Tom: We’re talking with Michael Woolsey, senior strategic manager for Alltech China. He oversees regulatory affairs and strategic initiatives in Alltech’s largest overseas market. Mr. Woolsey also manages market development activities in Mongolia and Myanmar. We thank you for joining us.

Michael: Good to be here.

Tom: You described China as the ultimate disruptor. Can you elaborate?

Michael: China is the largest overseas market for Alltech, and the pig industry is our biggest customer. Our nutrition solutions for pig farmers account for more than half our sales in China. So, we obviously follow this industry very closely. It’s a massive industry. The revenues of the China pig industry were $160 billion last year. If the China pig industry was a company, it would be number seven on the Fortune 500 — larger than Ford, larger than GM, larger than AT&T.

If you look at the grain that goes into pig farming in China, the amount of farmland is equivalent to the state of California. So, if you take every acre in California to provide grain for China’s pig industry, it still wouldn’t be enough.

There are some really exciting developments going on right now in the China pig industry. Mainly, there’s a massive shift going on. It started about 15 years ago from backyard and small-scale farmers. These farms are being replaced by modern large-scale operations, and this is creating opportunities for a range of businesses that sell to modern pig farms. Everything from equipment, farm building, manufacturers, to genetics, animal nutrition (where we are), to veterinary drugs. Small backyard operations don’t purchase these things and large modern operations do. So, it’s a pretty exciting development right now.

Tom: Smithfield Foods was acquired by a Chinese firm, WH Group. Smithfield accounts for 25 percent of the American pork industry. So, it’s a pretty huge acquisition. What’s the significance for China?

Michael: Yeah. This is a controversial deal both in the U.S. and in China. It was the largest purchase in global animal agriculture history — $7.1 billion, that was the value of the deal.

Four years later, I think there’s evidence that there have been real benefits on both sides. I think for the U.S. pig farmers, they have access to Shuanghui’s impressive distribution network in China. Shuanghui is the biggest meat processor in China. This is access we didn’t have before. And Shuanghui is using their leverage with Chinese retailers to promote American-style pork in a way that’s never happened before in China — hams, bacon, sausages in some exciting and creative ways. And, as a result, we’re seeing record sales of U.S. pork to China right now. Last year’s sales were over $1 billion, up 50 percent from the year before. Nearly all this gain is from Smithfield.

Tom: There’s been some speculation out there that the firm that purchased Smithfield is actually acting on behalf of the government, if not being the government itself. Are you familiar with that speculation? What do you think of it?

Michael: Well, the CEO, Wan Long, he’s actually a member of the National Congress of the Communist Party of China. And he’s the CEO of the largest meat processor and a member of the Party Congress. He’s definitely following guidance from the party.

My first position in China was with the U.S. Embassy back in 2008. Wan Long, the CEO of Shuanghui, invited me to his facility for the weekend. We talked about some of his challenges, and it was interesting. He said he was concerned about the pigs that he was buying in the open market. Shuanghui does not own pig farms, and he was concerned about the inconsistent sizing, the variants, the yields and the carcasses.

He was also really concerned about safety issues, veterinary drug residues and steroids, so he was looking for a safe stream of pork. He asked me, “Would the U.S. government be opposed to my buying a U.S. pig farm?” And I reported the policy that “No, pig farming is not considered a matter of national security and that would be approved.”

I had no idea he was thinking of buying Smithfield at that time. And, four years later, he purchased Smithfield.

But no, there is direction from the party, and all large-scale firms in China are going in this direction. They’re creating global brands.

China has a long history of manufacturing, but they understand that there are more returns in branding and in R&D, that that’s where the real value is. So, the purchase of Smithfield by Shuanghui is an attempt by the largest pork processor in China to capture some added value of a global brand, and there are more purchases on the way.

Tom: China is already the number one animal feed producer, according to the annual Alltech Global Feed Survey, yet much more production is going to be required with the growing middle class. How will they accomplish that?

