Group focuses on oilseed processing

Howard Kwong

To sustain its revenue growth this year, China Agri-Industries Holdings (China Agri) will strengthen its production capacity and extend its distribution channels.

The oilseed processing business is the key driver for the group's revenue. It is expected that HK$1.58 billion will be invested in its development, representing 76 per cent of total expenditure.

The National Development and Reform Commission's opinions on promoting the development of the soybean processing industry encouraged consolidation among domestic soybean oil processors in order to cultivate larger enterprises to become more competitive, integrate production, processing and sales.

Leveraging its dominant market position on the mainland, the group plans to devote most of the capital expenditure to raising oilseed processing capacity to about 8 million metric tonnes by 2011.

During the first three months of this year, the group acquired four plants in Jiangsu, Hubei and Tianjin to turn into storage houses, and logistics and port services centres. The storage capacity is expected to increase by 280,000 tonnes.

The group also acquired China National Cereals, Oils & Foodstuffs Corporation (COFCO) for soybean crushing in Dongguan, in Guangdong, where it hopes to increase the annual volume from 600,000 to 720,000 tonnes this year. Shandong's Cofco Dongguan is expected to provide 180,000 tonnes of processed peanuts each year.

To maintain its position as the leading ethanol producer on the mainland, the group expanded its biofuel and biochemical business. It acquired Yellow Dragon in Jilin to process corn with an annual production of 650,000 tonnes. Jilin Packaging was also acquired to enhance the packaging capacity.

With two production lines, at Yushu and Gongzhuling, in Jilin province, China Agri completed asset acquisitions to build more plants and infrastructures, equipment and machinery.

Expenditure on biofuels and biochemicals will be cut from HK$563 million to HK$181 million this year, but it remains the second-largest total cost of 9 per cent.

Andy Li, vice-president of the group, said the central government had pledged to maintain stable rural and agricultural development, ensuring supplies of farm products and raising incomes of farmers.

The central government implemented policies to improve the production and quality of crops. It has continued raising minimum purchasing price for grain, providing subsidies for agricultural production and stabilising prices of agricultural products. Top priority will be given to the recruitment of returning migrant workers from urban areas.

Meanwhile, Mr Li believes the potential power consumption among 55 per cent of China's population living in rural areas will sustain the mainland's economic growth.

It will be more cost effective for agricultural and food processing firms, such as China Agri, to use domestic crops when their prices become more competitive. Improving facilities in the supply chain of raw materials will strengthen the group's advantage in manufacturing staple foods.