Xinjiang Tianshan Animal Husbandry Bio-Engineering Co.Ltd(300313) : Announcement on the reply to the letter of concern of Shenzhen Stock Exchange

Securities code: 300313 securities abbreviation: Xinjiang Tianshan Animal Husbandry Bio-Engineering Co.Ltd(300313) Announcement No.: 2022-015 Xinjiang Tianshan Animal Husbandry Bio-Engineering Co.Ltd(300313)

Announcement on the reply to the letter of concern of Shenzhen Stock Exchange

The company and all members of the board of directors guarantee that the information disclosed is true, accurate and complete without false records, misleading statements or major omissions.

Xinjiang Tianshan Animal Husbandry Bio-Engineering Co.Ltd(300313) (hereinafter referred to as “the company”) received the notice on Xinjiang Tianshan Animal Husbandry Bio-Engineering Co.Ltd(300313) issued by the management department of gem company of Shenzhen Stock Exchange on January 29, 2022 (GEM notice [2022] No. 95, hereinafter referred to as “the notice”). The reply is hereby announced as follows according to relevant requirements:

1、 Overview of young cow business

(I) analysis of beef cattle industry

1. Beef consumption continues to grow, and China’s output is in short supply

China’s beef consumption is growing rapidly, and there is still much room for growth compared with other countries. With the continuous improvement of China’s per capita beef consumption and the growth of the total population, China’s beef consumption increased from 6.0424 million tons to 8.668 million tons from 2011 to 2020 (data source: OECD), with an annual compound growth rate of 4%, much higher than the annual compound growth rate of global beef consumption of 0.77% in the same period. In 2020, although China’s per capita beef consumption increased to 6.3 kg / person (data source: USDA), it is far lower than the per capita consumption of 55, 39, 36 and 15 kg (data source: USDA) in Argentina, Brazil, the United States, the European Union and other leading beef consumption countries, and also lower than the per capita consumption of Japan, an East Asian neighbor (10 kg / person), Only higher than India, where most residents do not eat beef for religious reasons, has greater room for improvement.

The shortage of beef in China is increasing year by year. From 2011 to 2020, China’s beef production increased from 6.1071 million tons to 6.72 million tons (data source: National Bureau of Statistics), with an annual compound growth rate of 1.07%, far lower than the annual compound growth rate of 4% of China’s beef consumption in the same period. Especially since 2012, the relationship between China’s beef production and consumption has broken the long-standing tight balance, and the consumption gap has increased rapidly. From 2012 to 2020, China’s beef consumption gap increased from 50500 tons to 2.069 million tons (data source: China Customs), with an annual compound growth rate of 52.25%, In 2021, China’s beef consumption gap reached nearly 2.33 million tons (data source: database of China Academy of commerce industry), accounting for 25% of the total beef consumption in that year.

2. Beef cattle expansion is imminent, and government policies at all levels are frequent

Although import substitution can make up for the gap of Chinese beef to some extent, China’s beef import in 2021 has accounted for 20% of the global beef export. Considering food safety, international relations, covid-19 epidemic and other factors, it is imperative to improve the self-sufficiency rate of beef. It is difficult to realize the rapid growth of beef cattle and the short time of stocking due to the long breeding cycle. Simply increasing the amount of slaughter is tantamount to killing chickens and eggs and fishing in dry waters. The essence of improving the beef self-sufficiency rate lies in the double increase of China’s beef cattle stock and slaughter, so as to meet the increase of China’s long-term demand. To sum up, we must base ourselves on the current situation of China’s beef cattle industry, steadily and gradually expand the market, so as to lay a solid foundation for the long-term and healthy development of the industry.

The general office of the State Council issued the opinions on promoting the high-quality development of animal husbandry in September 2020. The opinions put forward that animal husbandry is an important industry related to the national economy and the people’s livelihood, and has played an important role in ensuring national food security, prospering the rural economy and increasing the income of farmers and herdsmen; In specific aspects, it is proposed that the beef self-sufficiency rate will reach about 85% by 2025.

The Ministry of agriculture and rural areas issued the five-year action plan for promoting the production and development of beef cattle and mutton sheep in April 2021. The plan points out that China’s beef cattle and mutton sheep industry has poor foundation, long production cycle and backward breeding methods. The production and development can not meet the needs of rapid consumption growth, and the supply of beef and mutton is under certain pressure; Accordingly, it is proposed to expand the production capacity of basic female livestock, promote the construction of improved variety breeding system, and develop standardized breeding on an appropriate scale.

Xinjiang Uygur Autonomous Region has issued the “14th five year plan” for the development of animal husbandry in Xinjiang Uygur Autonomous Region, which will optimize the layout of beef cattle production. Adhere to the combination of agriculture and animal husbandry, animal husbandry and breeding, and strive to improve the production system of beef cattle self breeding. By 2025, the number of beef cattle will reach 15 million, the stock will reach 8 million, the proportion of large-scale breeding will reach more than 50%, and the beef output will reach 900000 tons.

The Kashgar regional office issued the implementation plan for promoting the high-quality development of animal husbandry in Kashgar in February 2021, which proposed that Kashgar should vigorously implement the action of increasing beef cattle production based on the beef cattle breeding center, and increase the number of beef cattle in the whole region by 1.3 million in five years (at present, Kashgar has only about 700000).

3. Cows are the origin of the expansion of fences, and large-scale breeding has set sail steadily

“If the cow industry is large, the beef industry is strong”. Cows are the basis for the development of beef industry. Without cows, there will be no calves, let alone fattening cows. The lack of systematicness of cows is the biggest problem facing China’s beef industry at present. In 2020, the price inversion between calves and fat cattle was further intensified, which truly reflected the relationship between the insufficient production capacity of cows (small stock and low reproductive efficiency) – the insufficient supply of calves and the strong demand for beef – the market urged fat cattle to increase livestock – and the increase of beef production.

