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February 10, 2020
 
The end of a trend? World feed output stops growing
 
Plummeting East Asian hog inventories, South Asian bird flu outbreaks, Middle Eastern political woes cause the first drop in feed output since China's 1980s economic liberalization. Beyond these passing concerns, world agribusiness needs a new growth driver.
 
By Eric J. Brooks
 
An eFeedLink Hot Topic
 

Shockwaves from Asia's ongoing African Swine Fever (ASF) epidemic have halted world feed output growth. Booming African and Mexican meat consumption, export-driven US and South American feed output expansion was overwhelmed by an ASF induced, 35% drop in Asian hog feed output.
 
Once the leading agribusiness growth driver, Asian feed output declined for the first time in at least three decades, making world feed production unexpectedly fall 1.1% from 2018's 1.1382 billion tonnes to an Alltech Global Feed Survey estimated 1.1265 billion tonnes in 2019.
 
As the attached graph shows, output in the 20 leading nations responsible for 80% of feed output fell 1.7%, from 861 million tonnes in 2018 to 846 million tonnes in 2019. China played a dominant role in the thirty-year agribusiness boom. It subsequently lead the growth deceleration trend, which started seven years before ASF appeared.
 
3% annual world feed output growth from 2012-18 was slower than in previous decades due to mounting problems with Chinese protein lines. –Moreover, the past year has seen decelerating agribusiness growth spread beyond China's borders into emerging Middle Eastern, South Asian and Southeast Asian markets.
 
Except for 4.5% growth in Mexico's large market (to 36.2 million tonnes), feed production grew significantly only in small, highly immature markets such as the African continent (+7.5%, 43.5 million tonnes) or Myanmar (+4.5%, 3.7 million tonnes). With falling West European protein intake counterbalanced by rising East European demand, European feed output was essentially flat, up an immaterial 0.2% to 279.2 million tonnes.
 
In the Americas, feed demand grew roughly 2% and a large portion of this increase was export-driven by rapidly growing East Asian demand for imported meat. With Alltech statisticians revising US feed output to reflect unexpectedly strong cattle feed consumption, America re-took over its former first place position as the world's largest feed producer from China for a third consecutive year.
 
From 195 million tonnes and 8 million tonnes, more feed than China in 2017, America milled 214 million tonnes or 46.5 million tonnes more than China last year. America's feed growth moment came from several years of low feed costs, high beef and swine farming returns, all coinciding with steadily growing US meat consumption and strong export growth.
 
With its meat exports continuing to rise, we estimate US feed production will approach a record 220 million tonnes in 2020, roughly 50 million tonnes more than China's anticipated feed output.–And that is a profound disappointment of longstanding industry expectations: Back in 2010, many industry analysts expected China's feed output to be in the 230 to 250 million tonne range by this time.
 
Instead, led by a steep 20 million tonne, 10.6% decline in Chinese feed production, Asian feed output fell 5.5%, from an Alltech estimated 384.4 million tonnes in 2018 to 363.2 million tonnes last year.  Within China, feed output has never equaled 2012's 198.3 million tonne record or even the 191 million tonnes produced in 2013.
 
ASF killed off approximately half of China's world-leading hog herd, inducing, a 35% drop in swine feed output (from 79.6 million ton 51.74 million tonnes) could not be offset by fast-increasing demand for other feed types. Total feed consumed by broilers (52.7 million tonnes), layers (29.45 million tonnes), duck and other fowl (12.2 million tonnes) and aqua feed (16.5 million tonnes) only offset 7 million tonnes of the 27 million tonne drop in hog feed production.
 
As a result, China's total feed output fell 10.6% to 167.9 million tonnes, with broiler feed output exceeding that of swine feed for the first time. It equals the total feed production of Latin America, which has approximately half of China's population scattered among 20 nations. Their collective output jumped by 2.2% or 3.6 million tonnes. Among those countries, Brazil (70.4 million tonnes, +2.5%), Mexico (36.64 million tonnes, +4.5%) and Argentina (21 million tonnes, -5.2%) accounted for 75% of output.
 
As a conservative estimate, from 2018 through 2020 inclusive, ASF will have boosted annual Chinese pork import volumes by at least 2.0 million tonnes, beef imports by 500,000 tonnes and broiler meat import volumes by 400,000 tonnes. To this can be added an additional 250,000 tonnes of pork imported by Southeast nations such as Vietnam, Philippines, Cambodia and Indonesia, who are facing their own ASF outbreaks.
 
--When one multiplies a 3.1 million tonne, ASF-induced increase in Asian meat imports by standard livestock feed conversion ratios, Asia boosted the feed production of meat exporting nations in Europe and the Americas by 8 to 10 million tonnes, with most of this increase going to the latter.
 
Going forward, China's pork output is expected to fall another 10% to 15% in 2020, while poultry meat and farmed seafood production are poised to rise by 10% and 5% respectively. Higher feed demand for all protein lines except pork should fully counterbalance falling Chinese swine feed. After 2019's severe contraction, we expect this to make China's 2020 feed production level out, rising a nominal 1% to around 170 million tonnes.
 
