Private equity giant KKR & Co. is winding its way through China’s supermarket aisles. After a successful investment in dairy, it’s moving on to meat.
The U.S. firm is leading a consortium to invest roughly $270 million in the meat unit of Chinese state-owned food giant Cofco Corp., the Wall Street Journal reported Friday. The consortium will look to build and manage Cofco Meat’s industrialized farming and meat processing operations in China. It looks like a smart investment: China is the world’s biggest producer and consumer of pork. Chinese people consume 86 pounds of pork a year per capita, 44% more pork than Americans eat per capita, according to the Food and Agriculture Organization.
KKR is likely to employ the expertise it has gained in helping to build up milk producer China Modern Dairy Holdings Ltd. In 2008, KKR paired with CDH Investments Ltd. to invest $200 million in China Modern Dairy according to Dealogic. As the Wall Street Journal reported in 2012, KKR stationed two full-time consultants on the company’s farms to help maximize production as part of the deal. The Wall Street Journal visited a Modern Dairy farm in Anhui province to find new age music—including a cover of “Time to Say Goodbye”—playing from loudspeakers during milking time, which a KKR representative explained was designed to calm the cows. KKR later reduced its stake in Modern Dairy with a sale to China Mengniu Dairy Co. Ltd., but since it invested in 2008, shares in the company have risen roughly 38 percent.
With the swine play, KKR and its partners are likely looking to similarly help Cofco further modernize production to meet a seemingly endless Chinese demand for pork. China produced 50 million metric tons of pork in 2012, more than five times the amount produced in the U.S., according to the Institute for Agriculture and Trade Policy, a research organization.
And China has been moving to emulate the U.S.’s industrial livestock model for years. Factory farms and high-yield breeds help China resolve two big problems in its food supply: low productivity and food safety. Factory farms, as opposed to small family farms, are easier for regulators to inspect for quality problems, while also yielding more livestock on less land.
KKR has a lot of work ahead. Right now in China, large-scale farms with an annual output of 50,000 hogs or more account for less than 1% of the total domestic supply of pork.
“Meat is the single-largest food category in China’s diet, and meeting this demand is a critical link and a natural extension of our company’s value chain,” Cofco Chairman Ning “Frank” Gaoning said in a statement, adding he hopes to grow Cofco Meat into “a much bigger actor in China’s meat industry.”
Source: WSJ