Why Are China's Property Giants Buying Pig Farms?

With the real-estate market in a deep freeze, pork is newly appealing — for more reasons than one.

 

By Adam Minter, Bloomberg Opinion

May 19, 2020

 

This month, China Vanke Co., the third-largest Chinese home builder, announced that it plans to hire an experienced pig-farm manager. This wasn’t some new corporate motivational gimmick. Vanke really aims to start raising pigs — 250,000 a year, in fact.

 

It may seem like a strange way to diversify for a company previously renowned for its work with prefabricated concrete. But as China’s real-estate market goes into a deep freeze, strong demand for its favorite protein is proving irresistible to companies better known for clearing land than cultivating it. As is so often the case in Chinese real estate, however, things aren’t entirely what they seem.

 

Even before the coronavirus, China's property developers were struggling amid a slowing economy and heavy debt burdens. The pandemic made everything worse: In the first two months of 2020, net homes sales plunged by 35% and 105 small and mid-sized real-estate firms went bust. In March, Vanke's chairman flatly stated that "survival is a real issue now" as the company warned that it would be late delivering 39,000 homes due to construction delays. Within weeks, the company was looking for qualified pig farmers.

 

Ignore, for the moment, that Vanke is a property developer, and this has a certain logic to it. In a given year, China consumes about half of the world's pork. Pigs are such an important staple that the government maintains a strategic pork reserve. And thanks to an outbreak of African Swine Fever in 2018, which killed as much as 60% of the country's sow herd, prices have been soaring.

 

What was bad for consumers has been a boon for China's biggest pork producers. Between August 2018 and March 2020, shares in Muyuan Foodstuff Co., China's second biggest hog producer, surged 345%. Today, the market value of the country’s biggest pig producers approaches that of its top real-estate developers.

 

China, moreover, has a storied tradition of companies investing handsomely (and sometimes ruinously) in industries totally unrelated to their core businesses. More often than not, those investments are driven by government policy. For example, in 2018 China Evergrande Group, another major real-state developer, established a (money-draining) electric-car unit under the auspices of its health-care subsidiary, hoping to capitalize on handsome state subsidies.

 

Pork, though a less stylish industry than electric cars, has also drawn the government’s interest. In this case, officials have sought to phase out the small-scale farms that dominate the domestic industry and bear an outsized responsibility for pork-related scandals, such as the "dead pig tide" that notoriously floated down Shanghai's Huangpu River in 2013. In their place, the government envisions large, corporately managed pig farms that produce safe and easily regulated products. For Vanke, a relatively minor investment in this official priority would presumably help grease the wheels when seeking state approval for future real-estate projects…

 

more, including links

https://www.bloomberg.com/opinion/articles/2020-05-20/why-are-china-s-property-giants-buying-pig-farms