Competition in the Feed Industry Escalates: Large Enterprises Integrate Smaller Ones in Pursuit of a Breakthrough

In recent years, the number of feed enterprises in China has been decreasing at a rate of 1,000 per year, with most newly opened plants concentrated in large feed groups, and the survival space for small and medium-sized enterprises increasingly shrinking.

As of December 2014, the number of enterprises nationwide that had obtained feed production licenses was 7,061, a decrease of 3,000 from the end of 2013. Such a figure reveals two pieces of information: first, increasingly strict environmental regulations and policies have driven more small plants out of business; second, the pace of industry consolidation is accelerating, with the strong growing stronger and the weak being eliminated.

A new pattern in the feed industry is quietly taking shape. Among large plants, the shift from competing over discounts and credit sales in the past to competing over resources today is already a major improvement, achieving the effect of subduing the enemy without fighting. Service to customers has moved from the earlier rudimentary interest-driven approach to comprehensive resource support.

New Hope, Shuangbaotai (Twins) and Dabeinong are all now providing bank joint guarantees for dealers, with feed enterprises acting as guarantors and helping customers bear part of the interest, while the funds flow directly back to the feed mill. In this way, large manufacturers smoothly shift the pressure of capital, and dealers also smoothly resolve their funding problems.

However, not every enterprise can obtain this kind of guarantor qualification. Some small and medium-sized enterprises are not granted guarantor qualification by banks, so they will face the problem of losing dealers and ultimately losing market share.

A few years ago, manufacturing was manufacturing, and the capital market was the capital market. Today, the close integration of capital and feed entities has produced no shortage of success stories. At bottom, this is a competitive contest between traditional industries and the capital market.

There was once a time when the United States also had tens of thousands of feed enterprises; today, after consolidation was completed, most of the market share has become concentrated in the hands of a few major feed groups.

China's feed enterprises are now also on this path, but just how long it will take depends on the integration capability of large enterprises and the breakthrough capability of small and medium-sized enterprises. For small and medium-sized enterprises, whether to sit tight with old customers and wait for large enterprises to come and wipe them out, or to keep innovating and breaking through while continuously expanding in scale, will be an increasingly severe problem.

However, what is certain is that bloody competition will inevitably bring about this kind of situation——the industry will tend toward order, profits will tend toward transparency, capital will become increasingly controllable, and the industry will feel increasingly secure. This will be our common pursuit.