US-based meat groups have had a tough time of late amid soaring feed costs and weak domestic demand. However, Tyson Foods, the country’s largest processor, has seemed better equipped to weather the storm – not least because of its international ventures. One of the company’s key markets is China. In this month’s just-food interview, Dominique Patton spoke with James Rice, vice president and country manager of Tyson’s Chinese business, about the company’s ambitions in the East.
US meat giant Tyson Foods has been in China for 15 years but few consumers would know it. The company has focused on exporting chicken parts, especially the feet, to China’s huge, wholesale food market and making nuggets for the foodservice industry.
But with the rapid changes in retailing in recent years, and the rising demand for fresh, safe and high-quality food, Tyson is gearing up for its first supermarket products, with the aim of pioneering a new category of high-quality, branded meat in China.
In February this year, Tyson signed a joint venture with a Chinese firm in Jiangsu province, not far from Shanghai. The new company, scheduled to be operational by mid-2009, will set a precedent in China for chilled, pre-packed chicken with a long shelf-life, claims James Rice, head of Tyson’s China business, and the man driving the firm’s launch of a consumer brand.
“When we were looking at opportunities in the China market five years ago, we already knew that we wanted to do ‘made in China, sold in China’. Just exporting from the US is great, but it’s not how you deliver your brand. Our mission was to deliver a high-quality product at a fair price. Fresh, raw chicken in nice packs, which are branded, sealed and really hygienic..that’s very unique in China,” he says.
Such a product is unique partly because it is difficult to produce. Most of China’s poultry industry is in the north of the country and travels huge distances to reach consumers. The lack of a sophisticated cold-chain network means that although most chicken leaves processors in frozen form, it may not have much shelf-life left by the time it arrives at stores.
Rice, a long-time China resident, believes consumers are hungry for much fresher products. “The Chinese still have a preference for meat so fresh that it’s still walking around. But now the government is starting to close down the wet markets. The only alternative would be frozen meat. There’s nothing in-between.”
Getting the new chilled product range off the ground required building a new facility, allowing Tyson to get close to the consumer market. “I couldn’t buy an existing facility and meet the kind of quality that I want to do,” says Rice.
Unlike most chicken processors, Tyson’s new joint venture business will be located a 1.5-hour drive from Shanghai to allow it to deliver fresh every day to the city’s leading supermarkets. The plant will have a capacity of 350,000 birds per week, a good size in China, though Rice is cautious on the scale of the business. It will be limited both by Chinese chicken production and the national cold-chain.
Though Chinese poultry farmers are set to be come more efficient in terms of output, supply is restricted by both available space and the feed crop, with the country already thought to be at its maximum corn output.
Similarly, until substantial improvements in the cold-chain, Tyson will focus only on the major cities like Beijing, Shanghai and Guangzhou, also known as the first-tier.
“Retail is a huge opportunity but I can only do it in bigger cities. Beijing, Shanghai, Guangzhou and Hong Kong all have logistics companies but outside these I can’t get a case of chicken down a street to individual stores.”
Still, a handful of top-tier cities should offer plenty of business. Consumption of protein in China is anyway growing faster than most markets, at around 4% annually, driven by increasing incomes. And with consumption per capita still relatively low, huge potential remains untapped.
|James Rice, vice president and China country manager|
Increasing concerns about food safety will further play to the experienced producers. “I don’t see food safety as a risk,” says Rice, adding that Tyson products will be shipped directly from its facility to the customer in its own trucks.
Rising food safety awareness is also a marketing advantage. “The whole proposition is higher value. It will be clean, hygienic, safe, and will sell at a slight premium.”
In a market with such growth potential, Tyson will be unable to avoid strong competition. It has numerous competitors already in its export business. For the ‘made-in-China’ range, it will be competing with Thai giant Charoen Pokphand (CP), Taiwanese group Da Chan Great Wall and other domestic firms.
But Rice says he’s “pretty confident right now we’ll be well ahead of the competition. We know we can produce higher-quality animals with lower cost. And we put lots of time into aligning the right partner”.
Tyson now has three joint venture businesses in China. Aside from the new facility, it has also bought majority stakes in two Chinese processors, most recently buying 60% of Shandong-based Xinchang group. Rice claims that despite the failures of other multinationals who tried to work with partners in China, it is still the best route to developing the market.
“I’ve been in China for 20 years and I’m convinced I can run a very good partner. If your long-term objectives are the same, you’re not going to have problems.”
It helps that Rice speaks Chinese and knows the country better than most expats. The first Chinese exchange student from the University of California, he took up his first job with Kimberley Clark in 1991. He later moved into the food industry, working at Danone for five years, first as general manager for yoghurts and then sales director for biscuits. He joined Tyson in May 2004.
When it comes to setting the goals for a new joint venture, misunderstandings are best avoided when the communication is in Chinese. As Rice says, “most Chinese chicken farmers don’t speak English”.
The local farmers do however understand the market better than any foreign company. “There’s a lot we know in technology, marketing and animal welfare, but we’re not necessarily experts in China. So we looked at the opportunities out there and a partner brings knowledge.”
Some of that knowledge includes sourcing cheaper inputs and keeping overheads down.
Rice says all three of the group’s joint ventures were already successful before Tyson’s investment. “They have speed, flexibility and low cost.” Tyson will add capital, new technology and science.
“We think we can introduce higher quality and better animal husbandry. For us, you can raise a healthier bird with less medication. Our feed-to-bird ratio is also lower than the average in China.”
Higher quality and modern production methods have never been more in demand in China than now. The country has this week revised its food safety law but the fall-out from the melamine contamination across the dairy industry is ongoing. It has repercussions across the food industry.
Rice believes responsibility for food safety lies with producers and not just with the Chinese government and inspection teams. “I hope the dairy issue challenges others to produce at a higher level, and to inspect where you expect.”