SOUTH KOREA – A profile of Cherrybro and how it has overcome a number of challenges to become the country’s No. 3 poultry company.
Although the foot-and-mouth crisis that ravaged the peninsula since late last year was declared over in March, after-effects continue to plague farmers and companies, reports Korea JoongAng Daily. Demand for domestic beef has flagged, while the price of pork continues to reach record highs.
Kim In-sik, the CEO of Korea’s third-largest poultry processor, Cherrybro Co., knows something about disease outbreaks that threaten the existence of meat processing firms. Due to a similar circumstance in 2003 when there was an outbreak of avian influenza, Cherrybro was one of several poultry firms to file for court receivership.
However, the firm also holds a record for the fastest turnaround in the industry, graduating from court receivership in just 21 months. In an interview with the JoongAng Ilbo, Mr Kim sketched out how he plans to overcome the lingering effects of foot-and-mouth disease in Korea’s meat processing industry.
He said: “The foot-and-mouth disease crisis is not necessarily the end of [our] company.”
Cherrybro, which trails behind Harim and Maniker with a 9.6 per cent share of Korea’s processed poultry market as of 2009, reported solid earnings last year with revenues of 208.3 billion won (KRW; US$193 million), operating profits of KRW12.9 billion and some 52.53 million chickens processed.
Mr Kim, a veteran in the agricultural product processing field since serving as the head of what is now Daesang Pamsco in the 1980s, struck out on his own to establish Cherrybro in 1991. And in the 20 years since, the firm’s history has been a study in how to keep a business going in the face of ups and downs in business conditions – gaining Cherrybro a reputation for bouncing back from dire crises that have wiped out many other firms.
Having survived the Asian financial crisis of 1997 just six years after its establishment, Cherrybro saw its business boom as demand for chickens skyrocketed beginning in the late 1990s, hitting a peak during the 2002 World Cup held in Korea and Japan.
But despite supply remaining high, demand for chicken dropped to normal levels by the end of the World Cup, creating a chronic over-production of chicken. Mr Kim recalled Korea’s chicken processors spending the first 10 months of 2003 locked in 10 months of cut-throat competition where chicken was sold at prices lower than production costs.
Although stocks kept piling up, Cherrybro continued to buy chicken from farms with which it had contracts.
Mr Kim explained: “If we don’t buy chickens right when they’re fully grown, farms would have to indefinitely continue spending money on feed.” This caused a back inventory of three million unsold chickens to pile up in Cherrybro’s warehouses.
And in December 2003, a final blow came in the form of an outbreak of avian influenza (AI). AI was detected in two Cherrybro hatcheries in Cheonan, South Chungcheong, and Eumseong, North Chungcheong.
The company had to cull some three million chickens, the largest amount in the industry.
Mr Kim continued: “The perception that chicken is not safe to eat had spread through society, and our revenues fell to one-sixth of what they had been. Furthermore, as we faced a crisis, financial institutions we’d dealt with began to call in loans.”
Korea JoongAng Daily reports that, by late 2003, two months before Cherrybro reached the end of its rope, Mr Kim met with representatives of contracted farm owners to reveal that the company was facing insolvency within two or three months – proven true in February 2004, when the firm filed for court receivership, and entered a composition process in May.
In the composition process, an insolvent company that can still pay part of its debt submits a scheme to creditors with a plan to avoid a declaration of bankruptcy. But despite the firm’s insolvency, the credibility Cherrybro had built up when it was plagued by over-production caused some 250 contracted farms to continue honoring contracts with Cherrybro. The same credibility prompted employees and executives to stay put. Although employees were told they might not get a regular paycheck, all 180 employees stuck it out with the company.
As farms continued to supply chickens, Cherrybro’s clients did not withdraw their confidence from the firm. Cherrybro graduated from the composition process in February 2006, only one year and nine months after filing for court receivership.
Mr Kim said: “That was the fastest turn-around out of composition in the industry. Because farms and employees didn’t waiver in their belief, the business revived itself naturally.”
Even the oversupply of three million chickens that had plagued Cherrybro proved to be a boon. As the price of chicken rebounded in 2005 because of the cullings, the company sold off its stock for several times the price compared to the previous year. It allowed the firm a financial platform to escape insolvency.
“As the company survived two crises, the sense of trust among employees was stronger than ever,” said Mr Kim. The lessons learned during the second crisis prompted Kim to sell off unnecessary businesses to focus solely on chicken. Because of this decision, revenues of KRW87 billion in 2007 had nearly tripled by 2010, according to Korea JoongAng Daily.
Mr Kim concluded: “There are many farmers who drank away their [FMD culling] compensation because they think short-term. But only the determination to be true to one’s calling will be enough to survive a crisis.”
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