CHINA- Global agribusiness and commodities trading giant Cargill recently announced that it is selling its poultry business in China to private equity firm DCP Capital, citing an increasingly challenging business environment for foreign players in the Chinese meat market.
The divested unit is known as Cargill Protein China, and it started operating in the Asian superpower in 2011, breeding, raising, and processing chickens in Chuzhou in eastern Anhui province.
The sale of the unit is, however, subject to regulatory approvals but is expected to close this year, according to a recent statement from Cargill.
Privately-owned Cargill did not give a transaction price, and the new potential owners, DCP, declined to comment on the deal.
China is the world’s No.2 poultry producer after the United States, producing about 19 million tonnes of chicken meat last year.
After operating Cargill Protein China for eight years, Cargill added to its operations a US$48.8 million plant that can process 65 million birds annually in 2019.
According to Juhui Huang, an agribusiness consultant at Beijing Means Consulting Co, livestock farm margins in China have been squeezed in the last two years as the Ukraine war drove up feed prices and weak demand during the COVID-19 pandemic depressed meat prices,
Therefore, while Cargill’s meat business has been doing well since its inception in China, the last two years have been challenging.
“Local companies in China are generally better in managing their costs and more flexible in sales strategies like payment terms, which makes them more competitive in such a difficult environment,” Huang remarked.
Despite the pressures, China’s largest poultry players continue to expand, far outpacing smaller operations such as Cargill’s.
For example, Wellhope Foods, one of the largest domestic firms, slaughtered 700 million chickens last year and has a goal of 1.5 billion birds by 2029.
The company also introduced plant protein products in 2020 produced in the Anhui facilities.
China’s DCP Capital has invested in several other food and agriculture businesses, including another of China’s top poultry producers, Fujian Sunner Development, according to its website.
The website also provides that the private equity firm is focused on Greater China and is led by former members of the KKR and Morgan Stanley private equity businesses.