I See through Everything

If they didn’t use Hailufeng Company’s patented feed, the farming cost for their Egyptian Catfish would rise to two yuan per kilogram, and the crude protein content of the meat would only be around 20-22%.

Although there were some small domestic fish meal factories that could keep costs down to 4,000 to 5,000 yuan per ton.

How did they manage that?

By using scraps and semi-rotten seafood that the markets rejected, of course. The quality of this type of fish meal was extremely poor. Not only did it spoil very quickly, but it also easily caused illness in the aquatic life, livestock, and poultry that consumed it, or resulted in poor fattening effects.

Furthermore, since this fish meal was produced by small factories, their production capacity was highly unstable, making large-scale supply impossible.

A large-scale feed manufacturer like Haida Group would never purchase such low-quality fish meal.

As for imported fish meal, even in the cheapest years, the landed price for the lowest-grade Peruvian fish meal with 65% crude protein started at 6,000 yuan per ton.

In other words, even if Haida Group accepted Hailufeng Company’s take-it-or-leave-it contract, their total cost per ton of fish meal would only be 6,000 yuan.

What mattered was securing a supply of core raw materials. For Haida Group, that was the most critical factor.

Otherwise, at the slightest hint of international trouble, prices for fish meal, soybean meal, and corn would soar, and they would once again be on the back foot, watching a huge chunk of their profits get devoured.

Without their own raw material supply channels, they sometimes lacked any bargaining power at all.

Currently, of the top ten international fish meal producers, aside from the second-ranked Kekabin Company, which had been acquired by Zhongyu Group, the other nine were all foreign enterprises with inextricable ties to the "ABCD" big four grain traders and Western capital.

To break out of this predicament, Haida Group had to cooperate with Hailufeng Company.

Xue Hua quickly moved on to another potential collaboration. "We’d like to partner with Hailufeng Company to research even more advanced feed. What are your thoughts on that, General Manager Jiang?"

However, Jiang Miao shook his head. ’I know my research style is... unconventional.’ If he were to collaborate with Haida Group, the researchers they sent over would likely notice something was off. He therefore rejected the proposal:

"General Manager Xue, that kind of joint R&D is too much trouble. Patent rights, capital investment ratios, contributions from each side’s researchers, technological confidentiality... all of these things can easily become problematic."

"Fair enough." Xue Hua knew such matters were difficult.

After all, Hailufeng Company had superior technology, while Haida Group had immense scale. When it came to the R&D project, the question of who had the final say could easily lead to conflict.

He settled for the next best thing. "General Manager Jiang, I have the utmost respect for your company’s R&D prowess. If you ever develop a feed that requires mass production, we at Haida would be happy to offer our services as a contract manufacturer."

"That’s something to consider." Jiang Miao nodded with a smile.

’Contract manufacturing is certainly an option sometimes,’ Jiang Miao thought. ’Especially when you need to ramp up production capacity in a short period. A large-scale feed producer like Haida Group would have plenty of idle capacity.’

’If I were to build my own factory, the timeline would be much longer and the initial costs would skyrocket.’

’But I can’t completely trust these contract manufacturers. What if they run into problems or suddenly terminate our agreement? It would disrupt my company’s feed supply.’

’That’s why even if I use Haida Group for contract manufacturing, Hailufeng Company still needs its own factory to prevent getting caught in a supply disruption due to some unforeseen event.’

From their conversation, Xue Hua had begun to get a read on Jiang Miao’s personality and way of doing things. He was clearly someone with a strong need for control—otherwise, he wouldn’t have registered his company as a sole proprietorship. Based on that, Xue Hua could guess that he would never completely entrust his feed production to Haida Group.

He smiled and changed the subject. "General Manager Jiang, do you have any plans to develop other types of fish feed?"

"We do, but that will take time." Of course, Jiang Miao wasn’t about to say that he already knew the genetic makeup of most aquatic species and could formulate feeds tailored specifically to their genes.

’One step at a time, after all,’ he thought.

’If I launch too many high-efficiency feeds at once, it won’t just disrupt the market; it will attract unwanted attention. That’s not something I want.’

"By the way, General Manager Jiang," Xue Hua said, not wanting to miss the opportunity, "that feed formula your company has—the one that eliminates geosmin in Egyptian Catfish. Could you license that to us as well?"

Jiang Miao glanced at him. "So, General Manager Xue, you want to get rid of the earthy taste in the Egyptian Catfish? To prevent high levels of geosmin from affecting sales, I assume?"

"Exactly." Xue Hua didn’t deny it.

"It’s not impossible, but your production costs for the Egyptian Catfish would increase. Even with your feed cost advantage, the total cost per kilogram would still be around 3.3 yuan. Add in our licensing fee, and the total cost per ton of fish meal would reach 11,200 yuan."

Hearing this, Xue Hua realized he had oversimplified things.

’If it were that simple, Jiang Miao would have done it himself long ago.’

A cost of 11,200 yuan per ton for fish meal would certainly be profitable—enormously so—given the current international price of 17,000 yuan per ton.

The problem was that the international fish meal market price was influenced by several factors. First, the volume of the sardine catch at the Peruvian Fishery. Second, the purchasing volume of feed producers. And finally, the large fish meal producers could also band together to manipulate market prices.

If Haida Group started producing fish meal on a massive scale using Egyptian Catfish, the international market price for fish meal would surely plummet.

In that scenario, if Haida Group’s cost was 11,200 yuan per ton, their fish meal and related feeds would lose their competitive edge the moment the international price dropped below that level.

Conversely, the initial cost of 6,000 yuan per ton was the most competitive option.

After all, during the cheapest periods, the landed price for fish meal transported from Peru to the coastal ports of East Asia was only 6,000 yuan per ton.

If competitors continued to lower their prices, Haida Group could request a reduction in the licensing fee from Hailufeng Company—a supplementary clause Xue Hua had insisted on.

This was primarily a precaution against a potential price war.

The production cost of Peruvian fish meal wasn’t low. Transportation alone from the coast of Peru to the coast of East Asia cost between 840 and 1,000 yuan per ton. This was a fixed cost that was very difficult to reduce.

Xue Hua knew an executive at Zhongyu Group who had revealed some information about Kekabin Company, which Zhongyu Group controlled. For instance, the gross profit on Peruvian fish meal was roughly 200 to 1,000 yuan per ton.

This meant that in the years with the lowest prices, even if the Peruvian fish meal producers were willing to break even, their selling price could not drop below 5,000 yuan per ton. Anything lower would mean selling at a loss.

Meanwhile, Haida Group’s production cost was 4,400 yuan per ton, plus the 1,600 yuan technology licensing fee paid to Hailufeng Company.

If necessary, the only way to maintain a price equilibrium would be to reduce the licensing fee paid to Hailufeng Company.

After lunch.

By evening, the legal teams from both sides had finalized the relevant terms.

Jiang Miao and Xue Hua, representing Hailufeng Company and Haida Group respectively, signed the strategic cooperation agreement.