China Agritech: China's amazing productivity levels

China Agritech has put out an eight page shareholder letter rebutting claims of short sellers.  Readers know that in the past I have been inclined to take such letters under extreme caution.

But in this case I take the company statements as the gospel truth.  They illustrate just how miraculous Chinese productivity levels are.

Firstly China Agritech claim all their production facilities are working normally and give a few addresses.  (The addresses differ from the addresses in the 10K – a new complication.)  They also give some photos.  Here are the photos given of the Anhui facility.

The gate to the Anhui facility is the same one photographed by Lucas McGee – the shortseller who put out the scathing note on China Agritech.  [There has been some difficulty finding that facility.]

These photos from China Agritech – combined with the annual report - allows us to illustrate amazing total factor productivity levels in China.

The annual report gives the company staff numbers:

As of December 31, 2009, we had approximately 305 full-time employees, of which 45 were administrative and managerial staff; 150 were sales staff and 110 were manufacturing workers. We also hire temporary manufacturing workers to supplement our manufacture capabilities at periods of high demand.

The company has three dry fertilizer plants and a liquids plant.  The Anhui plant however is half the total dry fertilizer – so at a guess it represents about a third of the plant and equipment and a third of the staff.  (This is just a good educated guess – but the analysis would apply to all the other plants as well.)

So lets suppose – just running these numbers – that say 37 staff work at the Anhui plant (that is a third of the manufacturing staff).

The Anhui plant – also according to the annual filing – produces 100 thousand (metric) tonnes of dry fertilizer per year.  The bags in that photo are 40kg bags – so they produce 2.5 million bags per year – and they do all that with 37 staff.

The photograph – the elusive loading facility for which I searched – shows less than 100 bags - loosely - and I would guess manually - stacked on top of each other.

To move 2.5 million bags of fertilizer annually you would need an enormous army of manual workers whose muscles bulged like Popeye or machines.  I presume you would use machines.

I am not a factory guy – but I presume fork-lifts would be pretty basic equipment.  But if they used fork-lifts then the bags would be loaded onto pallets (again I am not a factory guy - but I am used to seeing pallets).  Instead – and here is the photo again – they are stacked somewhat irregularly on the ground.

These workers are amazingly strong.  They move 2.5 million bags of fertilizer with nary a fork-lift.

Of course there could be some heavy moving kit outside the photo.  So I went looking at the accounting for property plant and equipment.  Here is an extract from the last annual:

Yes – that is 5.8 million of gross manufacturing equipment and 0.6 million of vehicles.  A third of that equipment (my estimate) should be at Anhui.

So with just over $2 million worth of equipment the company claims to be able to manufacture and load 2.5 million bags of fertlizer per year.  Oh, and they do without an enormous army of low-paid workers – but a mere thirty-something superheros.

America is forever stuffed.  Westerners can never compete against this.




John

Disclosure: Bronte remains short China Agritech (indicating we do not think the above calculation should be taken very seriously except as an exploration of the accounts and claims of the company).  "Anne" Wang Zheng - the Carlyle nominee China Agritech's board has still not got back to me.  Perhaps she can shed more light on these amazing productivity levels.