April 12, 2011
China Food Company considers its disposal of feed business
China Food Company is thinking about the disposal of the feed business which started 17 years ago, thus, reducing the hazard to the division of China''s regular food scares.
The London-listed company said that its feed business, Fuss Feed, its largest operation based on earnings, enjoyed a 21% increase to US$1.1 million in revenues last year.
Profits jumped 60% to US$5 million, boosted by higher sales of larger-margin pre-mix feed, resulting in a 36% jump to US$3 million in group earnings.
However, China Food underlined the prospects of its separate soy sauce division, in which it has invested to give one of the biggest and most technologically advanced condiments plants in China, rather than the feed unit, in which it predicted margins to remain lower than 10%.
The feed business was vulnerable to a number of outside factors which could impact performance, China Food said, underlining higher grain prices and its susceptibility to the contamination issues which have filled the recent history of Chinese livestock farming.
In addition to the melamine contamination scandal of 2008, in which a number of babies died after consuming tainted milk, China''s hog farming sector is currently under scrutiny over allegations of injecting pigs with a prohibited drug to reduce fat levels on meat.
Recent years had been hard for the livestock industry still plagued with food safety problems and depressed prices, the group said.
While the most recent scandal had not substantially impacted feed sales, the susceptibility of the business to outside factors makes it hard to plan for the future unless the feed business has scale to influence the industry, John McLean, the group''s chairman said. "Accordingly, the board intends to review the direction the group''s feed business, including but not limited to, spinning off the business or a potential merger."
A disposal would cut China Food''s historic links with the business around which it was founded, and which is ranked as the third largest producer of premix feeds in Shandong, the province in which it operates, and an important area for livestock production.
However, the group believes it is well positioned to take advantage of a Chinese condiments, sauces and dressings market expected by Datamonitor to be worth CNY115 billion (US$15 billion) by 2013.