---
title: "How a 'Farmer' Built His Company into a Powerhouse"
description: "Once dominated by two giants, Yihai Kerry and COFCO, China's edible oil market was disrupted by Luhua's rise in the late 1990s. This private company, once a small player, quickly became the third pole in the market and the top peanut oil brand, thanks to its 5S pressing technology and commitment to quality."
author: "张静波"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2017-08-23"
language: "en"
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# How a 'Farmer' Built His Company into a Powerhouse

> Once dominated by two giants, Yihai Kerry and COFCO, China's edible oil market was disrupted by Luhua's rise in the late 1990s. This private company, once a small player, quickly became the third pole in the market and the top peanut oil brand, thanks to its 5S pressing technology and commitment to quality.

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_Source: Huashang Taolue (ID: hstl8888)_
_Author: Zhang Jingbo_
Once, China's edible oil market was a contest between two giants: Yihai Kerry and COFCO. With illustrious backgrounds—one foreign, one state-owned—they commanded the market with their flagship brands, Arawana and Fortune.
It wasn't until Luhua's strong emergence in the late 1990s that this pattern was broken. This once-small private enterprise, in just a few years, rapidly rose to become the third pole in the edible oil market and the top peanut oil brand, making competitors take notice.
**Serve the People**
Luhua's predecessor was the Material Supply Station of Jiangtuan Town, Laiyang, Shandong.
In 1983, before Sun Mengquan became the station chief, the station had only six or seven people, four rooms, and almost no assets. Due to poor management, it had been losing money for years. **In short, it was a mess.**
But Sun Mengquan was a man who never bowed to difficulties. In his early years, he carried timber in the Northeast. On his first day, others gave him a hard time, assigning him the heaviest work to scare him off. But Sun gritted his teeth and persevered. Back at camp, he was so exhausted he couldn't get into bed; he had to press his hands on the edge of the bed to slowly lie down.
After taking over the station, Sun's first move was to cut hardware and building materials projects, focusing on agricultural product processing and trade. As a result, they turned losses into profits in the first year.
**Rooted in rural areas, serving farmers, was Sun Mengquan's lifelong wish.** One year, sweet potatoes had a bumper harvest. Many households had thousands of catties stored, and the government's sweet potatoes were piled up with no place to put them. Sun Mengquan went around and found a distillery in Qingdao, helping farmers solve their big problem.
When settling accounts, Sun found they earned only two cents per catty of sweet potatoes. Though the profit was thin, the volume was large, and the station made 30,000 yuan. The farmers were grateful, shaking his hand and saying, "If it weren't for you, our sweet potatoes would have rotted!"
This taught Sun a simple truth: In business, don't try to be clever or play tricks. Serve others well first, and making money will come naturally.
Later, as business expanded, Sun founded Luhua Vegetable Oil Plant to produce peanut oil. At the start, he proposed the concept of "Serve the People" and hung this slogan high on the factory wall.
Everyone didn't understand. They thought a small oil plant should just focus on survival, not shout such "offbeat" slogans. What puzzled them even more was Sun's proposal to let Chinese people eat Luhua peanut oil.
In others' eyes, Sun's actions were too high-profile, but behind this lay an entrepreneur's broad vision and strategic insight. **It was precisely this vision that led to Luhua's later glory.**
**The Unique 5S Technique**
In 1986, when Sun just founded Luhua Vegetable Oil Plant, he encountered a world-class problem.
Peanuts, soybeans, and other crops contain phospholipids and are highly susceptible to aflatoxin. Phospholipids cause foaming and smoking at high temperatures, and if crops are infected with aflatoxin, the oil produced will contain aflatoxin, a highly carcinogenic substance.
At that time, there were mainly two processing methods for edible oil: one was traditional pressing, which was crude and unsanitary. The oil contained phospholipids, so it smoked when heated, **and aflatoxin often exceeded limits.**
The other was chemical extraction, which used solvent oil to soak the raw materials, followed by high-temperature refining. This method produced oil that didn't smoke and removed aflatoxin, **but it destroyed nutrients, and residual solvents could harm human health.**
How to remove phospholipids and aflatoxin while preserving the rich aroma and nutrition of peanuts was a chronic industry problem. According to Huashang Taolue, most companies sacrificed quality and used chemical extraction. But Sun was unwilling to compromise. His philosophy was to never let consumers eat a drop of unhealthy oil.
