Analysis of the Feed Industry Landscape: How Can the Strong Break Through?
Report Key Points
A Comprehensive Perspective on the Feed Industry
We summarize the development history of the feed industry into the following three characteristics: (1) The industry has shifted from “emphasizing scale” in the past to “emphasizing quality and service.” (2) Manufacturers' operating varieties have shifted from diversification to specialization. (3) Industry consolidation is accelerating, and the industry is shifting from fragmentation to market share becoming increasingly concentrated among large and medium-sized enterprises.
Sub-sectors: Every field has its own story
From the rapid growth stage to the second growth stage, each sub-sector has shown its own distinct characteristics: Poultry feed: From the rapid growth stage to the second growth stage, the poultry feed industry has gone through a process from rapid output growth and an absolute majority share to slowing output growth and a sharp decline in share. In 2013, national poultry feed output was 81 million tons, with a compound growth rate of 2.8% over the past four years, down nearly 6 percentage points from the previous period (2001-2005).
The fundamental reason is that the industry successively experienced H1N1, the “fast-grown chicken” incident, and H7N9, leading to industry depression.
As the industry gradually warms up, New Hope is expected to stand out with its whole-industry-chain advantages.
Pig feed: The pig feed industry in its second growth stage is characterized by rapid scale expansion, which aligns with the scaling up of China's hog industry. In 2013, the whole industry's pig feed output was 80 million tons, with a compound growth rate of 11.1% over the past four years, compared with a compound growth rate of 8.2% during 2001-2005. The fundamental reason for the rapid expansion of the pig feed market is that the advancement of farming scale provides room for growth in pig compound feed. We believe that “specialization + building service platforms” is an effective weapon for high-quality pig feed manufacturers to stand out, and Twins and Dabeinong are pig feed enterprises with similar high-quality genes.
Aquatic feed: Compared with the compound growth rate of as high as 12.8% during 2001-2005, aquatic feed grew only 6.7% over the past four years; its share also changed from an upward trend to hovering between 9% and 10%. Due to its relatively high barriers, the aquatic industry shows a significant Matthew effect, with severe polarization. Early entrants such as Haid and Tongwei hold absolute advantages. In terms of output, Tongwei has consistently maintained an industry-leading position, producing and selling 2.22 million tons of aquatic feed in 2013, followed closely by Haid at 1.94 million tons. Tianbang and Wellhope are smaller in scale, at only the hundred-thousand-ton level. In terms of revenue, Haid has developed rapidly in the past two years, surpassing Tongwei in one move. The reason is that cross-sector diversification dragged down Tongwei's feed business development, enabling Haid to seize market share from Tongwei in the past. However, as Tongwei divests its polysilicon operations and refocuses on the feed market, Tongwei is working hard to regain the share it lost.
Corporate Breakthrough: Vertical Integration or Specialization + Service
We believe that the path for feed enterprises to successfully break through and achieve second growth in the future is: vertical integration or specialization + service. Just as high-quality enterprises such as Purina and Tyson Foods under the second growth of the U.S. feed industry, under the second growth transformation of China's feed industry, the integration representative New Hope and the “specialization + service” representative Dabeinong are expected to successfully break through amid industry changes and achieve a second takeoff.