For centuries, sweet potato, the humble root vegetable, has been a staple food enjoyed on its own or cooked with porridge. While this tuber is cultivated in various locations, it finds its utmost prominence in Liancheng County of China’s Fujian province, which has declared itself the “sweet potato capital of the world”.
Singapore Exchange-listed Zixin Group, based in this county, has made a business out of growing, processing and selling the fresh tuber and a growing range of snacks and foodstuffs using sweet potato as the core ingredient. In Liancheng, sweet potato is appreciated as a simpler contrast to the often poultry and seafood-heavy dishes of the local Hakka population in the area.
The nature of Zixin’s business puts it in the sweet spot. For years, the business headlines coming out of China have been on its massive property boom and the rapid growth of its internet economy.
Companies in both huge sectors are facing unprecedented stress from strict policies imposed to rein in the excesses generated.
In contrast, as a food crop, the sweet potatoes produced by Zixin are seen to help China address the challenges of food security and to help cope with the inflationary pressures of imported foodstuff.
Zixin has enjoyed support from the local county government regarding land allocation and favourable usage terms. It can also build up a network of supporting partners in logistics and production of up to 13,440 tonnes per year.
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“The warehousing centre where the potatoes go through the process of automated analysis, we don’t need to invest in that. The factory is the government’s plant and the equipment is from our partners, who are third-party investors,” says Liang Chengwang, executive chairman and CEO of Zixin, to visitors from the Singapore investment community.
The company, which was renamed from China Star Food in 2022, can tap into the harvest from over 5 million sqm of farmland. Two varieties of sweet potatoes are grown: Amber and purple, with the former being sweeter with a chewy texture and the latter having a milder taste, but firmer texture.
Among the more popular snacks made by Zixin include gummy, dehydrated strips of sweet potato offering a caramelised sweetness akin to toffee, as well as packets of freeze-dried sticks of sweet potato, with a taste and texture similar to that of french fries. Concentrated sweet potato powder, used to mix with either warm or cold milk, is popular too. Zixin has made it a point to go easy on additional ingredients, to retain as much of the original flavour as possible.
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Recognising the value of marketing and branding, so that it can stand out among consumers, Zixin has also invested in developing its own brands of healthier snacks through targeted campaigns, utilising various platforms and channels, including traditional print advertisements and live-streaming and e-commerce.
According to Liang, online avenues have become among the strongest sources of marketing.
“Sales through online channels come in at 30% to 50% of our total domestic volume, thanks to China’s many and comprehensive online sales channels,” he says.
Over the years, Zixin has become an integral part of the entire industry chain. Besides growing and processing, the company has been sending sweet potato peels and other waste materials such as peels, stems, and leaves, to other parties to process into poultry and animal feed.
Liang says in the past, 5% to 10% of post-snack production produce was wasted and had to be thrown away. Now, this portion can be sent to a feed factory as raw materials, and another 30% to 40% can be sent to another factory for further processing. “For example, peeled potato skins normally account for up to 25% of the weight, hence for every kilogram of processed potatoes up to 25% are skins for sale,” he says.
“When our industrial chain closed-loop is done, we can sit back and relax, no matter the outcome, there is always a place for us to be profitable. Why did we need to build such a closed loop after so many years of hard work? Because if we just plant a ton of sweet potatoes, we could make a bit of profit upfront, but under bad circumstances, lose it all in a year. An industrial chain of a ton of potatoes, however, magnifies the profit earned,” adds Liang.
A tough harvest
Even though Zixin is supplying what is ultimately a form of food staple, it was not immune to the disruption caused by the recent pandemic. When China’s zero-Covid policy was in place, farmers whom Zixin buys from could not supply enough sweet potatoes to meet demand. When the policy was eased in December 2022, it led to higher infection rates, which, again, caused disruptions for the next few months, which coincided with the traditional peak Chinese New Year buying season.
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As a result, revenue for its FY2023 ended March 2023 dropped by 24% y-o-y to RMB219.6 million, causing Zixin to sink into a net loss of RMB14.2 million ($2.66 million) for FY2023, from earnings of RMB3.7 million the year before. The poorer financial numbers have been reflected in Zixin’s share price, which dropped to 1.8 cents on April 1, 2023, compared to 2.2 cents on April 1, 2022.
With the pandemic behind and operations back to normal, there could be a potential turnaround in the cards for the current FY2024.
In its 1HFY2024 ended Sept 30, 2023, Zixin recorded revenue of RMB117.2 million, a slight 2.1% y-o-y improvement, with processed products and fresh sweet potatoes contributing 84% and 16% of the turnover respectively.
Due to improved efficiencies and a more lucrative sales mix, the company was able to increase its gross profit margin by 1.6 percentage points y-o-y to 29.6% in 1HFY2024, leading to a 7.9% y-o-y increase in gross profit of RMB34.7 million. Nonetheless, after additional operating and administrative costs were added, Zixin ended 1HFY2024 in the red with a net loss of RMB3.4 million.
Liang is upbeat that sweeter times are ahead. “The catch-up in business activities had been gradual post-pandemic, and the loss of harvest due to the sudden shift of zero-Covid policy in December 2022 and early 2023, also had a spillover effect, particularly in the first quarter of FY2024.
Nevertheless, our business operations in China are back on track in 1HF20Y24,” he says. Over the past 12 months, Zixin’s share price has gained 35.3% to close at 2.3 cents on Jan 17, valuing the company at $31.83 million.
Sowing seeds
Liang is not contented with just producing snacks within Liancheng. Zixin has already undertaken years of R&D product development to create additional ways and venues where the sweet potato can be sold. For example, Liang thinks it is timely to expand the company’s agricultural genomics research coverage to the whole of China. “We believe our expansion into data and analytics to unlock valuable insights, which can potentially enhance the genomics of sweet potato varieties and cultivation solutions to address the suitability of cultivation in agricultural regions in China, and be the game changer for the nation,” he says.
Liang is also careful to point out that he can receive continuous support from the authorities, as Zixin is seen as having helped play its part in food security in-line with national policies.
Under prevailing regulations, all the allocated acres of farmland cannot be planted with crops other than food crops. “This has resulted in a lot of land that was originally used for planting crops in the past, such as vegetables and strawberries, only being allowed to grow food crops,” he says.
Continuous expansion plans are in place. For example, by the end of the current FY2024, Zixin’s 23,000 sqm state-of-the-art manufacturing facility dedicated to producing functional food products, such as sweet potato powder used for baking and health products containing sweet potato-derived antioxidants, will be up and running.
Zixin has also made use of a third-party warehouse operator, which has cold storage facilities to lengthen the shelf life of fresh produce and an automated grading and sorting processing line, with the latter poised to expand to eight such lines to support the county’s agriculture sector.
Additionally, a third-party fermentation company completed a recycling and fermentation plant for sweet potato waste materials, housing equipment and machinery to convert spoiled sweet potatoes, peels, leaves, and stems into animal-based feeds at the end of October 2023. This plant will be jointly managed.
Despite Zixin’s recent results and ongoing growth, Liang is rooted in reality, understanding the difficulties of running a company in the agriculture sector. “You have to ensure the market and climate are good, and you can’t have natural disasters. If one of these three occurs, you will not be profitable. There’s a reason why agriculture has been unpopular in China for the past thirty years. It is hard, tiring, risky, and usually- not profitable. This is why we keep emphasising developing a value chain on a large scale. Only then, can we be in a position to prosper.”
