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China's new development and investment frontier
As they continue to move up the economic ladder Chinese people today consume much more protein than
they used to. It is estimated that in the next five to seven years China’s meat and dairy consumption will
increase by more than 35%. This increase in consumption is driving a growth in demand for high-quality
forage such as alfalfa to be used as feed for livestock. China’s current annual demand for alfalfa far
outstrips domestic supply, with the shortfall made up by imports from the Americas. Demand for alfalfa
continues to rise as producers struggle to keep up with consumers appetites for high-quality meat and
dairy products.
Global Leaders Programme Round-upHong Kong & Gansu 7-18 July 2014
For almost two decades the Chinese government has been promoting alfalfa cultivation in dry
mountainous areas where the soil is not fertile enough for other crops to grow. Until recently cultivation of
alfalfa has primarily been for self-use and there was no formalised domestic alfalfa market. To meet the
agricultural needs of a large population and to prevent soil erosion and further desertification huge
swathes of mountainous land around china and particularly in the northwest have been “landscaped” to
allow for cultivation of crops. Rapid urbanisation in recent years has left a lot of arable and previously
landscaped land unattended. Although this land is suitable for alfalfa cultivation much of it is going to waste
and over time returns to its natural arid and barren state. The lack of rural labour is compounded by a lack
of mechnisation for harvesting, mainly due to the inaccessible mountainous terrain. Not only is harvesting
alfalfa by hand labor intensive and time consuming, it also impacts the crop quality as the plants protein
levels peak for only a short period of time and it is prone to spoiling if not pressed dry and processed
quickly.
Alfalfa: Perennial flowering legume cultivated globally as a forage crop, alfalfa is known as the “queenof forages” for its high protein, vitamin and mineral content as well as its highly digestible fiber. It isprimarily used as forage for high producing dairy cows and is also used in feed for cattle, sheep, rabbit,poultry and fish farming. Alfalfa has been scientifically proven to positively impact milk productionyields, protein content and overall cattle health.
Lanzhou, the provincial capital of Gansu, is built on the banks of the Yellow River. Over 60% of the population of Gansu lives in the countryside and the government has undertaken large-scale landscaping projects to increase the availability of arable land.
During the experiential component of the 36th
Global Leaders Programme (GLP) participants
worked closely with Gansu Modern Forage
(GMF), a leading Chinese producer, processor
and merchant of alfalfa products for the domestic
Chinese animal feed and animal husbandry
markets.
GMF was established in 2009 by one of the
founding shareholders of China’s top dairy
company Mengniu and last year achieved sales of
over RMB100 million. Over the course of the
GLP the participant group developed
recommendations for the company to strengthen
its supply chain and scale up its production to
achieve sales of RMB1.3 billion in the coming five
years.
Participants came from a variety of national and professional backgrounds including companies and
organisations such as HSBC, ORIX Corporation, Indonesian conglomerate Astra International, German
think tank the Heinrich Boell Foundation and Harvard University. They would have to learn to form a
high performance team, communicate across cultural boundaries and work together to produce a high-
quality output with real world implications.
Participants were given the opportunity to listen to GMF Founder and Chairman Zhang Yuping talk about his reasons for entering the alfalfa business and his long-term vision for the company. They were also treated to a guided tour of GMF’s pellet factory.
Gansu Modern Forage operates an alfalfa pellet production plant and storage facility in Dingxi Prefecture, 100 km from Lanzhou.
Capturing the alfalfa opportunity in Gansu
Before traveling to Gansu province, participants spent a rigorous week in Hong Kong questioning
assumptions about the roles of business and government in society, the impacts of globalisation and the
various adaptations of capitalism around the Asia region. They engaged in dynamic discussions on some
of the most pressing business issues of our time including the under pricing of natural resources,
externalities and the shifting social contract between the public, private and civil sectors.
Prominent speakers also offered their diverse perspectives on a variety of topics. Mr. Graham Barkus,
Head of Organisation Development & Change at Cathay Pacific Airways and Swire Properties, shared
insights and tools that leaders in large organisations can use to make the case for change when outdated
success models need to be replaced with a new approach. Ms. Ada Wong, JP, a staunch advocate of
creative education and cultural development and founder the non-profit Hong Kong Institute of
Contemporary Culture led a discussion on the rise of civil society and its impact in Hong Kong and
Mainland China. Professor Thomas Abraham, Director of the Master of Journalism Programme at the
University of Hong Kong and a former Editor of the South China Morning Post spoke about the critical
role of media in society and how new media is impacting the lives of everyone today.
