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Long-term contract to keep KFC in chicken

YUM! Brands Inc China Division, the owner of KFC, Pizza Hut and East Dawning, yesterday signed a sourcing contract with domestic suppliers for more than 5 billion yuan (US$732 million).

Under the new contract, Yum! will buy 280,000 tons of chicken from three domestic suppliers over the next three years.

This is the first time Yum! has signed a long-term supply contract with domestic suppliers. Sourcing contracts were previously signed every three or six months according to the varying market prices.

DaChan Food (Asia) Ltd, Fujian Sunner Development Co and Shandong Xinchang Group Co will supply about 50 percent of the chicken needed by KFC chains on Chinese mainland in the next three years.

The source price will be adjusted every six months, taking into account the costs of the chicken, which is based on major chicken feed such as soybean and corn.

"The new sourcing contract will ensure plenty of supply of quality chicken for KFC chains on Chinese mainland, which are in need of large amount of chicken," said Sam Su, president of Yum! Brands Inc China Division.

Yum! Brands Inc now buys chicken from more than 30 domestic suppliers for its KFC products in China. Its consumption of chicken in China last year was 140,000 tons.

"The new partnership with Yum! gives us a reasonable profit and also makes us more confidence to boost our own production plant," said Fu Guangming, president of Fujian Sunner Development Co. "By signing the long-term agreement, KFC gave up some negotiating power, and, as suppliers, we can focus on the production of chicken with good quality and high safety standard."


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