China’s COFCO Meat Holdings Ltd. reported last week profits more than halved in 2017 as hog prices in China slumped. The company reported, however, that it would speed the expansion of its pig production by moving into contract farming.
COFCO Meat Holdings -- a subsidiary of China’s state-owned grains-to-property conglomerate COFCO -- reported a net profit of 444.8 million yuan ($71 million) for the year, down from 951.9 million yuan in 2016. Revenue was up 5.2% to 6.96 billion yuan.
The company said the revenue pressure was largely the result of tighter environmental rules in China that forced pig farmers to sell off herds in order to comply with the new rules. Reports are that those farms that can meet the new standards have been expanding rapidly. COFCO said it, too, would continue to expand too, despite the challenging hog market.
“Although the price factor is unfavorable, the accelerating trend of transformation and upgrading of the pork industry has not been changed,” it said in a stock exchange filing.
The company said it would use contract farmers to help raise its hog output more rapidly, in addition to its own integrated farms. Last year, COFCO produced 2.2 million pigs, a jump of 30% for the year. The company did not give targets for this year’s production.
It also said it would construct fresh pork factories in north and central China to “match upstream and downstream production capacity.” China’s pig industry has been moving north to be closer to the country’s grain growing areas. Processing operations have traditionally been more concentrated in the south, near large population centers.
COFCO currently has three meat processing bases in Jiangsu, Hubei and Guangdong, China. The company is focused on trying to boost revenues from higher-value branded pork sold under the Joycome and Maverick brands.
Branded pork sales by weight increased 65% to 33,000 metric tons. Revenue from branded products grew to account for 15.6% of the total, up from 13.2% a year earlier.
“Although the hog price was weaker during the year, the price of mid- and high-end branded pork product remained high,” the company said.
Revenues from COFCO’s meat import business, which accounts for more than a quarter of the total, fell 5.8% to 1.9 billion yuan as lower Chinese hog prices made importing fresh pork less attractive.
Sales from imported beef jumped 46% to 815 million yuan as demand among consumers surged.