PE firms take stake in Cofco unit

Customers buy meat at Cofco Group's booth at a food exhibition in Wuhan, Hubei province. Provided to China Daily

KKR & Co LP and three other private equity firms will invest in a subsidiary of the State-owned Cofco Group as they seek to cash in on the development of large-scale hog farms in China.

KKR and Baring Private Equity Asia, Hopu Investment Management Co and Boyu Capital Advisory Co Ltd are investing as a consortium in Cofco Meat, according to a joint statement issued on Friday.

Terms of the transaction were not disclosed. But a source with knowledge of the matter told China Daily that the investment amount will be in the "hundreds of millions of dollars".

KKR will invest about $150 million from its second Asia fund. The consortium will invest about $270 million in total for a stake of up to 70 percent, Reuters reported.

The investment will help the Chinese company establish and manage large-scale hog farms and meat-processing facilities in China.

"As Chinese consumers develop stronger demand for high-quality meat and the nation's hog-breeding market is fragmented, developing large-scale farms is full of potential," said the source.

China accounts for more than 50 percent of global pork consumption, but large farms (defined as those with an annual output of 50,000 or more hogs) account for less than 1 percent of the total domestic supply, according to the United States Department of Agriculture and the China Animal Industry Yearbook.

The yearbook said that the number of large-scale farms is expected to increase more than sixfold by 2020, given their efficiency, food safety and quality control abilities.

"It's good to develop large-scale hog farms in China, and the production of farms with an annual output of 50,000 or more hogs will account for up to 10 percent of the total domestic supply," said Wu Li, research director of China Galaxy Securities Co Ltd.

Wu said that large breeding facilities are stronger in terms of funding and risk management, while smaller ones have lower labor and land costs.

"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," said Cofco Group Chairman Ning Gao-ning. "Chinese consumers are looking to Cofco to promote the meat industry and provide safe meat products."

According to Ning, there will be synergies among the shareholders that will improve the operations and management of Cofco Meat and make it a bigger factor in China's meat industry.

"We look forward to fully utilizing our global resources and local expertise to assist Cofco Meat in setting the bar for food safety in China,' said Julian Wolhardt of KKR.