HONG KONG Carlyle Group said it has agreed to buy an 11.3% stake in animal-feed maker C.P. Pokphand Co. from one of Thailand's biggest agricultural companies for $175 million, a bet by the U.S. investment firm on China's growing appetite for meat.
C.P. Pokphand is China's second-largest supplier of animal-feed products by sales and has benefited in recent years from rising household income in the country, allowing people to afford a greater variety of food.
At the same time that demand for meat is rising, there is a drain of farm laborers into cities as China rapidly urbanizes. This has pushed farmers to boost productivity, in part by using commercial feed.
Food scares have prompted the Chinese government to support larger-scale farming and the use of commercial animal feed.
"China should follow the global pattern where farmers move from small- to large-scale farming and use more commercial feed," said Patrick Siewert, a senior director at Carlyle.
Small-holders that used to gather animal feed themselves are disappearing while larger farms are buying commercially made feed to bulk up animals more efficiently. About 30% to 35% of total feed used in China is commercial feed, and the balance is home-made feed, according to consultants at Bain & Co.
The Chinese currently eat a much larger proportion of vegetable protein than in the U.S. and Europe, but they are gradually buying more pork, fish and poultry. They now eat about 33 grams of animal protein daily, compared with about double that in most of the developed world, Mr. Siewert said, citing Bain.
C.P. Pokphand had about $2 billion in revenue last year from distributing, swine, poultry, cattle and fish feed, according to the consultancy reports. The fastest-growing segment was fish feed, reflecting the growing number of fish farms in China after wild-fishing plateaued globally around the turn of the century.
Washington, D.C.-based Carlyle has already bought into China's growing domestic consumption story. It acquired a 13.62% stake in Singapore-listed China Fishery Group Ltd. for $190 million last month and a 17.3% stake in Guangdong Yashili Group Co., Ltd., one of China's largest infant-formula companies, for an undisclosed sum in September 2009.
C.P. Pokphand has been active in the country since China first opened its doors to foreign investment in the late 1970s. It has 57 production facilities in 26 provinces and more than 26,000 exclusive distributors across China.
Carlyle is buying the stake from Charoen Pokphand Group, Thailand's biggest agricultural company by sales and one of the world's biggest poultry exporters. C.P. Pokphand, which trades on the Hong Kong stock market, is Charoen Pokphand's investment arm in China. Charoes Pokphand still owns about 70% of C.P. Pokphand on a fully diluted basis.
The deal is expected to close by July 22.
