HAO YUE ISLAMIC BEEF REVAMPS DOMESTIC STRATEGY TO

UNCLAS SHENYANG 000084 SIPDIS E.O. 12958: N/A TAGS: ECON EINV EAGR CH SUBJECT: HAO YUE ISLAMIC BEEF REVAMPS DOMESTIC STRATEGY TO LIMIT RETAIL PRICE JUMPS ¶1. Summary. Hao Yue Islamic Beef Company (one of the largest beef companies in China) has changed its sales strategy in order to control retail prices and take advantage of beef's increasing importance in the Chinese diet. While Hao Yue previously serviced the domestic market by selling to wholesalers, the company now employs a domestic sales staff which sells directly to major retailers, including Carrefour and Taiwan-based RT Mart. Hao Yue is German retailer Metro's sole supplier of beef and mutton and sells a wide variety of processed beef and mutton products to other major retailers throughout China. Additionally, the new sales force now sells directly to major hotels and restaurants. Despite some initial cost increases, the company has been able expand margins without adversely impacting retail prices. End Summary ¶2. During Econoff,s visit to Hao Yue's processing facility in Changchun, the President of Hao Yue Group, Mr. Cong Lianbiao said that Hao Yue processes all of its beef and mutton products to meet both Halal Islamic standards and China's domestic standards. By far the largest domestic customer is U.S.-based McDonalds Corporation: Hao Yue provides more than ninety percent of McDonalds-China's beef products. Mr. Cong added that the company's primary export market is the Middle East but that the market is growing in Southeast Asia as levels of beef consumption increase, especially in Indonesia and Malaysia. ¶3. Rising domestic demand, coupled with food-price inflation, prompted Hao Yue to completely revise its domestic sales strategy, which now employs a domestic sales force to market directly to retail and service industry outlets. The increase in staffing and packaging costs was more than offset by eliminating the wholesalers' cut, which allowed Hao Yue to slightly increase margins while alleviating retail price pressure. ¶4. Hao Yue Group, which began operating in January 2000, employs 3,250 people, of whom forty percent are Muslim. Hao Yue Group exports to 21 countries and regions, primarily in the Middle East and Southeast Asia. During 2008 the company will open new markets in Brunei, Macao, Israel, and Egypt. Exports account for 20-25 percent of total production. The company's domestic large-contract customers are large-scale supermarkets and franchises like McDonalds. ¶5. Hao Yue processes 500,000 cattle and 300,000 sheep, in addition to 600,000 tons of feed and 500,000 pieces of leather per year. The company also produces 100,000 tons of Chinese and European-style Halal cooked foods as well as 73 varieties of processed agricultural products. The Group has its own cattle ranches, feed lots and large-scale breeding operations in Jilin Province, all within 200 kilometers of Hao Yue Group's headquarters. ¶6. Jilin Provincial Livestock Bureau is the lead regulatory and certification agency for Hao Yue. In May 2004, a 13-member delegation from the U.S. Department of Agriculture was scheduled to visit Hao Yue's plant but was unable to complete the visit due to flight unavailability. The new sales plan involves agreeing with large-contract customers, including McDonalds and Metro, to allow customer inspection teams full access to the plant. The company would welcome a visit by U.S. inspectors. ¶7. The cattle processing plant is new, clean and extremely high-tech. Cattle are processed with a minimum of human interaction. Robotic devices are used for hide and hoof removal and for vivisection reduction to beef sides. Waste collection is also automated and highly efficient. A whole carcass can be processed to two sides in less than two minutes. ¶8. While much of the finer work is done by hand, all product is moved on modern conveyors. Each level of processing is isolated from adjacent operations by means of air locks and physical barriers to prevent contamination. Automatic cleaning systems keep floors clean and free of debris, and all workers wear gowns, gloves and masks. Each processing room has glass walls, so that managers can observe without introducing contaminants to the system. ¶9. Like the plant itself, facilities for the workers appear to be first rate, with on premise dormitories, recreational facilities, and a fully equipped hospital. The employee community is centered on the company mosque, which is available to the local Muslim community as well as the Muslim members of the company's work force. SWICKMAN