
DCP agrees carve-out of Cargill's China poultry unit

DCP Capital has agreed to buy the China-based poultry business of US-headquartered food and agriculture corporation Cargill for an undisclosed sum.
The sale of the unit, known as Cargill Protein China, is subject to regulatory approval but is expected to close this year, Cargill said in a statement cited by Reuters and Bloomberg. A source close to the situation confirmed a deal has been signed, adding that Cargill had invested nearly USD 550m in building up the business over the course of more than a decade.
Cargill is one of the largest meat and poultry producers globally. The China protein business comprises a vertically integrated poultry supply chain, covering feed production, hatching, breeding and processing. Annual production capacity amounts to 65m birds and the company is a major chicken supplier to McDonald’s and KFC in China.
The country is the world’s second-largest poultry producer after the US, with domestic output reaching 14.3m metric tons in 2022, according to a US Department of Agriculture (USDA) report published at the end of last year. The share of white feather broilers – a higher end breed – in overall chicken production was expected likely increase in 2023, reflecting consumer demand for a more diverse protein diet.
Imported genetics remain the dominant source for China’s commercial white broiler operations because of their high quality and yield. However, three domestic varieties of broiler genetics entered the market in 2021. The USDA said continued investment was required to expand domestic breeding capabilities.
A surge in white feather broiler prices in 2019 triggered an expansion in upstream production capacity, which led to a demand-supply imbalance and a decline in prices. Even though pricing has stabilised, the USDA noted that China’s poultry producers and slaughterhouses have been operating at a loss since late 2021 and are not operating at full capacity.
The source close to the situation declined to speculate on the reason behind Cargill's decision to divest, but claimed the local business has not operating at the optimal level.
Cargill said that it established a vertically integrated poultry supply chain “to satisfy Chinese consumers’ increasing demand for safe and high-quality protein products and to fill the gap between poultry product demand and supply.” This has also been the premise for a string of private equity investments in China’s dairy, cattle, poultry, and fishery industries.
DCP was founded by David Liu and Julian Wolhardt, who previously led KKR’s China private equity team. Their tenure coincided with investments in China Modern Dairy, COFCO Meat, and Fujian Sunner Development. Fujian Sunner, which KKR backed in 2015, is the country’s largest breeder, processor and supplier of chicken products, serving the fast food, food manufacturing and wholesale markets.
More recently, DCP and KKR teamed up to invest in Adopt a Cow, a vertically integrated Chinese dairy farm operator that emphasizes direct-to-consumer distribution.
DCP is currently in the market with its second fund, targeting USD 3bn. The firm closed its debut fund on USD 2.5bn – comprising a US dollar-denominated tranche of just over USD 2bn plus a renminbi sidecar of USD 500m – in 2019. Other recent deal activity includes an investment of around USD 175m to support the China expansion of Jamieson Wellness, a listed Canadian producer of health and wellness products.
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