NutryFarm is betting on Asia's love affair with durians

Singapore

MAINBOARD-LISTED NutryFarm International wants to seize on China's demand for durians, and eventually create an international platform where fresh produce can be sold and traded.

In an interview with The Business Times, Cheng Meng, who has been NutryFarm's chief executive officer since January this year, says he has been busy focusing on two key objectives: one, to stabilise its nutrition and health food business which has been battered by regulatory headwinds and Covid-19; and two, to develop a new core business that capitalises on the group's understanding of food certifications and connections in China, a move he believes will provide NutryFarm with a strong foundation and new growth drivers.

The 32-year old Chinese national, who had quit a lucrative engineering job at the age of 26 to trade Thai durians, sees new growth from the king of fruits - a green, spiky, football-sized fruit whose harvest is eagerly anticipated by many lusting for its custardy, yet potently odoriferous flesh.

After much discussions with the board, Global Agricapital Holdings (GAH) was incorporated in December 2020 for wholesale trading and distribution of fruits and vegetables as well as canning and preservation of fruits and juices.

"The nutrition and health food products business is seeing a transition phase after new regulations and directives in the industry that were introduced in recent years." Mr Cheng says. The group will continue to monitor the industry trends before deciding the next step for that business.

"As for our durian trading business, we see that despite the Covid-19 pandemic, China's demand for durians remains robust," adds Mr Cheng, who is also the executive vice-president of the Thailand-Anhui Business Council.

Durian consumption is expected to grow in China, where 1.4 billion stomachs have the power to move markets, and where the fruit is finding a place on menus of large food and beverage brands such as McDonald's, Pizza Hut, KFC and Starbucks. Consulting firm Plantations International predicts that the global market for raw durian (fresh, frozen, paste and pulp) will reach US$25 billion (S$33.68 billion) by 2030, up from US$15 billion in 2016. This will be driven by China.

Thailand, where the durian season stretches from February to November, is the world's number one exporter. In 2019, Thailand exported US$1.5 billion worth of durians to overseas markets, up 54.6 per cent from the previous year. China, Hong Kong and Asean members accounted for 98 per cent of the demand. In 2020, China imported 575,000 tons of durians worth RMB14.7 billion (S$3.06 billion) from Thailand, up 78 per cent year-on-year, according to data from the Ministry of Agriculture and Cooperatives of Thailand.

A new growth driver

Mr Cheng says: "With strong demand from China, our first step is to harness the opportunities by expanding our trading and distribution business. We aim to scale up our business and secure new sales contracts with existing and new wholesale customers from China."

"Next, we want to expand across Asia, with the Singapore market being the next springboard to create more branding on our vacuum-packed durians targeted towards the consumer markets in Singapore. With our own sales channels, we have the opportunity to market other durians or durian-related products as a downstream distributor such as our recent appointment for DKING's Musang King frozen durian pulp," he says. Musang King is arguably the creme de la creme of Malaysian durians, retailing around S$25 a kilogramme in Singapore.

GAH recently secured the sole distributorship of DKING's Musang King Frozen Durian Pulp in Singapore from Duricious. This sole distributorship is for two years from June 24, 2021 to June 23, 2023. DKING is a pioneer in the export of Malaysia durians. It boasts of a liquid nitrogen freezing technology processing plant that allows deep freezing of durian products to preserve freshness and quality for export markets. GAH has placed its first order of 1,200 cartons (28,800 packs) with Duricious and the delivery is expected to arrive by mid-July 2021.

Mr Cheng believes the fruit business offers "reasonable prospects" for profit contribution and generating positive cash flows, enabling the group to operate as a going concern. NutryFarm intends to seek shareholders' approval to diversify its core into the fruit business.

"I believe that durian will be our calling card into the global agricultural arena and we look forward to harvesting the opportunities that come with it.

"With the strong momentum in our durian business, my vision for NutryFarm is to become a vertically integrated business enterprise and become a leading player in the global durian industry, creating an international platform where fresh produce in any country can be cross-marketed and traded to reach new geographical markets and customers," he says.

Beyond trading and distribution, the engineer by training sees opportunities to leverage technology in other important aspects of the durian supply chain where NutryFarm can potentially venture into to create more growth drivers and value propositions for stakeholders. These include the upstream components of plantations/farms and warehousing/processing, and the downstream components of logistics/transportation and wholesale/import.

"With greater vertical integration, there is more control on quality and cost at each component of the value chain and this may lead to higher operating margins and growth," Mr Cheng says.

As for funding needs to fulfil this vision, he says: "Ideally, we want to use our internal cash resources and free cash flow from our operations to fund our organic initiatives as this is the cheapest form of capital."

At the end of March 2021, NutryFarm had HK$3.8 million in cash and cash equivalents. In June, it announced a share placement exercise to raise S$6.38 million to accelerate its growth plans. After the placement, Mr Cheng will hold 9.7 per cent of NutryFarm.

Too early to call

While it is still too early to call, better cost control measures have narrowed losses in its nutrition business. NutryFarm achieved a turnaround in its latest results for the second quarter 2021, with a net profit of about HK$0.5 million, compared to net loss of HK$5 million (S$867,347) a year before. Durian trading was the major revenue contributor at HK$27.9 million out of the overall sales of HK$41 million.

Mr Cheng was introduced to NutryFarm by a business associate of the company, which led to his purchase of 13.3 million NutryFarm shares, or 11.5 per cent of the enlarged share capital, through a share placement last September. He obtained his Bachelor of Automotive Engineering degree from Shanghai University in 2013 and was seconded to Thailand at the age of 24 to be a project manager overseeing major construction projects in Thailand for China's Shandong Electric Power Construction No.3 Engineering Company.

While he was working in Thailand, there were requests to purchase Thailand durians from Chinese fruit importers. That nudged the durian lover to trade in durians, a move he thought was simply buying low in Thailand and selling at a higher price to Chinese wholesale buyers. Within six months, that naivety cost him "millions of renminbi".

Nevertheless, Mr Cheng perservered and grew his knowledge, experience and network over the ensuing years.

Despite family objections, he quit his job in 2015 and switched careers to trade durians. A year later, he founded the One Family (Thai) Company in Thailand, which is in the business of planting, trading and processing of durians.

"After more than 3-4 years on the ground and learning from the farmers and industry players, I felt confident enough to re-start the durian trading business and within a couple of years, I became one of the largest exporters of Thai durians to China," he says, citing quality assurance as one of the key cornerstone of the business.

With the reputation and track record built up over the past seven years, he says Chinese buyers put their trust and confidence in him and NutryFarm.

"We quickly secured several contracts, exceeding RMB 1.15 billion to-date, to supply fresh Thailand durians to Chinese fruit importers," he says. Buyers included Moonda (Beijing) Agriculture Science and Technology Co, Shanghai Yuqu Trading Co and China Railway Production Control (Chengdu) Industrial Co.