As the recession rumbles on, few companies could be blamed for focusing on the consolidation of their business and shelving any plans for expansion. Irish agri-engineering firm Richard Keenan & Co, however, is not one for pulling in its horns.
The company is entering the Chinese market on foot of a deal signed with a Chinese partner, Shanghai Yanhua Biotech, which will bring Keenan’s feeder wagons to farms in China – a country that is at a key stage in its accelerated transition from traditional to modern agriculture and is keen to develop its farming sector in an efficient yet sustainable way.
The agricultural sector in China is faced with the challenge of increasing food production in an environment where there is intense pressure on land use. “There’s great potential in Asia with regard to increasing food production,” according to Gerard Keenan, group executive chairman at Richard Keenan & Co. “China is becoming more affluent and is turning towards a Western-style diet, which includes more dairy products than people there would historically have eaten.”
Richard Keenan & Co became aware about five years ago of the potential and of China’s plans to develop its dairy sector, rather than continue to rely on imports. Its scientific advisor Professor David Beever was invited to China to speak at a dairy nutrition seminar in 2009, which proved an opportunity for the company to start building relationships in China.
Keenan stressed that a lot of research was done before the company took the plunge into the Chinese market. “We could see the potential, but we couldn’t see a business model back then. We started going back and forth to China around five years ago and we developed good relations within the Chinese Academy of Social Sciences.
“We spent time with importers and in mid-2012, we hired Galway native Ian Lahiffe, a locally-based graduate and Chinese scholar, to help develop our business there. Then we found the right company in December.” Shanghai Yanhua Biotech focuses solely on dairy and combines green technology, private finance and a feed and nutrition businesses.
[caption id="attachment_6317" align="alignright" width="908"] Gerard Keenan pictured after receiving the Oxford Farming Conference 'Practice with Science' Award in January[/caption]
The deal, which is worth between €10 million and €15 million, involves selling the feeder wagons along with cloud-based technology and back-up from nutritionists in Ireland. The feeder wagons and the technology behind them are patent-protected. The first stage will involve selling the wagons to Chinese farmers, followed by the company’s protocols and solutions.
The wagons, which cost between €20,000 to €60,000, calculate and provide the optimal mix of various feedstuffs such as silage, protein and energy supplements and straw, through the use of technology.
Richard Keenan & Co was established in 1978 in Borris, Co Carlow, by the group executive chairman’s late father. Richard Keenan was a self-taught engineer who, at the age of 60, set up the company to bring to life his ideas for innovative machines.
It now has over 30,000 customers in 40 countries and produces mixer wagons and feeding systems that improve the conversion of feed into milk. This is done through producing the optimum physical mix, based on its own research in the field of animal science, and offering nutrition support service. Scientists, agricultural economists and nutritionists work alongside engineers to improve farm performance.
Exports account for 90% of total sales. The capacity is in place to produce one feeder wagon every hour, each designed to meet the needs of individual customers and markets, as necessary.
China produces 40 million tonnes of milk every year and this figure has grown from one million tonnes in 1978. The country is similar in land area to the US, but with 4.5 times the population. Despite this operating environment, there is a target is to increase milk production to 50 million tonnes by 2020. In comparison, Ireland produces five million tonnes of milk per year.
According to Keenan, China does not necessarily want high-yielding cows, but more efficiency from existing resources. The milk produced per cow is almost the same as in Ireland, but production costs are high, which is driving up the cost of milk to consumers.
“We don’t just sell machines to China; we also sell know-how. This transfer is key – we support farmers on the ground in feed efficiency. We’ve sent our tech people to China to present at seminars and we’re now negotiating the technology, training people over there rather than setting up an office there on a permanent basis. The cloud means that we have a direct link from China to Carlow as part of our customer service.”
Although there are no plans to manufacture in China at present, the company might consider this option in future. At the moment, the machinery is sold in a flat-pack format.
