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Business

As the world grows hungry for meat, an industry consolidates

TOKYO -- It is becoming harder for meat packers to sate the world's appetite for sizzling patties of protein. This is the takeaway from Tuesday's announcement that Japan's Itoham Foods and Yonekyu will integrate their management in April.

     Surging meat consumption in emerging countries such as China probably prompted Japan's second- and seventh-largest meat packers to tie the knot.

     The basic agreement provides for the meat packers to establish a joint holding company and for them to become subsidiaries of the holding company. Under the deal, one share of the joint holding company's common stock will be allocated for one share of Itoham's common stock, while 3.67 shares of the joint holding company's common stock will be offered for one share of Yonekyu's common stock.

     Mamoru Horio, president of Itoham, will serve as the representative director of the holding company; directors are expected to be appointed on a two to one ratio between Itoham and Yonekyu.

     Other details, including the holding company's name, will be determined by early November. Due to the merger, Itoham and Yonekyu will be delisted from the Tokyo Stock Exchange on March 29.

     The new company's annual sales are expected to exceed 600 billion yen ($4.94 billion); this will give it a huge lead over Japan's No. 3 meat player, Prima Meat Packers.

     The merger is not an attempt to shore up struggling businesses. Both companies are doing well, with Itoham having posted its highest-ever net profit in fiscal 2014.

     Despite its good financial results, however, Japan's meat industry is being driven by a sense that crises await in the years ahead. Part of this sense comes from Japan's shrinking population and the corresponding decline in domestic demand.

     More concerning, however, is the surging appetite of emerging countries, especially China, which is consuming more and more meat as its population becomes increasingly better off.

     An official of a leading meat processor said meat packers around the world have been fiercely vying for pork, chicken and beef on the international market. It is becoming ever more difficult for meat processors to secure enough animal flesh for their customers because "China has been sweeping all of it away," the official said.

     In other words, it's a strong sellers' market. That is bad news for carnivores; it means higher prices. The price for Japan importing frozen American beef short plate -- a cheap and fatty cut -- shot up 90% to roughly 1,100 yen per kilogram in 2014.

     Other cuts are also gaining in price. The price of beef tenderloin from the U.S. this summer increased 30% year on year to around 4,600 yen per kilogram.

     Pork prices also rose last year as diseases spread among pigs, and they may continue their incline if the growth in demand from emerging countries does not slow. Pork is widely used in processed foods.

     According to forecasts from the Organization for Economic Cooperation and Development as well as the U.N. Food and Agriculture Organization, Chinese are expected to eat 8.5 million tons of beef and 61.8 million tons of pork in 2023. That would be 20% more beef and around 30% more pork than the average of what they consumed in each of the three years through 2013.

     Meat consumption in Japan, on the other hand, is expected to increase only a few percentage points through 2023.

     In a bid to tackle the increasingly competitive international market, Itoham and Yonekyu have been complementing each other's operations since 2009. Their business alliance also includes trading house Mitsubishi Corp., both companies' top shareholder. Itoham has particular strength in the beef and pork categories, while Yonekyu specializes in pork and chicken.

     But the two meat packers have apparently determined that a more drastic structural reorganization is necessary if they are to boost their competitiveness.

     Once the integration is completed, combined annual meat sales are expected to shoot up to around 500 billion yen. This includes sales of Anzco Foods, a leading meat processor based in Christchurch, New Zealand, that Itoham turned into a subsidiary in March. If the sales from Mitsubishi's livestock business are also included, the three companies' total annual meat sales would reach around 1 trillion yen, significantly higher than those of Japan's largest meat packer, NH Foods.

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