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China New Borun Corp (BORN) |
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China New Borun's Suppliers Performance
BORN's Supply Chain
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News about China New Borun Corp Contracts |
China New Borun's Comment on Supply Chain
Starting from November 2009, we entered into framework agreements with local granaries
in Heilongjiang Province, as corn prices were generally the lowest in the Northeastern
region of China, to engage them to purchase corn for us from local farmers during
the harvest season and store them for subsequent delivery to substantially satisfy
the corn requirements of our Shouguang facility and Daqing facility during the
non-harvest season. Such supply contracts provide us access to corn at prices
which we believe have historically been lower than the market price in the off
season and times of high price volatility due to crop failures and other factors.
Contractual terms under the framework agreements included, among others, basis
of purchase price and additional costs, the total quantity of corn we intend to
purchase in the coming harvest season, the standard of corn quality, the delivery
schedule, and the payment milestones. These terms are to be re-negotiated, updated
and agreed before the harvest season, usually around November, every year.
Starting from November 2013, we entered into new purchase arrangements with local
granaries. We fully settled the corn price (i.e. purchase cost) before the granaries
executed the procurements per our agreed schedule. In prior years, we did not
pay for the corn (with the exception of a 10% deposit) until the corn was delivered
to our manufacturing facilities, and the granaries retained the risks and rewards
of ownership of the corns purchased under the framework agreement until our receipt
of such delivery. Due to this change, we initiated a “bill and hold”
arrangement with the granaries whereby we take possession of the corn upon purchase
and storage of the corn by the granary. Under this new policy, after the corn
is collected from the local farmers as planned, both the quantity and quality
of corn is inspected and acknowledged by one of our employees assigned to the
granaries’ warehouses. The corn is then separately stored and distinguished
from other inventory of the granaries, and subject to supervision by our designated
employee. Therefore, once the stock-in processes are completed, the granaries
neither retain any specific performance obligations nor have the right to sell
the collected corn on behalf of us to any third party. As the granaries’
sole obligation is to manage the storage of corn for us, the significant risks
and rewards of ownership of the purchased corn are considered to be transferred
to us upon our payment to the granaries. In addition, we also bear the risk of
loss in the event of a decline in the market value of the collected corn. The
custodial risks of the collected corn are properly insured by the granaries and
us. Upon the delivery of corn, we pay to the granaries a fixed handling fee of
RMB124 ($19) per ton as stipulated in the framework agreement, mainly for the
storage of our corn at the granaries’ warehouses. | |