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Frequently Asked Questions (FAQ)

  1. What is China Minzhong's business model?
    • We are a leading integrated vegetable processor in the PRC. Our integrated business model provides high barriers to entry and operational efficiency.
    • Our demand-driven model ensures minimal risks as we cultivate our crops based on sales orders from our customers.
  2. What are your competitive strengths?
    • Our "National Level Dragon Head Enterprise" status since 2002 has given us a huge competitive advantage in securing premium cultivation land across China.
    • Integrated demand-driven operations with cultivation, processing and sales capabilities
    • Diversified and seasonally complementary product portfolio.
    • Strategically located and geographically diversified operations.
    • Established track record and experienced management team.
    • Global customer base underpinned by strong long-term relationships with key customers.
  3. What are your top products?
    • Our top products include champignon mushrooms, black fungus, German chives, capsicums and king oyster mushrooms. We constitute a large proportion of China's exports for some of these products.
    • Our selective focus on these products arises from China's favourable climatic and soil conditions in the cultivation of these products as well as the huge price differential between the selling prices in PRC and overseas.
    • We believe that having a sizeable market share in these price competitive products will garner us significant pricing power.
  4. There are issues and concerns of food safety in the PRC. How does China Minzhong ensure that all its products are of good quality and safe for consumption?
    • China Minzhong's management places strong emphasis on our quality management system and food safety measures throughout our integrated operations.
      • We have strict quality assurance with internationally-renowned accreditations.
        • Awarded ISO 9001:2000 certification since 2005.
        • BCS organic certification.
      • Our production process adheres to the 7 principles under the HACCP Certificate of Food Safety Management System.
      • We have quality control systems at every stage of production.
      • China Minzhong has also appointed SGS to perform chemical testing of our products.
  5. Who are China Minzhong's customers?
    • Our processed vegetables are mostly exported, while our fresh vegetables produce are all sold within the PRC.
    • We have a global distribution network that currently spans across 4 continents and 26 countries.
    • Customers include food processing and manufacturing companies, overseas distributors, overseas pro-processing agents and export distributors.
    • The majority of our customers are repeat customers.
  6. How is China Minzhong managed?
    • Our Board of Directors is entrusted with the responsibility for our overall management and direction.
      • We have 3 Board committees (the Audit Committee, the Nominating Committee and the Remuneration Committee) to represent and provide assistance to the Board of Directors of the Company in fulfilling its legal and fiduciary obligations.
    • Our Executive Directors and Executive Officers are responsible for our day-to-day management and operations, and they report to our Board of Directors.
  7. How does China Minzhong ensure strong and transparent corporate governance?
    • China Minzhong has established corporate governance practices
      • We have adopted best practices in corporate governance, including the implementation of ERP system and key performance benchmark measures.
      • Our internal audit work is conducted by a Big Four auditing firm.
      • The Chairman of our Audit Committee is an Independent Director.
    • We also benefit from having had institutional shareholders for four years prior to our listing. Hence nominees from the institutional shareholders, who form part of our Board of Directors, have provided independent oversight on China Minzhong's financial position and operations for over four years.
  8. What are your key investment merits?
    • Strong industry fundamentals with significant entry barriers
    • Integrated, demand-driven business model
    • Low-cost producer with scale
    • Global customer base with strong demand from multiple export regions
    • Clear growth path supported by track record of success
    • Experienced management team with good corporate governance
    • Strong quality assurance
  9. Has China Minzhong been affected by the many natural disasters that happened in the PRC over the past year?
    • Fortunately the impact on our cultivation bases has been kept to a minimal due to the extensive land improvement infrastructure (eg, irrigation systems, drainage systems, roads, etc.) that we have built in after leasing each piece of farmland.
    • To the extent that that the supply of vegetables is actually affected by the natural disasters, we have actually benefitted from the price increase.
    • We have cultivation bases and operations strategically located across six provinces throughout the PRC, and a network of contract bases. Hence we are better able to mitigate any risks of supply shortage as a result of localized environmental impact.
    • We also have a track record of over three decades and proven ability to handle such natural adversities.
  10. What is China Minzhong's dividend policy? We do not have a fixed dividend policy at the moment. Going forward, our Board of Directors will make decisions on dividend payout based on:
    • The level of our cash, gearing and operating cash flow.
    • Our projected levels of capital expenditure and other investment plans.
  11. Please describe the farmland leasing model for China Minzhong's upstream fresh vegetables cultivation.
    • All agricultural farmland in PRC is owned by the government and individual farmers only possess the farming rights to the farmland they are allocated.
    • The operating of our owned cultivation bases involves the collective leasing of farming rights (from the farmers) through the respective village committees. The Group will typically enter into lease agreements for ten years so as to lock in the lease cost and fully realize the investment made on land improvements (eg. roads, irrigation and drainages) on the farmlands.
    • Farmers will be given an upfront one-off payment for the lease and be paid monthly wages for the part-time labour they provide on the farmland.
  12. Why is the PRC government supportive of large-scale farming?
    • On the back of population growth and increasing urbanization, food security is an increasingly concern for the PRC government. Large-scale farming by corporations or collective enterprises typically comes with higher productivity and more stable supplies, which will help alleviate the food security issues.
    • With the growing rural-urban income gap in China, the government is also obliged to raise the livelihood of the farmers. This objective is achieved with large scale farming when corporations pay farmers for both the leasing of the farming rights and the farming labour. The sums received by the farmers are usually in excess of what they were earning previously when they manage their own farmland.
