Market Intel: Chinese Organics

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Market Intel

Organic & Natural Products of Shanghai, China, was the first ‘professional’ and the largest ever exhibition of Chinese organic and natural products and was organized by OFDC-SEPA (Organic Food Development Center of the State Environmental Protection Administration).  “ONP-CHINA” has been held in smaller venues for three years and it facilitates the development of the organic and natural products in China to a large extent.

The recent exhibit drew 61% of visitors from the Asian countries, including Mainland China, Hong Kong, Taiwan, Japan, Korea, Singapore, Thailand, the Philippines, Malaysia and Indonesia.; 39% from regions outside Asia, including Europe (20%), the Americas (18%), and Australia (1%).

Chinese organic produce, milk, and even livestock are serving demand thousands of miles away. In 2003 alone, Chinese organics accounted for $142 million in exports to markets around the world; by 2004, that number had increased to $200 million.

According to The New York Sun, imports of Chinese organics tripled globally between 2003 and 2005. In that year, the BBC reports, Chinese organic exports totaled about $350 million; the number of acres of organic farmland in China, meanwhile, totaled about 5.7 million, behind only Australia and Argentina.

China currently has 8.6 million acres of organic farmland, almost 90 percent of which was certified in 2004. China may harvest 156 million tons of corn and 16.5 million tons of soybeans this year, the China National Grain and Oils Information Center recently said.

Sales of organic foods by the country's 800 government-certified producers reached $4 billion last year, of which about $140 million comprised exports, both up 20% from a year earlier. "The term 'organic food' is now part of everyone's vocabulary," says Shi Songkai of the semi-official China Organic Foods Research Centre.

The COFRC, set up by the Ministry of Agriculture in 1992 but now under state-owned food company China Seeds Corp., has established a certification scheme which closely mirrors the schemes in the EU and the United States to monitor products.

Fuzhou-based organic-fruit-and-vegetable producer Chaoda Modern Agriculture listed on the Hong Kong stock exchange in December is a sign of the growing clout of organic-food companies.

An interesting U.S. play is China Organic Agriculture (OTCBB:CNOA). “China Organic is truly an international investment opportunity,” said Jinsong Li, Chief Executive Officer in a recent interview. “The challenges inherent in dealing with a Chinese-based company dictate that we find the best partners to delineate our high-growth business model to the global investment community.”

In Asia, it is estimated that organic retail sales now exceed $1 billion and China is the Asian country with the largest area of organic certified land. In China, there’s a big incentive to make that land pay off; organically.

Here are some snapshots of China-related food companies.

China Organic Agriculture Inc. (OTCBB:CNOA)

China Organic Agriculture Inc., "China Organic Agriculture""CNOA" is headquartered in the Liaoning province, People’s Republic of China, and is a global diversified food products company engaged in the international distribution and production of premium and natural foods. Serving the marketplace demands of the fast-growing upscale consumer population throughout the Asia-Pacific region, CNOA targets multibillion-dollar expanding markets for premium and natural foods and wines, leveraging its established distribution networks. Historically, the Company has been solely engaged in the manufacturing and distribution of green and organic rice, yet in recent months it has diversified its products.

In October of 2008 the Company’s new CEO, Jinsong Li, announced an expansion of its activities to capitalize on worldwide opportunities in international food markets. As a result, the Company’s expanding portfolio of premium and natural food products will soon include green and organically grown rice, as well as California wine, organic soybeans, kidney beans, mushrooms and other premium products.

As one of the largest distributors of green and organic rice in China, CNOA has developed extensive networks throughout many of China’s major cities, including Beijing, Shanghai and Nanjing, and is positioned to leverage those networks to establish broad distribution of a number of natural and premium food and related products.

China Organic Agriculture intends to achieve revenue growth both through organic expansion, as well as by acquisition of complementary product lines and companies. China Organic has experienced significant growth since its inception in 2002. China Organic’s new CEO announced his future vision for the company by outlining a number of strategic initiatives to expand sales and revenues throughout Asia.

On Friday, November 25, 2008, China Organic Agriculture announced revenue and earnings guidance for fourth quarter 2008 and Fiscal Year 2008, ending December 31, 2008, with estimates exceeding all previous revenue and net income results for the Company.

Projected Guidance for Q4 and FY08:

• Q408 revenue of $54 million (vs. $15.7 million Q407), or an approximate 240% Quarter Over Quarter Revenue Increase
• FY08 revenue $113 million (vs. $44.5 million FY07), or an approximate 150% Year Over Year Revenue Increase
• Q408 net income $11 million (vs. $3.9 million Q407), or an approximate 180% Quarter Over Quarter Net Income Increase
• FY08 net income $20 million (vs. $13.5 million FY07), or an approximate 40% Year Over Year Net Income Increase
• Q408 EPS of $0.15 and FY08 EPS of $0.29

For a comprehensive profile of CNOA please CLICK HERE.