By the end of 2019, the total stock of beef cattle in China was about 91.38 million, including about 31.5 million cows. In 2009, the stock of cows had reached 32 million. In the past 10 years, the stock of cows did not increase but decreased. Due to the long cow breeding cycle, large investment, slow return and high requirements for breeding management, China’s large-scale cow breeding is still in an extremely primary stage, and cow breeding enterprises are rare, and most of them rely on the industrial support of the government, and most of the cows are hidden in the people. Despite the high price of beef in recent years, the enthusiasm of Lbx Pharmacy Chain Joint Stock Company(603883) for breeding cows and calves has not increased. On the contrary, the price fluctuates slightly, and farmers tend to eliminate cows in advance (sold to slaughtering enterprises as fattening cattle). In recent years, the slaughter of beef cattle has rebounded slightly, but to a considerable extent, it depends on the transitional elimination of cows, which is tantamount to drinking poison to quench thirst. The breeding cycle of female cattle is long. Once there is a significant decline, it cannot be recovered in a short time.

It is against this background that governments at all levels pay more attention to cow breeding and take a variety of support measures in expanding basic mother groups and introducing improved breeds of cows, in order to lay a solid foundation for China’s beef cattle industry. At the same time, capital and enterprises began to enter the cow industry. It is understood that in March 2021, Changchun chengkai agricultural investment (Group) Co., Ltd. invested 3.2 billion yuan to build a green recycling beef cattle industry demonstration park in bajilei Town, Nong’an County, and planned to build five thousand cow breeding bases; In March 2021, 492 heiford heifers imported by Pengxin group from New Zealand have been transported to China, and 8000 heifers will be transported in succession.

In October 2021, the cattle pastoral complex project of Hualing group settled in Baicheng county. The total investment of the project will reach 4.5 billion yuan. The beef cattle breeding scale is planned to reach 60000. At present, there are more than 2000 breeding cows.

(II) business analysis of young cows

1. Analysis of beef cattle industry chain

Figure 1 business flow chart of beef cattle industry chain

Beef cattle industry chain has many links, long chains and many industries involved (see Figure 1). The upstream is genetic breeding, forage and additives, animal protection and epidemic prevention, the midstream is breeding, which is usually divided into cow breeding (breeding) and bull breeding (fattening), and the downstream is slaughtering, processing, circulation and sales. In the whole industrial chain, the upstream and downstream outputs are standardized products, and the industry is mature and the pattern is stable. China’s beef cattle breeding industry is still in a relatively primitive, scattered and weak state compared with other breeding industries such as dairy cows, pigs and chickens. According to the data disclosed by the technical system Office of beef and yak industry, at present, the total stock of more than 1000 large-scale breeding (regardless of breeding and fattening) pastures in China accounts for only 4% of the national stock, and large-scale breeding is still in its infancy. 2. Business model of beef cattle breeding

Beef cattle are divided into cows and bulls by sex. Cows are mostly used for breeding and bulls are mostly used for fattening and breeding. According to their growth characteristics, the different growth stages of cows and bulls are shown in Table 1 and table 2.

Table 1 growth stages of cows

Sequence number stage division

Lactating calves: calves that are still lactating from 0 to 4 months

1 calf

Weaned calves May June, weaned calves

2. The bred cattle are sexually mature from July to December, but the body is immature and cannot be bred

Young cows bred for 13 months – mating, body maturity, initial mating above 350 kg

3. Early pregnancy of young cows, the first 6 months of pregnancy of young cows, and the first pregnancy of cows

Late pregnancy: 7 months of gestation – calving, the transition period from young cows to adult cows

After the first birth of adult fertile cows, they enter the cycle of circular production

5. Eliminated cows do not have calving ability (usually fail to breed for 4 consecutive times)

Table 2 growth stages of bulls

Sequence number stage division

Lactating calves: calves that are still lactating from 0 to 4 months

1 calf

Weaned calves May June, weaned calves

2 shelves of cattle from July to October, about 300 kg

3. Fattening cattle can be put out of the market from November to 18, with a general weight of about 700 kg

Cow breeding and bull fattening are two businesses with completely different business logic (see Figure 2). In the process of breeding, cows are a kind of production tool. They can calve after pregnancy. If calves are produced, they can be sold directly or self raised into shelf cattle. The sales object is fattening enterprises (individuals); If female calves are produced, they can be used for self breeding, self breeding and expansion, or raised into young cows and sold to breeding enterprises (or individuals); At the same time, being able to breed adult cows also has commercial value and can be sold to breeding enterprises (or individuals); In addition, for eliminated cows that have lost their breeding ability, they can usually be sold to fattening enterprises and slaughtered after fattening. The purpose of fattening is to fatten calves or shelf cattle. Enterprises (or individuals) fatten calves or shelf cattle by purchasing them in breeding enterprises or live animal trading markets, and then sell them to slaughterhouses according to market conditions and cattle weight.

To sum up, there are five types of breeding products: male calves, shelf cows, young cows, adult cows and eliminated cows; The only products of fattening and breeding are fattening cattle. Therefore, the transaction of young cows is a conventional business model of breeding enterprises (or individuals).

breed

Enterprise / individual sales fattening

Breeding shelf cattle and selling fattening slaughtered beef

Sales and processing of male fat cattle and accessories

Frozen calf sales fattening additives

essence

Calf fattening enterprise / individual slaughtering and processing enterprise

Taoneng cattle

Elimination and multiplication

Parent breeding enterprise / individual

Cow mother

Calf sales and breeding can breed

Self breeding and self breeding of young cows

sale

Figure 2 business model of beef cattle breeding

3. Business model of young cow business

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