Will China's Agricultural Giant Shanghai Dajiang Withdraw from The Poultry Business? - CHINA - With the Shanghai Dajiang Group already making consecutive losses in its core poultry business over the last two years, the bird flu outbreak in China has come at a bad time. Rumors are abound that the agricultural giant of China may decide to pull out of the poultry industry altogether.

Prior to the bird flu outbreak, Dajiang shares were already in a pathetic state. According to Group's head of administration, Mr Xia Zhiqiang, Dajiang reported losses in its core businesses in the second half of last year. The company is being sustained mainly by its other businesses such as real estate. Dajiang's predicament, added Mr. Xia, has further worsened since the dissolution of its joint venture with Thailand's Charoen Pokphand Group.

In particular, Dajiang's investment in Zaoyang area of Hubei province - Dajiang Poultry Enterprise Limited - is now incurring considerable losses. In May 2002, Dajiang sealed a RMB80 million-investment deal in Fuxin city of Liaoning province. Commanding a 53% stake in the venture on the premise of its brand, management, facilities, breeding stock, etc., Dajiang now only manages to break even.

On the other hand, at Dajiang's headquarters in Songjiang area, Shanghai, the number of chicken inventory has dropped from the initial 50 million birds to 30 million in 2003. For this year, only 20 million chickens are expected to remain.

"Profits in the poultry production industry are dwindling," lamented Mr Xia.

The current bird flu outbreak only serves to exacerbate Dajiang's difficulties, as described by Dajiang Group board secretary Mr Gu Weiwen in response to the unforeseen crisis.

In addition, Mr Lei Liguang, Chairman of Dajiang Group, said that Dajiang has been able to sell its chicken meat only in the local market since the discovery of the bird flu virus in Shanghai. While the impact is certain, the extent has yet to be determined. Dajiang exports 30% of its chicken meat, of which 80% goes to Japan. On the evening of January 27, Japan's MAFF announced the suspension of all poultry and its related products from China, until it is certified to be free of bird flu.

On February 3, a risk notification was placed on Dajiang shares, announcing "the bird flu outbreak is likely to have a severe impact on Dajiang Group's production and business performance for 2004. It is not possible to forecast the extent of the impact yet. All investors are asked to aware of the risk."

At this point, a business partner of Dajiang Group revealed that there are rumors saying that "Dajiang will be pulling out in entirety of the already shrinking chicken industry in China" and added that it has even culled all its breeder chickens. An ending like this will be rather brutal to Dajiang, which was once "one of the largest enterprises in China's farming and animal husbandry industry and an important pioneering center for the production and export of supplementary foodstuffs in the outskirts of Shanghai".

Mr Lei, Chairman of Dajiang Group, nevertheless explained that culling the breeder chickens is only part of the regular cycle. Dajiang has yet to decide whether to pull out of the chicken industry in China, and whether to develop its real estate business. On the other hand, board secretary Mr Gu Weiwen believed that the pressing tasks facing Dajiang at the moment are to restructure and to turn around the losses. It has not decided whether to completely give up on the chicken business.

Similarly, the export businesses of other enterprises in the poultry industry were also deeply affected by the bird flu outbreak. Despite the abruptness of the crisis and the difficulty of quantifying the losses, one vice-chairman of China National Cereals, Oils, & Foodstuff Import & Export Corp (COFCO) suggested that the losses could be immense.

Following the outbreak of bird flu in Asia, countries such as South Korea and Thailand have suspended China's chicken meat exports. In response to this, China's quality inspection bureau sent a letter to the major importing countries and regions for China's poultry products informing them of the development and the corresponding measures put in place to contain the outbreak. This was done in the hope that alternative arrangements for China's products could be made, including the continued exports of its cooked poultry products, and poultry products from regions that have not been hit by the bird flu virus. However, as explained by the vice-chairman of COFCO, China's poultry meat has in fact been "stranded, because the huge gate to the overseas market has already been shut".

Consequent to the severe blow dealt to the poultry production industry, pork production and consumption is likely to rise. Mr Xia Zhongyin, vice chairman of Nanjing Yurun Group, believes that the sharp drop in chicken consumption will result in an increase in pork consumption, and also predicted that the growth of the Group's sales earnings will remain at 20%.

Mr Xia Zhongyin's viewpoint was seemingly affirmed by Taiwanese funded Haiwei Feed Group, which has eight plants in Shanghai and Dongguan, Guangdong province. In an interview on February 3, Mr Cao Xiaofeng, Executive Manager of Haiwei Feed, said, "Currently, poultry feed sales have basically stagnated. Conversely, sales of our swine feed have been rising rapidly. The sales volume of pork is expected to increase correspondingly in the coming weeks."

Besides, Mr Cao also projected favorable market outlook for chicken and duck meat in the second half of the year, as the bird flu virus is a temporary malady and he foresees the vast poultry market would have recovered by then.

Source: eFeedLink - 18th Febuary 2004