American Dairy Inc., (NYSEArca:ADY)

American Dairy, Inc. conducts operations in The People's Republic of China ("China") through its wholly owned subsidiary, Feihe Dairy. Founded in 1962, Feihe Dairy is one of the leading producers and distributors of premium infant formula, milk powder and soybean, rice and walnut products in China. Feihe Dairy is headquartered in Beijing, China, and has processing and distribution facilities in Kedong, Qiqihaer, Baiquan, Gannan, Shanxi, and Langfang. http://www.americandairyinc.com | http://www.feihe.com

Tyson Foods Inc., (NYSE:TSN)

Tyson Foods, Inc. and its subsidiaries engage in the production, distribution, and marketing of chicken, beef, pork, prepared foods, and related allied products worldwide. The company's Chicken segment involves in breeding and raising chickens, as well as processing live chickens into fresh, frozen, and value-added chicken products. Its Beef segment processes live fed cattle and fabricates dressed beef carcasses into primal and sub-primal meat cuts and case-ready products. The company�s Pork segment involves in the processing of live market hogs and fabricating pork carcasses into primal and sub-primal cuts and case-ready products.

Earlier this year, Tyson officials also announced plans to significantly expand its poultry business in

China through a joint venture with a Chinese poultry company.

Smithfield Foods (NYSE:SFD)

Smithfield Foods, Inc., together with its subsidiaries, engages in the processing of pork and production of hog in the United States, China, and internationally. It offers fresh pork to retail customers as unprocessed, trimmed cuts, such as butts, loins, picnics, and ribs; and packaged meat products, including smoked and boiled hams, bacon, sausage, hot dogs, deli and luncheon meats, pepperoni, and dry meat products, as well as ready-to-eat, prepared foods, such as pre-cooked entrees, and pre-cooked bacon and sausage.

* On November 10, 2008, the Agriculture Department lowered its forecasts for this year's U.S. corn and soybean harvests, pushing up the prices of both commodities while knocking down the shares of meat producers.

Chicken, pork and beef companies such as Smithfield Foods Inc., Tyson Foods Inc. and Hormel Foods Corp. use corn and soybeans for livestock feed. Tyson said Monday its chicken unit lost $91 million in its most recent quarter due to a $230 million increase in grain costs.

While changes to the USDA's estimates were small, they defied analysts' expectations.

Analysts said China's announcement of a $586 billion stimulus package over the weekend also contributed to higher prices, on the basis that the package may boost demand for commodities by maintaining that country's economic growth.

China Yingxia International, Inc., (OTCBB:CYXI)

China Yingxia International, Inc., through its 100%-owned subsidiary, Harbin Yingxia Industrial Group Co., Ltd. ('Yingxia'), is primarily engaged in the development, production and sales of health food products in China. Yingxia is located in the Province of Heilongjiang, Peoples Republic of China. Yingxia's products include soybean-based foods and drinks, longgu golden millet enriched products, organic rice products, raw cacti, cactus and other herbal-based supplements, cosmetics, personal care products, and Nestle products

The slowdown in domestic consumption growth in China is expected to be milder compared to the slowdown in export or fixed investment growth. Consequently, China Yingxia plans to focus on its nutritional foods segment and the soy milk products from its Jin Ao subsidiary. The Company expects the subsidiary to contribute a larger share of net income in 2009 as the capacity utilization of the facility improves, and has started to aggressively market its soy milk products to larger supermarkets through promotional programs

As the Company has completed the most capital intensive phase of its expansion, the current focus is on improving the efficiency of its distribution channel. Excluding Jin Ao's soy milk products, the Company's distribution model relies on the development of new franchisees. During the quarter, the Company added 146 new franchisees, bringing total to 1,419 of the targeted 1,500 by the end of fiscal 2008

"Our franchisee-based model allows us to expand our retail presence without committing significant amounts of capital to the distribution network," said Ms. Yingxia Jiao, CEO of China Yingxia. "In addition, we have seen an increase in consumers shifting from cow's milk to soy milk especially after the incidents involving contaminated cow's milk and the timing for ramping up our soy milk promotion program is hence perfect." China Yingxia reaffirms previously issued guidance for fiscal 2008 with full year revenue of $25.9 million, and net income of $12.9 million, or $0.26 per fully diluted share.

Disclaimer: Statements herein may contain forward-looking statements and are subject to significant risks and uncertainties affecting results. GreatWallStreet.com, ChinaUpTicks.com and StockUpTicks.com are properties of Market Pathways Financial Relations Inc. (MP). MP provides no assurance as to the subject company's plans or ability to effect proposed actions and cannot project capabilities, intent, resources, or experience. The subject companies have not always approved the statements made in this report. This report is neither a solicitation to buy nor an offer to sell securities but is for information purposes only and should not be used as the basis for any investment decision. MP is not an investment advisor, analyst or licensed broker dealer and this report is not investment advice. MP has been paid fifteen thousand dollars by China America Financial Communications Group for preparation and distribution of this report and other advertising services. MP has been paid fifteen thousand dollars by Organic Alliance Inc. for preparation and distribution of this report and other advertising services over a ninety day period. This constitutes a conflict of interest as to MP’s ability to remain objective in its communication regarding the subject company.