Chandran Nair, Founder and CEO of GIFT, facilitates a discussion around some of the key challenges leaders of large organisations are facing in the 21st century
In the classroom – challenging conventional wisdom
Speakers including Mr. Graham Barkus and Ms. Ada Wong, JP led interactive sessions and encouraged participants to think differently about their own roles as leaders and the world around them.
Gansu Province is situated on the upper and middle reaches of the Yellow River in northwest China.
Similar in size to California and larger than Japan, Gansu once played a significant role as a trading center
and hub for cultural exchange along the Silk Road. It still has a rich cultural landscape shaped by Han
Chinese, Islamic, Taoist and Tibetan Buddhist influences. Like much of Western China Gansu’s economic
development has lagged behind the eastern coastal provinces and today its GDP per capita ranks 30th
out of 31 provinces. Over 60 per cent of Gansu’s 26 million residents live in rural areas and rely on
agriculture for their livelihoods.
Participants met with farming communities,
cooperatives and other key GMF stakeholders
including government officials, agricultural
machinery providers and financial institutions to
get a better understanding of the challenges and
opportunities in the alfalfa value chain.
The key issues they identified were a lack of
access to capital and appropriate mechanised
harvesting solutions among farmers and
collectors. They also saw a need for GMF to
formalize and strengthen existing relationships
with its key suppliers and create a new supply
chain model to access increasingly higher
amounts of alfalfa every year if scale was to be
achieved.
GMF’s operational hub and alfalfa pellet plant is in
Dingxi prefecture, one of the nations least
developed areas situated 100km from the
provincial capital Lanzhou. A 25 year veteran of
the dairy industry, GMF founder and chairman
Zhang Yuping has, since the company’s inception,
worked closely with alfalfa farmers, collectors and
agricultural co-ops as well as leading national
research bodies to improve the quality and
quantity of alfalfa produced locally.
Aligning interests along the alfalfa supply chain
Participants meet with an alfalfa farmer in Dingxi
Local government officials introduce their village in Hancha, Huining County to the group
The team meets with management at the Agricultural Bank of China in Dingxi city
After sites visits, focus groups and information gathering, participants worked intensively to produce
their strategic recommendations for GMF. The report describes an opportunity for GMF to grow 50%
p.a through 2019, see a tenfold increase in sales volume and achieve sales and net profit of RMB1.3
billion and RMB144 million respectively.
The group’s key recommendations to GMF include:
– Focus on the production of alfalfa pellets to take advantage of rising demand from the animal
husbandry sector, using as raw material medium quality alfalfa which can be cultivated on large
tracts of rain fed mountainous land in Gansu
– Differentiate through an inclusive business model by establishing cooperatives of alfalfa collectors
and farmers and offering these key suppliers shareholding in the parent company to strengthen the
value chain and secure consistent supply of alfalfa
– Enter into a strategic partnership with an agricultural machinery provider to develop and distribute
appropriate technology such as alfalfa harvesters customised for use on mountainous terrain and
pulley systems for more efficient transport of alfalfa
– Acquire and retain a strong management team and consider offering shareholding to instil a sense of
ownership and shared success
– Work alongside the government and farming communities to promote the utilisation of unused
mountainous land for alfalfa cultivation by demonstrating through its business model the potential
benefits of alfalfa cultivation for rural development
– Approach financial institutions for access to working capital in the value chain and socially oriented
investors with an interest in rural development to provide for rapid expansion of operations.
An inclusive business model for shared success
Participants endured long days and short nights and put their leadership skills to the test as they came to a consensus on the key elements of their recommendations for GMF
At the end of the two-week programme,
participants presented their findings at a forum
co-hosted by GMF and GIFT.
Amongst the 120 attendees were senior
provincial officials in charge of agriculture,
private sector leaders and media, all of whom
showed great interest in the topic given its
potential to support rural development in Gansu.
Some local farmers and representatives of Co-
ops who met with participants traveled hundreds
of kilometers to attend the forum. Guest
speakers included Mr. Wu Wenbin, Director of
the Gansu People’s Congress Agriculture
Committee (above right) and Mr. Li Hui, Vice
President of Gansu Investment Group.
The ideas outlined in the final report are being considered by Chairman Zhang and his team and it is
hoped they can help GMF to achieve its long term vision of becoming China’s top forage producer and
improving the livelihoods of farmers and supporting rural development in the process.
Sharing the opportunity with a wider audience
For more information on this project or the Global Leaders Programme in general please contact GIFT’s
Head of Programmes Karim Rushdy at [email protected] or +852 3571 8134