Monday found your Penny Sleuth attending a presentation by Carr’s Milling in the City. Around the table sat a collection of private client fund managers who were, of course draining their wine glasses at maximum speed in order to anaesthetize themselves against the depressing prospect of an afternoon in the office.
But my wits were, as ever, needle sharp, and I was especially interested to hear Carr’s chief executive Chris Holmes describe the impact of the milk price rise that our poor struggling dairy farmers have finally managed to extract from the retailers. Actually, it is not the retailers at all, because they have passed the price rise – and a bit more besides – straight through to you and I.
But I digress. The point is that the average dairy cow produces 7,000 litres of milk each year. I know! Astonishing isn’t it? Until recently farmers were getting just 18p for each litre. Now they are getting 27p. The extra 9p on 7,000 litres of milk is worth £630. Subtract from that the £200 or so extra that the farmer has had to pay for animal feed, but he is still getting a good £400 per cow that he was not getting before. Multiply that by a herd size of 200 cattle, and our struggling dairy farmer is struggling no more. £80,000 per year richer, he is checking out the cost of a new Range Rover, thinking that he might buy a new tractor, and certainly vowing to invest in a better class of feed for his animals and fertiliser for his land.
The outlook for dairy farming, according to Holmes, is ‘as bright as I have ever seen it,’ and if this rosy picture has not yet spread to other types of farm it can only be a matter of time. Suddenly farming is popular. Ten years ago investors started to wake up to the fact that there was a global shortage of raw materials to feed the Chinese manufacturing dragon. Now they are waking up the fact that the world needs more food.
Global demand for food on the rise
It is as simple as that. The global population is rising inexorably. The burgeoning middle class of Asia is no longer content to eat bucketfuls of rice and cabbage, with an occasional chicken’s foot as a treat. They want red meat, fruit, Mars Bars and all the other culinary delicacies that we take for granted in this country.
So my eye was caught this week by a deal involving an AIM quoted shell company Vestpa. It has bought a company called Full Fortune Holdings Pte, and will in future be called China Food Company plc. Full Fortune Holdings is a holding company and its two principal subsidiaries are Fuss Feed and Fu-Rich.
Fu-Rich produces those Chinese staples soy sauce, vinegar and bean paste, and has developed a new product called Xianka. This is made from seaweed and kelp and may become a substitute product for traditional condiments such as monosodium glutamate and chicken bouillon that consist mainly of chemical compounds. Fuss Feed produces animal feed that is sold in the central Chinese provinces of Shandong, Anhui, Jiangsu, Hebei and Henan.
However many times I study anything to do with China I am still taken aback by the sheer scale of things. These five regions together have a population of about 430 million. Full Fortune’s operations are located in Weifang, a city that you have probably never heard of, but it is home to 8.5 million people. The neighbouring cities of Zibo, Linyi, Rizhao and Qingdao have populations of between 3 million and 10 million. That is a lot of people and, since the favourite pastime of any Chinese is eating, it represents a gigantic market for food.
At present Fuss Feed sells its animal feeds through distributors to the many small farmers in China. But it expects that ‘domestic corporations will enter the livestock industry by setting up large-scale farms.’ Somehow I do not picture contented animals strolling around picturesque meadows. I see factory farming on a scale never seen on this earth before.
Anyway, pretty or not, Chinese food production, like everything else about the country is going to be big – very big indeed. So the China Food Company plc, which appears to have a good record of growth, is certainly one that I want to keep an eye on.
This article is taken from Tom Bulford’s free daily email ‘Penny Sleuth’.