopted “phased, process-oriented breeding” and a “decentralized farming, unified management” approach that evolved into their unique “enterprise - cooperative - farmer” triangular relationship. In operations, the cooperatives maintain a number of responsibilities, including: the construction of pig houses for business lease as a breeding base, leading farmer recruitment, and follow-up supervision. After completing the breeding work to the highest technical specifications, Chuying sells the pigs, supporting vaccines, feed and other materials to the cooperative farmers, all in addition to signing a buyback agreement. After the pigs are grown, Chuying repurchases the pigs, at which point they enter the next link in the value chain. The “Chuying Model” has three key characteristics. First is risk sharing and sharing results. The repurchase agreement between the company and cooperatives has an agreed purchase price that is based on the market price, and so in the absence of a widespread pig plague the farmers are guaranteed a minimum income of 75 thousand per year to insulate them from the risk of price volatility for pork. Second are more professional production processes and a higher production proficiency. Chuying Group owns its own independent farming area, so technicians and cooperative farmers work “hand in hand” until the pig clears growth and health hurdles, thereby avoiding the risk of cross-infection. Furthermore, the minimum income guarantee and minimum repurchase standards encourage enthusiasm and responsibility from farmers. Third is business model optimization. Chuying Group outsources their non-core activities such as fattening, plant leasing, and supervision to farmers and cooperatives. This allows them to streamline their business and allocate more resources to core technologies.
Aside from the vertically integrated “Chuying Model,” Ms. Gong also introduced Chuying Group’s current three core strategies: pig breeding, food trade, and internet. Regarding pig breeding, the company raises approximately 6 million heads at present, and slaughters about 1 million pigs per year, or about half the number sold as breeding pigs. Chuying Group plans to grow its capacity to 10 million pigs along with an appropriate increase in slaughtering and processing capability. In the grain trade, some of the grain and feed planted and processed by the company is used for pig feed, while the rest is sold directly into the market. For internet, Chuying Group is expanding its e-commerce platform and investing in e-sports companies to expand sales channels and promote its products to young people. These three core strategies run through the entire value-chain and connect the company directly with the market, working to improve risk-resistance, control costs, and guarantee profit level and competitiveness.
During the Q&A section, the scholars also asked questions about overseas markets, environmental protection, corporate social responsibility, among others. When asked about overseas markets, Ms. Gong answered that, due to the shortcomings of domestic breeding technology and the high price of fodder, the price of pork in China is not currently competitive for import by other countries. In addition, the taste and consumption habits of pork in China and the West are different, and heavily processed food products do not have a market overseas. Therefore, the export business is still in its early stages. On the issue of environmental protection, the ecological breeding grounds developed by Chuying Group in Sanmenxia and Tibet provide a limited grazing range for the pigs to ensure that they will not over-graze vegetation, pollute the water, or destroy mountain ecosystems. At the same time, Chuying Group rotates pigs across a number of pastoral areas within the breeding grounds to provide each section with ecological recovery periods. Hog excrement can also serve as the raw material for biogas power generation and act as a fertilizer for the local vegetation, establishing a green cycle.
Chuying Group is a benchmark agricultural and animal husbandry enterprise in the major agricultural center of Henan, and its development model and transformation strategy are very typical. Through this visit, Tsinghua-SAIS scholars gained a deeper understanding of the capital operation, development model, and social responsibility of a Chinese listed company.