Deyu Agriculture Enters into Agreements to Expand its Product Lines

Deyu and HaoLiangXin will produce and distribute a wide range of branded instant organic grain products including instant grain noodles, ready-to-eat grain rice, instant grain drinks and instant grain soups.

18 Nov 2010 --- Deyu Agriculture Corp., a vertically integrated producer, processor, marketer and distributor of organic and other agricultural products made from corn and grains, announced that it has entered into a series of control agreements with the majority equity owners of Deyufarm Innovation Food (Beijing) Co., Ltd., a manufacturer of instant organic multi-grain packaged food in China.

Deyufarm, through its wholly owned subsidiary, Sichuan Haoliangxin Instant Food Co., Ltd, is engaged in the research & development and production of instant grain foods and has production facilities in Chengdu, Sichuan Province. HaoLiangXin has significant proprietary technical expertise in manufacturing grain based instant noodles, which is a challenging process given the need for consistent, high quality product. Instant grain food products require access to high quality grains which Deyu will provide through its network of farmers and its company controlled farm acreage. Deyu and HaoLiangXin will produce and distribute a wide range of branded instant organic grain products including instant grain noodles, ready-to-eat grain rice, instant grain drinks and instant grain soups. HaoLiangXin is in the midst of a major capital expansion plan that will increase its production capacity to over 300 million units per year by mid 2011, including adding production facilities in Beijing.

"As Chinese consumers are becoming increasingly health and nutrition conscious, the demand for high quality organic grain food is growing rapidly," said Mr. Jianming Hao, Chairman and Chief Executive Officer of Deyu Agriculture. "We believe this represents a tremendous growth opportunity for Deyu. It furthers our strategy of adding higher value-added, higher margin, branded processed foods to our product portfolio and enhances our grain products processing operations. Additionally, it leverages our existing brand awareness and our strong nationwide distribution network and customer base of over 8,500 retail stores, including the Shanxi Greenwood Supermarket Group, Auchan, Walmart and Carrefour. We believe this relationship with HaoLiangXin will significantly accelerate Deyu's revenue growth in the coming years as the instant grain food market is rapidly expanding."

Under the terms of the agreements, Deyu will receive 64.3% of the net profits of Deyufarm in exchange for assisting HaoLiangXin in the sales, marketing and distribution of its products into Deyu's nationwide distribution network and customer base. Deyufarm will initially be capitalized with RMB 70 million (approximately $10.4 million USD), including RMB 25 million (approximately $3.7 million) from SBCVC Fund III, a venture capital fund that is managed by SB China Venture Capital, a highly reputable and leading venture capital firm which invests in early stage growth companies in China.