Since chemical extraction was out, the only option was physical pressing. Some subordinates advised him that it was too difficult, even foreigners couldn't do it. Sun refused to accept this. "If we're going to make peanut oil, we can't retreat in the face of difficulty. What foreigners can't solve, Chinese people may not necessarily be unable to solve!"
He led his team in painstaking research, hoping to make a peanut oil that could be exported. But their sample was rejected at the first inspection. The other party said their oil **was very fragrant** **but the phospholipid content didn't meet standards.**
Sun wasn't discouraged. He used the same grit he had when carrying timber, and after six years of hard work and repeated failures, he finally mastered a unique technique in 1992—**the 5S Pure Physical Pressing Process.**
**This process consists of five steps: selection, roasting, pressing, filtration, and storage. It involves no chemical additives and no solvent residue, preserving the natural aroma of peanuts while removing phospholipids and aflatoxin.**
When the 5S pressing process was launched, it caused a sensation in the industry. The achievement of removing aflatoxin, in particular, shocked experts worldwide. Subsequently, the state appraised the 5S process and revised the national standard for peanut oil based on Luhua's process. For a private enterprise, this was a great honor.
**Luhua won the National Science and Technology Progress Award for this core technology.**
**Becoming a Peanut Oil Expert**
While Luhua was tackling the world-class peanut oil problem, a revolution was taking place in China's grain and oil market. In 1988, Singapore's Kerry Grain and Oil and COFCO jointly invested to establish Nanhai Oil. Through this partnership, Malaysian tycoon Robert Kuok entered the mainland grain and oil market he had coveted for years.
Three years later, Nanhai Oil launched Arawana edible oil, ushering in the era of small packaging in China's grain and oil market. Previously, mainland consumers used bulk oil. Arawana was nominally a joint venture, but it was actually controlled by Kuok's Kerry. COFCO had to set up its own brand, launching Fortune edible oil.
**Thus, the duopoly pattern of two major brands in China's grain and oil market was initially formed.**
While Arawana and Fortune were engaged in a two-strong battle, Luhua was still a local enterprise in a corner. Despite mastering the 5S technique under Sun's leadership, it was too small to compete with the two giants.
To seek development, they had to find a foreign partner for a joint venture. According to the agreement, Luhua only supplied bulk oil and was not responsible for marketing. But later, Sun discovered that the partner was adding other oils to Luhua's peanut oil. Although this was an industry practice at the time, Sun couldn't accept it. **He wanted to provide consumers with pure peanut oil.**
At a meeting, Sun argued his case, but he was outnumbered and failed. However, as a compromise, the partner **allowed Luhua to independently produce its own small-packaged peanut oil.**
This was a new beginning for Luhua. Sun was ambitious, but he soon tasted bitterness. Because Luhua's peanut oil had high costs and a high price, consumers didn't buy it.
The "blended" oil sold well, but pure peanut oil sold poorly, which infuriated Sun. He quickly realized the problem was the brand. "**Isn't it because their brand is strong, while our Luhua brand isn't as good?** "
So Sun began to think about branding.
How to build a brand? Positioning was key. There were too many types of edible oil on the market. Luhua's oil was good, but it was completely drowned out. **To escape the red ocean, they needed to find a differentiated positioning.**
Sun believed Luhua's advantage was peanut oil, and in this niche market, there was no leading brand. Therefore, he decided to position Luhua as the number one peanut oil brand.
To implement this strategy, Luhua deliberately linked its brand with peanut oil in all marketing communications, from packaging design to advertising appeals, so that when consumers thought of peanut oil, they would first think of Luhua.
Later, they launched the slogan "Oil for State Banquets at the Great Hall of the People," linking Luhua's brand with authority. Although this slogan was later banned, it accumulated reputation for Luhua, making it a household name.
**Luhua Doesn't Want Such Oil**
**Product quality is crucial.**
From the beginning, Sun put quality first. At that time, many domestic companies exported peanuts to Europe without taking quality seriously. But Sun was meticulous, always selecting the best peanuts, gradually gaining customer trust. Eventually, Europeans specifically requested his goods. That year, they earned millions.
This experience strengthened Sun's belief in quality. After founding Luhua, he issued a strict order to the whole factory: "Never let consumers eat a drop of unhealthy oil," and implemented it in every production process.
