Japfa scales up to feed emerging Asia
Japfa scales up to feed emerging Asia
https://www.straitstimes.com/business/companies-markets/japfa-scales-up-to-feed-emerging-asia
What drives Japfa chief executive Tan Yong Nang out of bed every morning is the awareness that he is contributing - one way or another - to the fight against hunger and malnutrition in Asia.
A report by United Nations agencies last year found that more than 20 per cent of the region's population - estimated at 3.5 billion - is grappling with moderate or severe lack of access to food.
"Japfa has a mission to feed emerging Asia," Mr Tan said. "With China, India, Myanmar, Indonesia and Vietnam accounting for more than 40 per cent of the global population, I'm glad to be able to contribute to the well-being of consumers, and play a small part in the efforts to end regional hunger."
As a leading, pan-Asian industrialised agri-food company, Japfa provides consumers with safe and affordable animal proteins, ranging from poultry and beef to pork, aquaculture and dairy products.
Headquartered in Singapore, it employs more than 40,000 people across a network of modern farming, processing and distribution facilities in Indonesia, Vietnam, Myanmar, India and China.
Prior to its listing on the Singapore Exchange in August 2014, Japfa was a poultry-focused, Indonesia-centric business.
"Our ambition then was to further expand and strengthen a business that already spanned multiple markets and pillars, offering a range of animal proteins," said Mr Tan.
Since its listing, Japfa has leveraged its diversification strategy by replicating its vertically integrated business model, which spans animal feed production and breeding farms in the upstream industry, milking and fattening farms in the mid-stream segment, as well as processing and distribution operations, which constitute the downstream sector.
The group's first pillar is poultry in Indonesia, where it maintains a leadership position through its listed subsidiary, Japfa Comfeed Indonesia, one of the two largest producers of poultry in the country with a robust market share and economies of scale.
The second core pillar is its dairy operations in China, where Japfa is one of the leading producers of premium raw milk.
This April, Meiji agreed to buy 25 per cent of Japfa subsidiary AustAsia Investment for US$254.4 million (S$353.4 million) in cash, further cementing Japfa's position as an independent raw milk producer in China.
The group's third pillar is its swine business in Vietnam.
Japfa has poultry operations in Vietnam, India and Myanmar, as well as aquaculture and beef operations in Indonesia. It leverages on its quality raw materials to produce premium, mass-market dairy products under its Greenfields brand sold in markets across Asia, including Singapore, as well as packaged foods under its So Good brand, available in Indonesia.
However, the agri-food business will inevitably be subject to cycles, which in turn will affect sales and profits. These cycles are determined by factors such as seasonality, government policies and macroeconomic drivers, which affect consumer spending.
"Our diversification across five proteins and five countries cushions us against cyclicality in any one market or protein group," Mr Tan said.
And given the growing affluence of Japfa's target middle-and lower-income consumer groups, it expects animal protein consumption to continue climbing. The region's poultry output surged 56 per cent over the last decade to 9.2 million tonnes in 2018, and is forecast to reach 12.3 million tonnes by 2028. Likewise, pork production grew 23 per cent between 2009 and 2018, and is projected to rise another 21 per cent by 2028.
China's per capita milk consumption doubled to 36kg in 2018 from 18kg in 2007, but it still stands at less than one-third the global average. The country's per capita dairy intake will continue to rise, particularly in third-and fourth-tier cities, USDA-Economic Research Service data showed.
Looking back on his 13 years within the group, with the last six as CEO, Mr Tan gets a sense of satisfaction from witnessing Japfa's steady growth and the group's ability to navigate choppy waters.
"Since our IPO (initial public offering), revenues have expanded by nearly a third to US$3.9 billion, while our Ebitda has nearly doubled to almost US$500 million," he pointed out, referring to earnings before interest, tax, depreciation and amortisation.
Nevertheless, one challenge the 59-year-old is keeping a close eye on is none other than Covid-19.
"As Japfa provides an essential service by supplying staple proteins, largely to the domestic markets in which they are produced, our day-to-day operations have not, thus far, been materially impacted by the lockdowns," Mr Tan noted.
In particular, Japfa has seen a recovery in demand for raw milk in China. "With the general shortage of raw milk in the country, and as an independent raw milk producer, we're poised to benefit," he added.
In Vietnam, pork demand remains relatively stable. However, the situation in Indonesia remains fluid - the country's partial lockdowns have reduced consumer spending and impacted poultry demand, leading to a continued decline in broiler prices.
"As this pandemic is an unprecedented event, the ultimate impact cannot be estimated with any certainty. Against this backdrop, we're focused on reducing costs and remaining efficient, as well as adjusting our investments and deploying our resources appropriately," Mr Tan added.