TNAG-1614-FCO40-2222-Executive-Council-of-Hong-Kong-memoranda-and-minutes-of-meet-1987 — Page 20

'

CONFIDENTIAL

4

mutually beneficial relationship between the Hong and the retailers has been a central feature of the system for 25 years. This is most clearly seen at the Tsuen Wan Slaughterhouse. This slaughterhouse is owned by local retailers plus some local dignitaries. The Hong has no shares in it. However, the actual working relationship is so close and amicable, and so much in both parties' interest, that for some time it was believed that the Hong was actually a part owner of the slaughterhouse.

10.

Other than fresh meat, there are also frozen meat, and luxury meats, particularly poultry, on the market.

Fresh meat, however, is much preferred by local consumers to frozen meat (less so for beef than pork), but fresh poultry has always been a popular part of the local diet, and hence an attractive alternative to fresh meat. Per capita consumption figures in recent years indicate a stable demand for fresh meat but a significant uptrend for frozen meat, suggesting that whilst there is no reduction in demand for, fresh meat, there has been an increase in the amount of frozen meat eaten per head of population. For some years the ratio of retail costs for boneless meat frozen pork/fresh pork/fresh poultry has been close to 75:100:200 ($9.50:$13:$26 per catty). At that ratio, percentages of sales in the three categories have been very stable over the last few years. Frozen meat and poultry pricing is not under the control of the Ng Fung Hong to same degree as the pricing of fresh meat. (Frozen meat comes to Hong Kong from many sources as well as China, and the percentage of locally produced poultry in Hong Kong markets is much higher than the percentage of locally produced pigs.) Any significant increase in the price of fresh meat would tilt the balance in favour of the sales of frozen pork and fresh chickens at the expense of fresh meat. The fresh meat retailers are anxious not to disturb the equilibrium for fear of unfavourable business consequences. In fact, the Hong in practice usually raises its prices only after the prices of frozen meat and fresh poultry have gone up, to preserve a stable balance.

11.

In the fresh pork business the Hong is the dominant but not the monopoly supplier. 80% of pigs are imported from China, but 20% come from elsewhere (16% from Hong Kong and 4% from Thailand). Hong Kong farmers have costs much higher than those in China, even including the Hong's heavy transport costs in China and Hong Kong. Hong Kong reared pigs can only be sold at a profit if they are sold at prices 15% higher than the current cost of pigs imported from China. China, however, cannot supply enough top quality pigs to meet Hong Kong's demand, and Hong Kong farmers specialise in that grade of pig, and hence can find a market even at the 15% differential. However, if the Hong raised the real price of its pigs by 15% or more, it would become cheaper to buy Hong Kong reared pigs. The Hong could still make a profit if its pigs were even cheaper than they are, and it could, probably, by dropping its prices, drive most Hong Kong pig farms out of business.

CONFIDENTIAL