To control quality, Luhua started from the source. They have raw material information officers at each factory who visit peanut growing areas every year to track crop growth. They also invested heavily in importing the world's most advanced peanut comprehensive testing instruments. Only five companies worldwide use such instruments, and Luhua is the only one in China.
Raw materials entering Luhua have detailed tracking records during processing to ensure each batch can be traced. In production, Luhua only extracts the first pressing of peanut juice. The oil produced undergoes strict testing, with every batch inspected.
In Luhua, everyone knows Sun Mengquan is a "very easygoing old man," but he can also get angry, and his anger is almost always about quality. Once, a large grain depot was selling aged oil at a low price. A purchaser was tempted and reported to the company to bid, but Sun scolded him: "Luhua doesn't want such oil!"
Another time, a large supermarket chain wanted to cooperate with Luhua to create a private-label blended oil, on the condition that Luhua reduce the peanut oil ratio. Sun refused, as he never lowered standards.
Luhua not only controls the quality of peanut oil but also makes its own bottle caps and cartons, using the best materials. Someone suggested outsourcing, but Sun disagreed, saying, "I'm not at ease if others do it."
For quality, Sun also did many "foolish" things.
In the food industry, it's common to grade products and set different prices. But Luhua insists on classifying without grading, using one standard for all. Sun was stubborn: "Luhua only makes the best."
The blended oil market is chaotic. Many products contain only 10% peanut oil but are labeled as peanut blended oil, with no mandatory national standard. Luhua, under pressure, fully disclosed the formula ratios of its blended oil products, causing an uproar in the industry.
Through this stubborn persistence, Luhua peanut oil created a miracle: **Since its launch in 1992, it has never had a quality problem in random inspections by relevant departments, and it has been rated as a "National-Level Safe Oil."**
**Never Issuing IOUs to Farmers**
Sun Mengquan was born and raised in rural areas, and his business is also rooted in rural areas. Therefore, he has deep feelings for farmers, treating them as his parents, and carefully protecting their interests.
In the autumn of 2004, there was a bumper peanut harvest. Farmers delivering peanuts formed a queue over ten miles long, a spectacular sight. Seeing such booming sales, someone suggested lowering the purchase price.
Sun got angry upon hearing this and said to everyone: **"People shouldn't forget their roots. Luhua's raw materials are grown by farmers. Without their support, there would be no Luhua today. Loving farmers is loving ourselves."**
After that, no one dared to mention lowering prices again.
Following market prices is a business principle and reasonable, but it doesn't work with Sun. He values farmers' interests above all. In Luhua's 30-year history, they have never issued IOUs to farmers; all purchases are paid in cash on the spot, never delayed.
To increase farmers' enthusiasm for growing peanuts, Sun also sought benefits for them through various channels. In June 2009, when Premier Wen Jiabao visited Shandong, Sun proposed the "One Increase, One Decrease" suggestion.
**"One Increase" refers to the state cultivating improved peanut seeds, giving subsidies to farmers, and encouraging them to plant more peanuts; "One Decrease" refers to using Luhua's 5S pressing process to improve oil aroma, so people eat less oil.**
Sun's suggestion was partly to increase farmers' income and partly out of concern for domestic peanuts, as the scene of the domestic soybean market being "looted" by foreign capital a few years earlier was still vivid.
Around 2004, international soybean prices soared. Amid the speculative frenzy, domestic soybean crushing enterprises signed large orders with foreign suppliers. A few months later, soybean prices plummeted, and thousands of soybean crushing enterprises went bankrupt, "looted" by foreign capital. Afterwards, foreign-backed companies controlled over 80% of domestic soybean processing capacity.
To avoid repeating the soybean tragedy, Sun carefully protected the interests of the domestic peanut planting industry. As the top peanut oil brand, Luhua's demand has a significant impact on the market. But over years of procurement, Luhua has maintained a practice: never importing peanuts.
In fact, imported peanuts are not inferior in quality and are cheaper. Any profit-seeking enterprise would not refuse, but Sun wouldn't budge. Because since its founding, Luhua's purpose has been to serve the country through industry and benefit the people.
Many people say, "You're a farmer entrepreneur. Just lower your head and make money. Why shout such slogans?" Sun disagreed. **He said, "When a company is small, it's yours; when it's big, it belongs to the country and the people."**
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