‘Melamine’ became the most frequently mentioned word in China during the second half of 2008. The scandal not only led to the collapse of some dairy giants, but also spilled over into the egg production sector. After the Hong Kong media revealed in late October that ‘Select Fresh’ eggs produced by the Dalian Hanwei Group were contaminated by high levels of melamine, the sales of ‘Gegeda’ eggs from that company plunged on the mainland.
As investigators puzzled over how melamine got into the eggs, others began raising serious questions about the “Company + Farmers” model of China’s egg and dairy industries. Although this OEM-style business model has rapidly created a few large national dairy producers, quality control has clearly become a serious issue.
But as the entire industry buckles under the pressure of the melamine crisis, orders at one egg producer, Beijing DQY Agricultural Technology Co., Ltd., continue to expand. Its executive vice president, Gu Qing, disclosed the simple secret of success: “We make sure all the eggs come from our own farm.”
RMB2 for One Egg
In 2003, Gu Qing, who was working for a German financial institution at the time, granted a loan to a tiny company called DQY to build a production base in Beijing Songshan National Nature Reserve in Yanqing County. Gu felt it was risky since the loan actually exceeded the company’s turnover. The loan, however, soon turned this small, unknown chicken farm into the biggest one in Asia, with annual sales of 300 million eggs and 71% of the brand name egg market in Beijing. Two years later, Gu became the company’s executive vice president.
Statistics from the UN Food and Agriculture Organisation (FAO) show that in 2007, China produced 384 billion eggs, 40% of the total output worldwide. Nevertheless, brand name eggs made up less than 2% of this huge market, since most Chinese are used to carrying baskets and buying cheap free-range eggs from roadside hawkers. This is in stark contrast to egg consumption in the developed countries where free-range eggs produced by individual farmers or small farms are a luxury and are usually much more expensive.
One industry insider says that since the price of maize-the most common chicken feed-keeps rising, the current production cost of 500 grams of eggs has reached about RMB3 (US$0.43), a level at which many free-range eggs are priced. “Many farmers use inferior chicken feed to cut costs regardless of quality,” explains Gu. Both the industry itself and consumers commonly know this fact. Frequent food safety scandals during the past few years have prompted some city dwellers to buy brand name eggs over growing health concerns.
To tap into this particular consumer demand, DQY boldly prices its eggs at two to three times the price of ordinary free-range eggs. “We give the chickens high-quality feed including level-one maize, very good bean bowls, and no antibiotics at all,” says Gu. He also mentions something new to China-animal welfare. “We are the only hen farm in China that meets the animal welfare standards of both the EU and the US.” This means providing a relatively more comfortable environment to hens, such as using cages that are not too small and limiting the number of chickens per cage.
DQY eggs are targeted at the upper 15% income group of the urban population, primarily in first-tier cities like Beijing, Shanghai and Guangzhou. Because of the location of the company, sales in the Beijing market now account for about 80% of the company’s total output. “Our most expensive eggs are priced at RMB2 (US$0.29) each, but people usually only eat one or two eggs per day.” Gu is convinced their prices are reasonable. In fact, business is so good that the production base is struggling to keep up with demand.
The Industrialized Chicken Farm
The DQY production base at the foot of Songshan Mountain is more like a scenic suburban park. One can hardly detect the aroma of chicken manure. Positioning the chicken farm in such a sparsely populated area was not only for the sake of fresh air and zero pollution, but also out of considerations for bio safety.
Under the World Health Organization (WHO) regulations, in the case of a bird flu outbreak at a chicken farm, all chickens within a three-kilometre radius must be culled. So, DQY chose a location with no human dwellings within a one-kilometre radius, and no animal farms within a three-kilometre radius.
The quality control also extends to the poultry. DQY uses the famous Hy-Line breeding hens from the US. One day after being hatched, the baby chicks are transported to the DQY production base for processing.