Michael: Going back to pig farming, there’s a massive shift away from backyard farming to modern scale operations. It’s a development that China has to do. As you mentioned, their farmland is limited, and they’ve got productivity issues. Throughout Chinese agriculture, their yields and productivity are half, or even less, of what you see in the West. The average number of piglets per sow per year is 15. In the West, you see upward of 30 or more.

Their corn yields are half what you see in the U.S. And so, there’s a lot of effort, a lot of policies directed to modernizing Chinese agriculture, bringing in best practices to make sure there’s a reliable supply of safe food for the Chinese. They feel very strongly about self-sufficiency. They feel uncomfortable relying on foreign countries for too much of their food. There are a lot of soybeans coming in, quite a bit of pork. But again, they feel more comfortable if the vast majority of the food that’s consumed in China is produced in China, and they’re taking steps to make sure that happens.

Tom: I think when we think about China, we think about manufacturing, but where in the general scheme of things — the top priorities with the Chinese government — does agriculture figure?

Michael: Agriculture is a critical industry for the party leadership. Again, self-sufficiency is critical. They want to ensure a stable supply of particularly staple products — rice, wheat, corn, and pork is another staple.

When pork prices go up, people notice. It’s the largest meat by far — 63 pounds per person. Number two in China would be chicken at 12 pounds per person per year. And so, ensuring a stable supply of product is really important.

Tom: What is the No. 1 document?

Michael: Every year, the party leadership issues policy documents. The first one they issue every year — the No. 1 document — outlines their work plan for agriculture. It’s indicative of the importance of agriculture to the party, but I have found in my observations of Chinese agriculture policymaking that it’s more of a blueprint. The real work is in other regulatory initiatives, not the No. 1 document. It’s a broad blueprint.

Tom: What importance do environmental and sustainability efforts have in China today? Is there a green revolution of sorts in food?

Michael: It’s a very interesting development the last couple of years. This is an initiative of the administration under Xi Jinping. It started in 2013. They’ve introduced new aggressive measures for water emissions for livestock farming.

They’ve created large zones, particularly in South China, that ban pig farming near sensitive wetlands, the Chinese watershed, also pig farms near residential areas. These are being closed down, and it’s accelerating the trend that I referred to earlier, the smaller farms being closed down, being replaced by bigger farms. The new ones that are opening up are inland. They’re mostly, again, large-scale modern operations, truly massive operations. Some of these are a million pigs and more. So, again, the environmental measures are tough. There are tough standards for minerals, copper and zinc. And a lot of operators are turning to Alltech for our organic minerals to help them cope with these tough emission standards.

Tom: What you just described is the very definition of disruption, I would say.

Michael: That’s right, and Alltech is right in the middle of it, working with our customers to help them meet these requirements.

Tom: There’s been a significant focus by the Chinese government on mineral waste from animal feed. Can you tell us a little bit more about that?

Michael: Again, it’s a part of these new environmental initiatives, where there are some new standards for mineral content and emissions from livestock operations. If an auditor comes out and finds that the mineral levels are above the standard, they don’t issue an environmental permit. They can’t operate. We’re seeing a real spike in our organic mineral sales largely due to these environmental initiatives.

The Chinese — they’re taking additional steps. There’s a draft measure to reduce the amount of minerals allowed in finished feed — copper and zinc. They’re bringing their levels down to what we see in the European Union (EU). For copper, for instance, it’s 25 ppm, which is a significant reduction from where they are today at 150.

Tom: Are Chinese producers facing an increasingly regulated sector, and how are they dealing with that if they are?

Michael: Chinese agriculture has always been heavily regulated, but in China, oftentimes the key is what regulations are implemented. You have lots of regulations, and some are implemented and some are not. The environmental rules are being implemented in a way they weren’t before. It’s a tough environment for Chinese operations.

Tom: And how about representing an American company within that regulatory environment? Does that have its challenges as well?

