Zixin Group Holdings – Plugged into China’s food security priority November 22, 2023 108
Zixin Group China Factory Visit: A Chinese sweet potato-focused operator with an integrated value chain that covers seedling cultivation, fresh supply, production of snack food, functional food, and animal feed. The production base is located in Liancheng County, Fujian Province.
Zixin is well-positioned to ride on China’s quest for food security. In view of this, the local authority is supporting the sweet potato plantation industry through allocating land, constructing premises, and offering favourable lease terms for cold storage warehousing and production of animal feed.
Zixin has also been invited to participate in rural revitalization projects in the provinces of Henan and Hainan where it will replicate its working model in these regions.
Key highlights from the visit over 25-27 October 2023: Liancheng County, Fujian, PRC
China is the world’s largest producer of sweet potatoes, with 87.7m mt of output in 2021, according to Food and Agriculture Organisation. It is used for food, animal feed and processed into other products such as starch.
Zixin derives revenue from the sale of fresh sweet potatoes (15%) and sweet potato processed snack products under its house brands and OEM brands (85%). Total volume sold in FY23 was 19,310 tonnes, a 20% YoY decline due to Covid lockdown that affected supply. Harvesting of sweet potatoes takes place from September to November.
Zixin cultivates sweet potato seedlings to ensure quality and yields (Figure 1), on 300 mu of land leased for 15 years (for RMB7mn). After nurturing them for about three months, the young plants are handed to external farmers who would cultivate and the harvested sweet potatoes are sold back to Zixin. These farmers are grouped under co-operatives, with whom Zixin has entered into long-term purchase contracts.
Zixin signed purchase contracts with five suppliers in FY18 and FY19 to secure 19,090 tonnes of sweet potatoes per year and made upfront payments. These agreements last for 15 years and upfront payments are made every 5 years in advance. Zixin would make subsequent payments if the payments are fully utilized within the 5 years. Total accumulated upfront payments made were RMB334.9mn and outstanding unutilized amount as at Mar 23 was RMB117.7mn. In 1H24, Zixin paid a further RMB50mn.
The Liancheng Country Government launched an initiative to support the industry by allocating land, constructing premises, and offering favourable lease terms for cold storage warehousing (Figure 3) and fermentation plant for the production of animal feed (Figure 4). The cold storage facilities will lengthen the shelf life of its products, thus lifting sales even during the traditional lull periods. Zixin is also moving downstream to convert bio-waste such as discarded peels and vines into animal feed.
The processed snack foods are marketed under house brands such as Zilaohu, Ledi, Starpie and Shugongfang (Figure 5) and sold in the PRC. Zixin is also embarking on R&D to produce nutrient-rich functional foods including healthy meal replacement, condiments, snacks and beverages. The products are sold at owned standalone retail shops, distributors and e-commerce channels.
Zixin is participating in rural revitalization projects – in Lingao County, Hainan Province and Lankao Country, Henan Province – to address national food security concerns. It will bring its expertise and replicate its working model with local authorities and partners in these regions.
About the author
Peggy Mak Research Manager PSR
Peggy has been a sell-side equity analyst for 22 years and a fund manager for 15 years.