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Cablegate: Hao Yue Islamic Beef Revamps Domestic Strategy To

VZCZCXRO1536
PP RUEHCN RUEHGH RUEHVC
DE RUEHSH #0084 1760054
ZNR UUUUU ZZH
P 240054Z JUN 08
FM AMCONSUL SHENYANG
TO RUEHC/SECSTATE WASHDC PRIORITY 8437
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY 0814

UNCLAS SHENYANG 000084

SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV EAGR CH
SUBJECT: HAO YUE ISLAMIC BEEF REVAMPS DOMESTIC STRATEGY TO
LIMIT RETAIL PRICE JUMPS

1. Summary. Hao Yue Islamic Beef Company (one of the
largest beef companies in China) has changed its sales
strategy in order to control retail prices and take advantage
of beef's increasing importance in the Chinese diet. While
Hao Yue previously serviced the domestic market by selling to
wholesalers, the company now employs a domestic sales staff
which sells directly to major retailers, including Carrefour
and Taiwan-based RT Mart. Hao Yue is German retailer Metro's
sole supplier of beef and mutton and sells a wide variety of
processed beef and mutton products to other major retailers
throughout China. Additionally, the new sales force now
sells directly to major hotels and restaurants. Despite some
initial cost increases, the company has been able expand
margins without adversely impacting retail prices. End
Summary

2. During Econoff,s visit to Hao Yue's processing facility
in Changchun, the President of Hao Yue Group, Mr. Cong
Lianbiao said that Hao Yue processes all of its beef and
mutton products to meet both Halal Islamic standards and
China's domestic standards. By far the largest domestic
customer is U.S.-based McDonalds Corporation: Hao Yue
provides more than ninety percent of McDonalds-China's beef
products. Mr. Cong added that the company's primary export
market is the Middle East but that the market is growing in
Southeast Asia as levels of beef consumption increase,
especially in Indonesia and Malaysia.

3. Rising domestic demand, coupled with food-price
inflation, prompted Hao Yue to completely revise its domestic
sales strategy, which now employs a domestic sales force to
market directly to retail and service industry outlets. The
increase in staffing and packaging costs was more than offset
by eliminating the wholesalers' cut, which allowed Hao Yue to
slightly increase margins while alleviating retail price
pressure.

4. Hao Yue Group, which began operating in January 2000,
employs 3,250 people, of whom forty percent are Muslim. Hao
Yue Group exports to 21 countries and regions, primarily in
the Middle East and Southeast Asia. During 2008 the company
will open new markets in Brunei, Macao, Israel, and Egypt.
Exports account for 20-25 percent of total production. The
company's domestic large-contract customers are large-scale
supermarkets and franchises like McDonalds.

5. Hao Yue processes 500,000 cattle and 300,000 sheep, in
addition to 600,000 tons of feed and 500,000 pieces of
leather per year. The company also produces 100,000 tons of
Chinese and European-style Halal cooked foods as well as 73
varieties of processed agricultural products. The Group has
its own cattle ranches, feed lots and large-scale breeding
operations in Jilin Province, all within 200 kilometers of
Hao Yue Group's headquarters.

6. Jilin Provincial Livestock Bureau is the lead regulatory
and certification agency for Hao Yue. In May 2004, a
13-member delegation from the U.S. Department of Agriculture
was scheduled to visit Hao Yue's plant but was unable to
complete the visit due to flight unavailability. The new
sales plan involves agreeing with large-contract customers,
including McDonalds and Metro, to allow customer inspection
teams full access to the plant. The company would welcome a
visit by U.S. inspectors.

7. The cattle processing plant is new, clean and extremely
high-tech. Cattle are processed with a minimum of human
interaction. Robotic devices are used for hide and hoof
removal and for vivisection reduction to beef sides. Waste
collection is also automated and highly efficient. A whole
carcass can be processed to two sides in less than two
minutes.

8. While much of the finer work is done by hand, all product
is moved on modern conveyors. Each level of processing is
isolated from adjacent operations by means of air locks and
physical barriers to prevent contamination. Automatic
cleaning systems keep floors clean and free of debris, and
all workers wear gowns, gloves and masks. Each processing
room has glass walls, so that managers can observe without
introducing contaminants to the system.

9. Like the plant itself, facilities for the workers appear
to be first rate, with on premise dormitories, recreational
facilities, and a fully equipped hospital. The employee
community is centered on the company mosque, which is
available to the local Muslim community as well as the Muslim
members of the company's work force.
SWICKMAN

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