Michael: For operations in China, we are held to a higher standard on average. When regulations come out, they tend to enforce those on foreign operations before local operations, and it’s a bilateral issue between the U.S. and China. This is in tandem with a new “made in China” initiative. In some sectors, it hasn’t impacted agriculture yet, but in other areas like semiconductors, telecoms, equipment services — they’re introducing policies to make it difficult for multinationals to operate and to make sure that the Chinese companies win out. It’s a warring trend for foreign operations in China.

Tom: This burgeoning middle class, with its burgeoning demand, is that creating opportunities for exports from other countries, including the United States?

Michael: Oh, absolutely. The middle class in China continues to boom. When people are in the middle class, the first thing they do is improve their diet — more meat and other protein, more calories. So, we are seeing in animal agriculture a real spike in the importance of beef, where China is less competitive.

It takes, on average, 8 kilos of grain to raise 1 kilo of beef. Grain prices are higher in China than in other countries.

The U.S. has been blocked from entering China through official channels because of bovine spongiform encephalopathy (BSE), and there’s some movement very recently. We’ll have official access this summer. A lot of beef is coming in from Australia and from the U.S., after they open the market.

Dairy is another big item — a lot of dairy products coming in from New Zealand, Australia, the EU. Infant formula is a $4 billion market for overseas operations. And so, yes, the growing middle class is creating opportunities for countries around the world.

Tom: The Chinese leadership has to think about domestic issues first, but does China have a future larger role in the global food market?

Michael: China is an export powerhouse in a number of sectors, but agriculture is not one of them. It’s not really a focus right now because they’re mostly concerned about ensuring, again, a sufficient supply of food for Chinese people. They’ve actually had export restraints on their ag products in the past. It’s not really a focus to export, but there are some exceptions. They want to make sure they have enough for Chinese consumers.

Tom: China first.

Michael: China first.

Tom: You also focus on the emerging markets of East Asia — Mongolia, Myanmar. What can we expect to see happening in those countries?

Michael: These are the two newest markets for Alltech, and they’re very different. Mongolia, it’s a small market. There are only 3 million consumers. The middle class has only less than a million, but there’s a small, emerging, modern layer in the pig sector that’s creating some opportunities for us. Long term, I think what’s really exciting potentially for Mongolia is exporting beef to the 1.5 billion consumers in East Asia. Right now, they’re prohibited from exporting because of animal disease concerns. They have foot-and-mouth disease, but Mongolia sees the opportunities, and they’ve created a plan that was accepted by the World Organisation for Animal Health. The plan was accepted. They just need to implement it. It takes resources, but maybe in two to three years, they’ll have their beef approved. It could be a billion-dollar item for them in the first year. They have some natural advantages, a lot of grassland for raising beef animals. So, I think long term, that’s probably the most exciting potential opportunity.

Myanmar is a very different market. Much larger — 50 million consumers. Of course, the political reforms in the last year have been a real catalyst for us. U.S. trade sanctions were lifted last year due to the election of Ms. Aung San Suu Kyi. It’s an exciting time to be in Myanmar right now. They had 40 years of military rule. Suu Kyi won with 98 percent support. Imagine what the U.S. could do with 98 percent support for the president. It’s an exciting time in Myanmar. Real opportunities, short term, I think, in layers and broilers and longer-term opportunities in pigs.

Tom: What in your view, Michael, does it take to make wise, successful investments in these East Asia markets?

Michael: I think, first, you have to listen.

Alltech has always been a company that likes to go in first when we see opportunities. And I tell you, the reception that we’re getting in both places — operations are eager to talk with us. They’ve got challenges. They want to hear about best practices from overseas. And so, listening to their challenges and building relationships for the long term, I think that’s what’s key — not expecting the quick return, but being there for the long term. People appreciate that.

Tom: How does China’s disruption and these emerging Asian markets, how does all that affect the average consumer’s dinner table?

Michael: There’s an exciting development related to the Shuanghui purchase of Smithfield.