  13. Why would the farmers want to lease farmland (or farming rights) to China Minzhong?
    • Individual farmers are very dependent on weather and market factors for the yield on their farmland. Vegetable price fluctuations and weather calamities could potentially wipe out the bulk of their income for the year.
    • Farmers who lease out their farming rights to us will receive both rental income and wages for the part time labour they provide on the farmland. This is easily about two to three times compared to what they were earning previously.
    • The villages which we target tend to have most of the able-bodied men and women already migrated to the cities to work. The older folks left in the villages are staying back mainly because of lifestyle reasons and are typically more laid back. Most of the time, they will prefer to get some stable income by leasing out the farmland and by providing some part-time labour.
  14. Do you find the leasing of farmland (or farming rights) getting increasingly competitive in today's environment?
    • As of today, the corporations and the large scale collective enterprises account for less than 2% of total vegetable production in China, with the remaining 98% are still dominated by individual farmers. As such, there is still a lot of room for us to expand.
    • So far, we have not entered into competitive bidding with our peers for land leases. Most of the time, our contacts with the village committees for farmland leasing is done by way of invitation through the local mayors who are looking to raise the standards of living of the farmers in their area.
    • Our status as a "National Leading Dragon Head Enterprise" in China since 2002, has also placed us on the priority lists of the local governments.
  15. Are you generally a beneficiary of food inflation?
    • Yes, we are. While the prices of our processed vegetables have already been contracted before the cultivation season, we get to reap extraordinary profits on our fresh vegetables.
    • On the other hand, our integrated business model helps to cushion us if vegetable prices were to fall in a market down cycle. As far as our working capital allows, we will process the excess fresh vegetables, keep them as inventories (which are good for three years) in our warehouses and sell them again when prices rebound the following year.
  16. Is the PRC government likely to put any price controls on vegetables? We do not foresee the PRC government placing direct price controls on vegetables for the following reasons:
    • One of the key objectives of the PRC government for the agriculture sector is to raise the livelihood of the farmers. By placing price caps on vegetables amidst an inflationary environment, the government will be directly hurting the farmers' incomes and be in conflict with their policy goals.
    • There are an estimated 700 million farmers and few hundred types of vegetable species in China. Any form of price restrictions (which need consistent monitoring) will be an arduous task with the many points of sales and large product variety.
    • The government has however clamped down on speculative activities on vegetable prices. In addition, they have also implemented measures which are targeted at lowering the production and distribution costs so as to ease inflation pressures.
  17. Are your high margins sustainable? We have many competitive advantages (in terms of cultivation techniques, economy of scale and distribution network) over the individual farmers who contribute more than 98% of vegetable production under China's agricultural landscape. The aggregate large volume contributions from the lower-yield production of small farmers have helped to ensure the sustainability of our margins. Besides having the expertise to grow higher value crops, some of the things which we do differently from individual farmers include:
    • Having land improvement infrastructure (eg. drainage and irrigation systems) on our cultivation bases. With only small plots of land to manage, individual farmers do not have the incentives and resources to do much land improvement, hence making their land (and yield) very susceptible to weather conditions.
    • The use of imported seeds which enhances the yield. Due to the lack of resources and accessibility to bigger suppliers, individual farmers typically use local seeds.
    • Unlike the individual farmers, we do not sow the seeds directly onto the ground, in the hope that all the seeds will germinate. Instead, we will first nurture the seeds in the nurseries and upon germination, the seedlings will be planted on the farmland, hence optimizing the available space on the farmland and ensuring appropriate spacing between individual crops for them to grow optimally
  18. What cost pressures are you seeing in the near term?
    • We expect the lease costs of farmland to be on the uptrend, underpinned by the ongoing food inflation trends. However, the lease costs have already locked in for our existing farmland for the rest of the tenure (average of about seven to eight years remaining).
    • Our raw materials comprise mainly of fertilizers and seeds. Fertilizer costs are correlated to international oil prices, the rise of which is a main contributor to food inflation. As most of our seeds are imported from overseas (purchases denominated in USD), its absolute costs in RMB is on the decline.
  19. What are the major risks and challenges in your business and how do you overcome them?
    • RMB appreciation. While most of our key products (eg. champignon mushrooms, German chives, etc.) are still very price competitive compared to the local suppliers in Europe and US, the continuing appreciation of the RMB implies that these products will slowly lose their price competitiveness. While the short term strategy to protect our margins is to price in RMB appreciation in our contracts and sell our processed vegetables to export distributors based in the PRC (sales denominated in RMB), the long term strategy will be to continuously shift towards higher value products.
    • Weather risks. It is known in the agriculture sector that any adverse changes in weather patterns could potentially affect the farmland yield. To mitigate this, we generally choose to lease farmland only in premium locations (away from drought or flood prone zones) and construct land improvement infrastructure (in the form of roads, irrigation and drainage systems) to better shelter us against any weather adversities. As a further protection, we also have Escape Clauses in our contracts with customers in the event that we are unable to deliver our products due to Acts of God.
    • Redevelopment risks. While this has not happened before in our operating history, there could be a possibility that the local government could rezone certain farmland areas for commercial or industrial developments. To mitigate this risk, we generally choose farmland that is at least 2 hours drive from the city centre (or 1 hour drive away if it is located in a mountainous region), so that any chances of redevelopment during our ten years of tenure is almost negligible.
    • Managerial talent. With increasing urbanization in the PRC, it is getting more difficult to find qualified farmland supervisors who are willing to relocate and reside in the rural villages all year round. To manage this, we have started (1) scholarships for undergraduates pursuing agriculture or food processing degrees (2) internships for undergraduates (so that we have a first choice of talent) (3) tying up with local agriculture bureaus to second agriculturists to our plantations.