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Marfrig Sets Up Two New JVs in China

by 5m Editor
19 April 2011, at 8:29am

BRAZIL & CHINA - Marfrig Alimentos S.A. has announced that it will form, through its subsidiary Keystone Foods in China, two joint ventures (JV) with the aim of exploring commercial opportunities to supply food products and meet the growing demand for distribution in the Chinese market.

Marfrig says the first of the new joint ventures is COFCO Keystone Foods Supply Chain (China) Investment Company, a joint Venture (45 per cent Keystone and 55 per cent COFCO) created to explore business opportunities in food logistics and distribution services in China. The joint venture will combine the local market knowledge of COFCO with the experience of Marfrig and Keystone Foods in food distribution and the development of international clients to create a leading multi-temperature logistics company in China. Keystone Foods China and COFCO have been developing a successful partnership since 1990.

The project, with operations projected to start in 2012, provides for the construction of six distribution centres, transportation fleets and information-support technological platforms in strategic cities, including Beijing and Shenzhen – where located Keystone's processed plant in China in located – in addition to Chengdu, Shanghai, Shenyang and Wuhan.

The total investment in the JV is estimated at US$252 million over 10 years. The portion to be disbursed by Keystone will be allocated under the Company's projected CAPEX for the period. The agreement is expected to be signed on 15 April 2011 in Beijing.

The second joint venture is Keystone-Chinwhiz Poultry Vertical Integration, a joint venture (60 per cent Keystone and 40 per cent Chinwhiz) created with the objective of implementing a vertical integration in poultry operations in China and meeting the needs of its principal client for processed food, high quality and competitive costs. The JV will consist of a complete solution for implementing a vertical orientation in the supply chain, which should bring the following benefits: Improved cost visibility, guaranteed supply, improved food safety and socially responsible production.

The JV will initially have capacity to process 200,000 birds per day and will be able to supply 50 per cent of the raw material needs of Keystone's processing unit in China. The unit already serves over 2,600 restaurants in China, Hong Kong and Japan.

The role of Keystone will be to use the knowledge it gained from managing similar vertically integrated operations in the United States. Chinwhiz will bring its experience in the local agroindustry to build an integrated chain with biosafety and social responsibility.

The investment in the JV is estimated at US$57 million by the end of 2013. The portion to be disbursed by Keystone is allocated under the Company's projected CAPEX for the period cited. The agreement was expected to be signed on 17 April 2011 in Weifang.

With these investments, Marfrig will be strategically positioned to meet the growing demand for food in the Chinese market, with operations that range from processing to distribution to clients. The investment is also consistent with the Company's strategy of focusing on its financial sustainability over the long term, which will contribute to consistent cash generation.