Affco seeks golden arch to Chinese joint venture

By PHILIPPA STEVENSON agricultural editor

In mainly pork-producing China, the investment in beef processing by New Zealand meat company Affco reflects a new glow on the country's commercial skyline - the golden arches of McDonald's restaurants.

"We're not the only ones to see an opportunity [in China]. Why else is McDonald's going hell for leather," said Peter Wethey, Affco's general manager of business development.

He added, with obvious enjoyment, that "McDonald's is doing our advertising."

The fast-food giant, which imports beef for the hamburgers it is selling in a growing number of Chinese outlets, is also interested in Affco.

Earlier this month, its representative attended the official opening of the joint venture meat plant that Affco and two Chinese partners have built on the outskirts of Chengdu, in the western Sichuan province.

Mr Wethey said Affco had been "talking with McDonald's all the way" and hoped to supply beef to one of its two Chinese grinding operations.

The chain has forecast growth at 20 per cent a year as an increasing number of Chinese, particularly those under 35 years, eat more beef, especially in food cooked Western-style.

The prediction accords with research on beef production and consumption in China that has underscored Affco's own move, one the company hails as part of its "internationalisation" - a plan to source, process and supply product year round.

In June 1997, a little under a year after the company began investigating setting up a processing operation in China, the company had a study done by East-West Consultants, itself a joint venture between American Sparks Consultants and the Chinese Ministry of Agriculture.

It showed that in the principally pork-eating country, beef consumption was rising steadily, fostered by the changing meal choices of increasingly affluent Chinese, and Government promotion of the health benefits of beef over fatty pork.

In 1991, China's annual consumption of beef per person was just under one kilogram.

By 1996 it had grown to 2.94kg and was now 3.5kg.

East-West forecast that increasing disposable income would fuel growth in beef consumption to an annual rate of 11 per cent.

That, coupled with the annual 1.5 per cent, or 18 million population increase, meant that by 2002 the beef market would demand six million tonnes a year.

By comparison, New Zealand's total beef production is 630,000 tonnes.

The Chinese Government has supported cattle production by encouraging the use of stalks from harvested crops for feed, and stock numbers have risen.

In 1991 there were 81 million cattle, but by 1996 the figure was 105 million.

Mr Wethey said most were slaughtered and the meat sold by farmers, who owned between one and six animals. Some sellers of meat in wet, or fresh-meat markets sourced stock and slaughtered it in their own premises.

"Meat processing has not been given the focus of cattle rearing. There is a Sino-German plant outside Beijing but the German company has gone broke. Other plants have not been maintained and are shutting down and the rest are pretty rugged," he said.

Mr Wethey and a former New Zealand Trade Commissioner to China, Bill Sharp, investigated several possibilities for a plant before settling on the Chengdu location.

Mr Sharp, who has spent 20 years in China and speaks Mandarin, is now a director of Affco Foods China and the joint venture.

Both men were critical of the lack of New Zealand Government support for the project.

Mr Wethey was baffled that the Ministry of Foreign Affairs and Trade turned down Affco's application for a grant to help it investigate the business opportunity three years ago.

"What are the grants for if not for what we were doing?" he said.

The company had support from New Zealand's Ambassador to China, Peter Adams, who attended the recent opening.

But Mr Wethey said the interest of Beijing-based Tradenz staff seemed to wane with every kilometre they ventured away from the eastern Chinese capital.

Battling the welter of Chinese central, provincial and municipal bureaucrats - the number of officials are double what can be expected in New Zealand because each administrative post is matched by a party political one - was also a challenge.

However, it was the Tradenz equivalent, the China Council for the Promotion of International Trade, that came up trumps with partners for Affco.

The council first found the land-owning Jinli company in 1997 and about a year later the project's main funder, the cash-rich, state-owned distiller WuliangYe Group.

After the deal was signed in December 1998, it took a relatively short 16 months from design to completion of the plant buildings, which used local Chinese materials and labour.

The slaughtering and processing equipment came from Affco's closed Waitara and Taumarunui plants.

In an odd juxtaposition, the plant which is designed to slaughter 200 cattle a shift, or 100,000 a year, is bordered by a holiday camp. Landowner Jinli was already in that business.

The joint venture has also provided a 200-bed accommodation block where workers will live free to save travelling costs from their homes in Chengdu, a city of 10 million and the main centre of Sichuan.

Sichuan's total population of 84 million live in an agriculturally based region twice the size of New Zealand.

Affco chief executive Ross Townshend said workers, some with university degrees, were being paid a little over market rate.

A-grade butchers and boners earned $NZ400 a month, which in China was higher pay than someone with an MBA.

The New Zealand plant manager, Stu Cruden, said there had been huge interest from job seekers.

His criteria for staff had included size, attitude, what they knew about the operation, "and what they could contribute to us."

Just two of the 35 Chinese employed had been sacked, both twice having been found asleep on the job.

The workers have been taught by a group of New Zealanders who trained Chinese trainers in New Zealand and also spent from February, when the first trial kill took place, to May commissioning the plant named for its backers and the local cattle - WuLiangYe Affco Golden Ox Industrial.

The Golden Ox cattle crossed with European breeds such as Simmental and Hereford are procured from feedlots supplied by small farmers - a system set up and run for the joint venture by its Jinli partner.

Marketing will be done by staff who have joined the joint venture from WuLiangYe and who aim to capitalise on the white spiritmaker and wine importer's distribution network into 8000 hotels and restaurants.

Prospects look good, with the joint venture in the happy position of having been paid in advance for orders.

WuLiangYe expects to recoup its investment in the joint venture in three years.

* Philippa Stevenson travelled to Chengdu courtesy of Affco.