And we need to keep in mind that China was not the only nation suffering serious ASF-induced agribusiness disruption. Since breaking out in February 2019, Vietnam has seen hog inventories and pork output fall by 25% and 22% respectively. Once Asia's second-largest pork producer and consumer, swine meat production is expected to fall another 7% to 10% this year.
 
Just like in China, skyrocketing pork imports are bridging the gap between supply and demand, from 120,000 tonnes in 2018 to over 200,000 tonnes in 2019 and 250,000 to 300,000 tonnes this year.
 
Consequently, after rising at a 5.5% annual rate from 2015 through 2018, Vietnam's feed output fell approximately 6.6%, from 19.6 million tonnes in 2018 to 18.3 million tonnes in 2019. This year should see a smaller decline in hog numbers be offset by higher feed demand for poultry and aquaculture. That will stabilize 2020 feed output at around 18.5 million tonnes.
 
Asia's 3rd worst ASF outbreak was in the Philippines but it occurred six months after ASF broke out in Vietnam and nearly a year after China's outbreak. As a result, the full extent of ASF's will only be felt this year. While feed production was affected, the premature panic selling of hogs boosted pork production, causing it to increase 2% this year.
 
Just like in China and Vietnam, falling swine feed consumption outweighed above-average gains in the production of other feed types. After rising at 9.2% annual rate from 2015 through 2018 inclusive, Philippine feed output fell 4.2% from 19 million tonnes in 2018 to 18.2 million tonnes last year. With the Philippine ASF hog mortality peaking in late 2019, feed output should bottom out just under 18 million tonnes in 2020 and gradually recover thereafter.
 
The USDA expects 2020 Philippine pork production to fall another 10%. With hogs traditionally consuming over half of the Philippine feed, a 10% fall in hog feed output cannot be offset by an increase of all other feed types of no more than 4%. 2020 Philippine feed output may fall another 2.4% to 17.9 million tonnes, its lowest level since 2017.
 
A similar scale ASF outbreak occurred in Thailand several months earlier, causing a 16% fall in hog inventories. 2019 Thai pork production fell 12% and may decline by up to 5% next year. Even with export-driven broiler production booming Thai feed output fell back 4% to 20 million tonnes, the same volume produced in 2017.
 
ASF epidemics in China, Vietnam, Philippines, Thailand and other East Asian ASF nations caused world swine feed output to fall a whopping 11% or 32.25 million tonnes, from 293.1 million tonnes in 2018 to 260.9 million tonnes last year. In the process, it cemented broiler feed's position as the most popular, totaling  3-7.3 million tonnes.
 
Disease held back Asia's agribusiness performance even in nations where pork is not consumed. For example, from 2010 through 2018, India's broiler meat output expanded 7% annually. Last year's serious bird flu outbreak restricted growth to 1% and chicken meat output is expected to stagnate this year.
 
With poultry feed accounting for 64% of Indian feed consumption, output decelerated from its 6.3% post-2011 annual growth rate and grew by only 0.7%, to 39 million tonnes. With flat Indian poultry output projected for 2020, feed output will not rise by more than 2.6%, to 40 million tonnes. Suffering from the same type of bird flu outbreaks, neighboring Pakistan's rapid feed milling growth was interrupted as output fell 6.25%, to 7.5 million tonnes.
 
Finally, a combination of political turmoil, economic problems and bird flu outbreaks impacted many of Middle Eastern nations including Turkey, Iraq, Iran and Saudia Arabia. Middle Eastern feed output fell 5.3%, from 27.6 million tonnes in 2018 to 26 million tonnes last year.
 
 
With ASF plaguing Pacific Rim nations, bird flu is holding back protein production in the Indian subcontinent and Middle East. Consequently, our forecast for 2020 and beyond is worrisome: Between China, India and Southeast Asia, two of these regions must recover before anything close to the 3% annual feed output growth once taken for granted can resume. For now, we anticipate 2020 world feed output to level out at the 1.13 to 1.14 billion tonne range it achieved in 2018.
 
Even if ASF and bird flu burn themselves out, today's livestock disease outbreaks are hiding a bigger problem: After leading world agribusiness expansion for several decades, growth in China's protein supply sputtered after 2012. When Corona Virus is added to ASF, China may even falter as a source of protein demand growth.
 
India and Southeast Asia functioned as secondary engines of agribusiness growth but a combination of ASF and bird flu could be causing a China-style deceleration in their agribusiness fundamentals. Africa is dynamic but too immature to become a locomotive of world agribusiness expansion in the 2020s.
 
Over the medium term, a three-decade agribusiness growth trend appears to be badly broken. Livestock diseases, coronavirus outbreaks and economic supercycles defy our best attempts to control them. The speed and extent to which world agribusiness fundamentals recover may not be entirely in our hands.
 


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