China's egg industry urgently needs to improve its circulation level
On June 21, the first China Egg Products Circulation Conference, hosted by the Beijing Egg Processing and Sales Industry Association and Luzheng Futures Co., Ltd., was held in Beijing. Representatives from all sides of the industry jointly portrayed the current state of egg circulation in China. With the improvement of egg production levels and rising consumer demands, egg circulation is becoming a bottleneck for the sustainable development of China's egg industry. Improving the level of egg circulation, stabilizing market supply and prices, and using new means such as "Internet plus industry" and "insurance + futures" to achieve new industrial breakthroughs have become an industry consensus.
At present, the overall circulation level of egg products in China is low, and circulation costs are high. According to Professor Niu Donglai of Capital University of Economics and Business, China's egg circulation models are mainly of three types: "wholesale market + farmers" accounts for 60% of total circulation, "company + farmers" accounts for more than 30%, and another 5% is the "production and marketing integration" model. The first model basically has no brands, let alone cold chain, and customers are unstable, belonging to the traditional circulation model. Developed countries basically all use the "production and marketing integration" model, with a -7°C cold chain throughout production and marketing, and fixed customers and sales regions. Cold-chain transportation, branded sales, information-based circulation, and egg product processing are the direction for achieving stable development of our egg industry. Under the current state of agricultural development in China, efforts are needed to reduce the proportion of dispersed production, encourage the development direction of "production and marketing integration," and accelerate the advancement of the "company + farmers" model.
The development of a "company" requires stable customers. Xu Dianming, chairman of Henan Liujiang Ecological Animal Husbandry Co., Ltd., introduced two major breakthroughs they have made in recent years. First, technically, they broke through the traditional breeding concept that neglects "gas," applying air as nutrition and improving breeding efficiency. Second, in circulation, they developed cold-chain logistics and intelligent sales terminals - "intelligent egg vending cabinets" - forming a membership-based stable customer base. Zhang Xuan, assistant to the president of Beijing Deqingyuan Agricultural Technology Co., Ltd., introduced Deqingyuan brand's journey of "going electric." Beijing's distribution system over the past 30 years has been broken, and modern channels have become mainstream and integrated across boundaries. But price is still the first factor in consumption, and the weak point of egg e-commerce is that packaging and logistics costs account for 30%-50%. However, Deqingyuan used e-commerce thinking to improve its products. In the first year of "going electric," sales were 10 million eggs, and in the second year sales reached 40 million eggs, cultivating a group of brand fan customers.
A company's stability requires reforming its own supply-side structure. Of the eggs consumed globally, more than 25% are processed egg products (liquid eggs and egg powder). In the United States and Japan, processed egg products account for more than 40% of consumption, while in China it is only about 2%. France's Actini company introduced its advanced processing technology at the conference. Because processed egg products have very stable prices, the gross profit margin is 33-38% (labor not calculated). The "dried egg" development path of Bao Jun, general manager of Chengdu Runcheng Food Co., Ltd., was full of drama. At a critical period of development, the Internet came to "add" her, and sales soared with online shopping. The new factory invested in and built in 2014 is expected to reach an output value of 250 million yuan this year.
How can companies avoid being swallowed by price waves? At present, various platforms serving enterprises are emerging one after another. Tianjin Ringpu, Beijing Zhongnong Zhiyuan, and the Beijing Egg Processing and Sales Industry Association all introduced various information tools they developed using the latest science and technology as well as Internet technology, attracting the attention of attending representatives. Yan Tieshan, general manager of Hubei Jiahemei Food Co., Ltd., in his "egg sales practice sharing," introduced his secret to making the enterprise big: from doing quantity, to doing quality, and then to doing the Internet, always accompanied by "insurance + futures." He was the first entrepreneur in Hubei to do "insurance + futures" and was the buyer of the first egg futures order of Dalian Commodity Exchange. He said that only by being able to read forward market trends can one know how to buy and sell in the present; only through "insurance + futures" can one avoid risks amid price fluctuations.
Avoiding price risk is the first choice of modern enterprises. Ji Tongguo, director of the membership department of Dalian Commodity Exchange, comprehensively introduced the risk management institutional system for egg futures trading of Dalian Commodity Exchange. This system was created by Dalian Commodity Exchange closely following industry development. Since April, egg futures prices on Dalian Commodity Exchange have shown a trend diverging from spot prices. There is a kind of doubt that egg futures prices do not have guiding significance. Ji Tongguo believes that futures, as standardized forward contracts, reflect future price expectations, and the hedging effect cannot be measured by the current spot price and the price of the September futures contract. According to the introduction, egg futures will launch a new delivery system starting from the 1703 contract: by introducing a full-month daily selective delivery system, shortening the validity period of warehouse receipts, and adding contracts for the two months of July and August, it will further meet customers' hedging needs. In addition, the "insurance + futures" pilot launched by Dalian Commodity Exchange on the basis of the "over-the-counter options" pilot was written into this year's "Central Document No. 1." This year, Dalian Commodity Exchange has comprehensively increased support for the "insurance + futures" and "over-the-counter options" pilots, mainly supporting futures companies in carrying out business through methods such as reducing and exempting handling fees. The pilot varieties of over-the-counter options include eggs.
Li Yuan, head of the agricultural products division of Luzheng Futures, gave a report titled "Analysis of the 'Insurance + Futures' Model for Eggs." "Egg price insurance" is "insurance + egg futures," referring to the egg futures contract price, and it also uses the futures price as the basis for whether the insurance company makes compensation. When the egg price is lower than the insured price, the insurance company or futures company compensates for the price difference. If price insurance is purchased at 4,300 yuan (500 kg), and the final average price falls to 3,800 yuan (500 kg), then the insurance company compensates 500 yuan (500 kg). She gave an example: on July 28, 2015, the price of the egg 1601 contract was 4,255 yuan/500 kg. A large laying hen enterprise believed that egg prices would have a wave of decline later, but the timing and magnitude were difficult to grasp, and hoped to regulate through over-the-counter tools. Luzheng Futures suggested that the customer buy a put option to prevent the risk of egg price decline with relatively low capital occupation. By September 29, 2015, the price of egg 1601 was 3,749 yuan/500 kg, and the breeding enterprise received compensation of 451 yuan/500 kg.
Some experts predict that in the second half of this year, the egg market is not pessimistic. But for an enterprise, if it has no armor at all, then things are not optimistic.