Shuanghui, their objective, their goal is to increase the amount of chilled meats that they’re selling. Right now, only 30 percent of Shuanghui’s meat sales are chilled. The 70 percent — it’s the traditional marketing channels of warm carcass that’s cut up and sold in wet markets. The margins are obviously a lot lower. And so, one of their strategies for increasing their chilled meat segment — they’ve partnered with an e-commerce company called JD.com. This company is doing some exciting things. They’re creating a cold chain system, a warehouse and distribution cold chain system from the warehouse to the customer, selling fresh chilled foods, including packaged meats. Smithfield, Shuanghui, they have a strategic cooperation agreement to sell packaged Smithfield meats through jd.com. So, if a customer in the morning decides they want to have hot dogs from Smithfield for dinner that night, they bring out their cellphone, dial up JD.com, order the hot dogs, and the truck shows up later that afternoon. Chilled distribution the entire way to the consumer’s door. So, it’s a superior product. It’s what consumers want. It’s an exciting development.

Tom: It’s pretty amazing. I guess it’s not beyond imagination that someday a drone will show up. What about your work do you enjoy the most?

Michael: Well, in China, every day there’s a new challenge.

My last tour in the foreign service was Beijing. And when that tour was over in 2011, I had a choice to return to Washington or retire from the foreign service and do something else and stay in China. That was an easy decision. And so, I stayed in China. There’s just so much going on in agriculture in China. It’s a challenging market, but, again, a lot of opportunities. And at Alltech, we’re a part of this revolution in animal agriculture in China. And so, it’s very exciting.

Tom: Michael Woolsey, senior strategic manager for Alltech China. We thank you for joining us.

Michael Woolsey spoke at ONE: The Alltech Ideas Conference (ONE17). To hear more talks from the conference, sign up for the Alltech Idea Lab. For access, click on the button below.

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This story on agricultural journalism is a guest post by Caroline Stocks. Be sure to visit her bio by clicking above on the author link for more information. Thanks, Caroline!

Whenever I tell people I’m an agricultural journalist, I always brace myself for the barrage of questions that invariably follow.

“Do you just write about cows all day?” is a common place to start, usually followed by: “Are there enough farmers in the U.K. that they need their own newspaper?”

If the person I’m speaking to is a bit rude (which, sadly, happens quite often), they’ll even ask: “You write about farming? Didn’t you want to be a proper journalist?”

For the majority of people who live and work in a city, agriculture is a little-known industry. As long as the shelves are stocked when they nip to Sainsbury’s after work, few people think about where their food comes from, let alone how it’s produced.

From urban life to an unexpected career in agricultural journalism

It’s an issue I can speak on from experience. I grew up in a city, studied journalism at university and ended up writing about farming purely by accident.

Before I became a farming journalist, the closest I’d come to agriculture was once buying eggs from a farm shop and hearing The Wurzels on the radio.

But once I got into the industry, I was fascinated by all the stories there were to tell, and I became determined that I was going to share them with as many people as possible.

From covering government policies, environmental issues, and business and economics to livestock production and crop science, I love the breadth of what I get to write about.

I also love the chance I have to tell people about the work and passion that goes into producing the food we eat.

For too long, the focus has been on getting our food to be as cheap as possible without really thinking about the consequences, not just to farmers’ businesses, but also to the environment and the public’s health.

I see my job as being not only to inform farmers about the developments in their industry to help them drive more efficient, profitable businesses, but also to help build that lost connection between farmers and their customers.

Critical questions represent an opportunity to “agvocate”

It’s a belief that I know many agricultural journalists around the world share.

Over the past decade, my job has taken me across Europe and further afield to countries including India, Australia, Canada, Tanzania and the United States to report on farming issues and meet other agri-journalists.

Without fail, I’m always struck by the fact that not only does every country’s farming industry have similar concerns and issues, but every single producer and agri-journalist shares the same passion for what they do.

So, yes, it may not seem like a quirky job to an outsider, but I see every one of the daft questions they ask as an opportunity to tell them about how great the industry is.

And if I can say I spent this past summer travelling through Germany, Italy and France meeting some fascinating people and learning about some incredible businesses, then I’m happy I decided against being a “proper journalist.”