“In the first two or three years, in any case, we’ll continue making our machinery here in Ireland. The price difference will not be a major obstacle to our Chinese customers as yet. The first tier of customers in China will be the early adopters, who want the technology to improve efficiency and are willing to pay for it, even if it has to come all the way from Ireland.”
As in this country, farms in China are typically family-owned. Some 30,000 farm holdings in China of between 50 and 50 cows, although there are 1500 large farms of 500 cows right up to Mega Farms of 10,000 cows. By introducing its equipment and solutions on farms, Keenan states that Chinese farmers can improve efficiency by 20% and the company can help the farmers get more from less feed, improve animal health and longevity.
Reducing the feed cost per litre not only yields a financial benefit for farmers, it also brings an environmental benefit because less nitrogen and methane is produced. “If farmers use less feed, then they also produce less waste and use less water. Farmers’ profits increase without pushing up food prices,” explained Keenan.
[caption id="attachment_6318" align="alignright" width="1024"] Gerard Keenan pictured with Zhang Toalin, Chinese Vice Minister of Agriculture, along with Phil Hogan, Minister for the Environment, Community & Local Government[/caption]
“China wants to develop dairy because it’s the backbone of development for rural communities – it’s their chance to make money because of growing consumer demand. So increased dairy is meeting a societal need; it’s not just an issue of security of supply. We’re an important piece of that development jigsaw.”
The company has come to the attention of the Chinese Government – a high-level delegation led by the country’s vice minister for agriculture, Zhang Taolin, visited its Carlow facility recently. Dr Zhang said Ireland was “leading the whole world in terms of agriculture, in particular agricultural science and technological advancement”.
Keenan’s operations are built on a three-pronged approach – mechanical engineering, animal science and IT. According to the group executive chairman, this complementary approach is a way forward for Irish mechanical engineering companies.
“It’s not enough to just look to the Irish market anymore; we believe we have to set our sights higher if we want to prosper. To compete internationally, you have to offer added value.” He said that Ireland lost much of its cost-competitiveness in the 1990s, when the value of the currency started to rise. Manufacturing suffered during the boom as wages and direct costs soared.
“Irish mechanical engineering companies can’t compete against low-cost production facilities in places like Eastern Europe or in China itself, so we have to provide some extra know-how or skills that can’t be found elsewhere to compensate for the relatively high cost,” Keenan continued. “But it’s a win-win situation – by keeping ahead of the pack when it comes to research and knowledge, we can achieve market share and volume, bring machines to the market at a lower price, which in turn drives sales.
“For us, that meant investing in animal science – how you physically present feed to a cow will affect her milk production and we have expertise in that area that nobody else has. Similarly, IT is very important. We’ve developed technology so that our machines can determine the best way to mix feeding rations – the measure of milk per kilo of feed.
“Combined with our mechanical engineering expertise, this puts us ahead of the competition and this is the ‘added value’ that we provide,” he explained. “For example, Shanghai Yanhua Biotech was already well aware of us before we spoke with them. They were looking for a partner that was interested in finding solutions to problems, not just in flogging machines.”
In 2007, the company made a strategic decision to stay in Ireland rather than locate its manufacturing facilities elsewhere. Although around one-fifth of its 220-strong workforce come from Eastern Europe, Keenan explained that in the main, engineers and other staff with the necessary skills could not be easily found elsewhere.
“Overall, the quality of Irish engineers is excellent – as good as anywhere else in the world,” he said. “In the boom, we had trouble recruiting because manufacturing couldn’t compete with construction, but it’s much easier to find excellent candidates now.”
Keenan sees his company’s expansion into China as opening the doors for other, smaller Irish services and engineering companies. “We hope to introduce others into that market over time, such as those involved in the crop production, animal health/hygiene and nutrition sectors.
“Engineering has always been strong in Ireland historically,” Keenan continued. “We’re doing particularly well in agricultural engineering, with companies like McHale’s, Dairymaster and Dromone being particularly innovative. Like us, they’ve identified needs in the international market and sought to meet them. That’s the best way for Irish mechanical engineering to survive and thrive in the current climate,” Keenan concluded.