Bulk Agricultural Trading Platform Spurs Industrial Fission

“Agfeed” pig farming quickly fizzled out; “Goldman Sachs” pig farming is still hanging in the balance; “NetEase” pig farming is described by people as “armchair strategy”. Cases of losing one's shirt in pig farming are now everywhere, and startling.

Yet a local cooperative in Longyou, Zhejiang, in just four years, using the method of vertical and horizontal alliances, has made the most traditional of agricultural industries, pig farming, thrive magnificently. People say that “Longzhu's” pigs can “fly”.

1 Vertical and Horizontal Alliances Solve the Concentration Problem

People have mixed feelings about pig farming. What they love is that pork is fragrant and delicious, and no one can do without it; what they hate is that pig farming is dirty and smelly, and they avoid it if they can. Local governments, because pig farming not only generates no tax revenue but also pollutes the environment and makes quality and safety a constant worry, often come down hard, either “driving them all out” or “wiping them all out”.

In Zhao Chungen's view, the root of all problems lies in insufficient industry concentration, in the fact that livestock farming entities are numerous, small and scattered, and impossible to manage. Only by binding different entities together into one rope, sharing benefits and bearing risks together, can the various drawbacks brought by insufficient industry concentration be thoroughly solved. It was precisely on the basis of this understanding that Zhao Chungen resolved to carry out “unification”.

Longyou, where Zhao Chungen is based, is a well-known major livestock county in Zhejiang, with as many as 600,000 pigs on hand. The livestock industry accounts for more than 54% of the total agricultural output value. But similar to situations elsewhere, local livestock enterprises also face numerous difficulties and complain endlessly: most assets of the farms cannot be certified, so they cannot obtain loans and their assets cannot be activated; the dirty and smelly farms cannot attract talent, and standardized management is basically a castle in the air; labor prices rise year by year, feeding costs remain high, and profit margins are squeezed; the purchasing channels, ingredients and potency of inputs are complex, making it difficult to control the quality and safety of livestock products; especially after people's living standards improve, their demands for the living environment grow higher and higher, and farms become rats crossing the street, denounced by everyone; at the same time, the business model based mainly on selling live pigs leaves farms with little market say.

In the small teahouses of Longyou, Zhao Chungen sought out farm people to talk every day, often from morning until the middle of the night. After listening to the other party pour out their grievances, Zhao Chungen asked in return, why can't everyone unite and jointly build the entire industry chain?

Zhao Chungen is broad-minded and well-informed, and made special trips to study the livestock industries of Europe, discovering that these countries' livestock industries are all self-contained systems operating in a closed loop. Each industry chain extends from feed processing and farming production all the way to slaughtering, deep processing and terminal product marketing, and the entities at each link of the industry chain hold shares in one another, closely linked by interests. Therefore, there are neither sharp price fluctuations nor safety and quality problems. Within the same industry chain, everyone prospers together and suffers together.

In Zhao Chungen's view, China's livestock industry has many problems, but that also means many opportunities and broad prospects. If he were to run a farm himself, although he could also make money, it would merely add one more pig farm and would have no great impact on the development of the livestock industry. What China's livestock industry lacks is not one pig farm, but innovation in business models and exploratory design at the institutional level.

Zhao Chungen put forward a plan of vertical and horizontal alliances, interest linkage, and jointly building an industry chain.

The so-called horizontal alliance is to carry out horizontal unification of farms. First, members jointly determine the cooperative's registered capital, and then determine each household's specific capital contribution according to the number of breeding sows. Those with more breeding sows contribute more money, hold more shares and receive more dividends. For example, for a cooperative with registered capital of 10 million yuan, if there are 500 breeding sows, then each sow corresponds to an average contribution of 20,000 yuan. If your household has 100 sows, you should contribute 2 million yuan and enjoy a 20% stake in the cooperative.

After the horizontal alliance, the overall scale of the farms expands rapidly and their strength increases greatly, giving them a say and enabling them to extend toward the front end and back end of the industry chain. If it were just one 10,000-head pig farm, it would have no qualification at all to sit down and negotiate with upstream and downstream enterprises, because the strength of the two sides is vastly different and their status is not equal. Now that 30 large-scale pig farms unite, that is a scale of 300,000 head, and no feed enterprise or processing enterprise can treat it lightly any longer.

2 One Fund and Five Centers Build a Development Platform

In 2010, the “Longzhu Livestock Professional Cooperative” initiated by Zhao Chungen was established in Longyou. The cooperative was jointly formed by 30 large-scale farms, with actual registered capital of 10 million yuan.

Some people ask, can Zhejiang's large-scale farms really be so easily persuaded, or do they all have such far-sighted vision, that they were integrated together merely by Zhao Chungen's “silver tongue”? According to the reporter's understanding, apart from the fact that the farms have been squeezed for years and already have their hearts set on cooperation, Zhao Chungen also had a “calling card”, namely the loan guarantee fund.

According to the agreement between “Longzhu” and the local rural credit cooperative, the loan amplification ratio is 1:10. After the cooperative was established, depositing 6.9 million yuan of the registered capital in the bank would make it possible to obtain 69 million yuan in loans. This preferential condition, available immediately, solved the farms' worries. Because for farms to develop, expand scale, install equipment and purchase feed, they are all constrained by funds. Funding problems often leave farms miserable and with nowhere to turn. Now, by joining the cooperative, this constraint can be readily solved.

After the horizontal alliance succeeded, “Longzhu” proceeded methodically and quickly cooperated with relevant enterprises and institutions to set up five centers: a feed distribution center (feed processing plant), a veterinary diagnosis and prevention center, a breeding pig farm and semen supply center, a meat products processing center, and a pig waste collection and treatment center. Previously, although the pig farms were small, they had all the internal organs. The farm managers not only had to purchase raw materials and process feed themselves, but also had to understand disease knowledge in management, give injections and deliver piglets, so busy that they did not even have holidays. Now, almost all work that can be separated out has been handed over to the five centers. Not only are the farm managers' bodies and minds liberated to the greatest extent, but because of economies of scale, costs have dropped greatly.