When Simon Shao started his hay export business in 2008, he was simply trying to survive the recession.
But thanks to China’s burgeoning demand for U.S.-produced alfalfa, the finest hay for dairy cows, he quickly moved beyond serving as a broker arranging hay sales to China to become a farmer producing top-grade forage.
His Arcadia firm, Green Pasture Inter-national Inc., owns a 3,258-acre farm in Utah and this week will close the $5 million purchase of a second.
Shao said his farm exported between 40,000 to 50,000 tons, about 80 percent of its production, to China last year. He declined
to reveal what that grossed the operation. But at more than $300 a ton, his farm’s revenue last year was likely between $10 million and $15 million.
“China doesn’t have good dairy hay,” said Shao. “That’s why they have to import it from overseas.”
According to the Department of Agricul-ture figures, the market for the export of hay to China was negligible before 2008. That year, about 19,000 tons were shipped to China from the United States, a figure that grew by a factor of 25 by 2012, when exports reached a record 480,000 tons.
A surge, to be sure, but still just a fraction of the 109 million tons of hay produced in the United States last year and the 3.7 million tons valued at $1.25 billion exported overall.
Hay sells for between $300 and $350 a ton in China, so shipping it across the ocean might seem a waste of resources. But China’s domestic hay market does not produce as much of the same quality product and its farms are far from dairy centers.
As a result, Shao was able to take advantage of the economics. The secret lies in shipping. In China, big dairy farms are near their consumers around big cities. With few farms able to produce good quality hay, to ship domestic hay within China can cost as much as $150 a ton. By contrast, it costs about $13 a ton to ship from the Port of Long Beach to China.
Hay has joined a long list of products, from tires, paper and plastics to be recycled, that fill otherwise empty container ships headed back to Asia.
Export opportunity
Shao, who was 31 when he arrived in the United States from China in 1996, started a toy company in 2000. The business went well until the financial crisis hit and many of his U.S. clients sought bankruptcy protection, leaving him with bills that would never be paid.
Even before that, though, he had been looking for other opportunities in the export business. In 2007, he had reconnected with a college classmate who had been in the hay business in China for years. The classmate, whom he declined to identify, suggested exporting hay might be a promising business. After a year of research and preparation, the two partnered to form Green Pasture.
Though lots of places in the United States produce good quality hay, to produce for export, a farm must be close to ports. As a result, 95 percent of U.S. hay exports originate in Washington state, California and Oregon.
The company has five full-time employees at its current Utah farm, with part-time workers hired during harvest season. Two employees in at the Arcadia headquarters handle the exports.
“China continues to be a strong growth market for U.S. forage exports and other high-quality animal feed ingredients,” said Greg Tyng, economist at the USDA’s Foreign Agriculture Services.
The value of forage material – plant leaves and stems eaten by grazing animals – exported to China hit $141 million in 2012, 81 percent above the previous year. In an email to the Business Journal, Tyng said the value of exported forage, of which hay is just one component, through August had already reached $145 million.
“It will be another record year for U.S. forage exports to China,” he said.
Shao said he expected U.S. hay export to China to reach 600,000 tons this year. If his harvest stays on pace with last year’s, his
