Feed Bussiness Worldwide: April 2015
From feed grain to meat: China’s growing weight in world agribusines
by Eric J. BROOKS
Multiplied by1.3 billion and rising from a USDA estimated 4kg in 1960 to 13kg in 1980, 45kg in 2000, approximately 60kg in 2015 and 71kg by 2024, China’s per capita meat consumption dominates 21st century agribusiness. But as our era progresses, its dominance of world feed and livestock not only expands, but also becomes more broad and sophisticated.
It was expected to overtake Japan as the world’s largest importer of corn. Instead, while Chinese corn imports have stagnated, it looks set to overtake Japan as the world’s largest importer of beef and pork.
That is symptomatic of an anomaly at the heart of this country’s highly unpredictable agribusiness behaviour: red meat now accounts for slightly over 80% of China’s meat consumption. This proportion is exceptionally high for a developing country with a per capita income of approximately US$7,000. In the United States, where per capita GDP is seven times higher, only slightly over half of meat consumption is accounted for by red meat.
In fact, it might surprise you to learn that at 47.2kg, America’s combined per capita beef and pork consumption is slightly less than that of China, where the per capita consumption of these two red meats total 47.9kg. Of course, it is impossible for citizens of a country with the same arable land area as America but 4.2 times as many people to eat the same amount of red meat without making painful adjustments, both within China itself and also in its relationship to the world market - and China has already started to do so.
After it commenced mass soy imports in the mid-1990s, the needs of China’s vast, fast growing feed sector defined the country’s role in world agribusiness markets. However, with China’s mass consumption of proteins going upmarket, so does its influenc over world agribusiness. While maintaining its pull over the cost of everything from corn to fishmeal, China has started profoundly influencing the global market for red meat.
In particular, China is controlling its corn import volume by importing red meat and other feed grains in its place. Five or six years ago, analysts were confidently predicting that by this time, China would be importing anywhere from 10 to 15 million tonnes of corn. Instead, the USDA projects it will only import three million tonnes at most. The agency also recently revised its estimated 2023/24 China corn import volume downward by 70.5%, from the previous 22.0 million tonnes to just 6.5 million tonnes - even less than what many analysts had once forecast would be imported by this time.
All this is not due to a lack of Chinese protein consumption or the expansion of arable land area within China itself. China is eating as much meat as was forecast. In fact, at close to 50kg, its combined consumption of red meats like pork, mutton and beef is almost 20% higher than was initially projected.
To eat red meat the way rich countries do, China employed a variety of measures that wherever possible, encourage the substitution of other feed crops and even imported red meat in place of corn.
Incentives boost domestic corn supplies
For example, after turning into a mass corn importer in 2009, Beijing has employed a wide array of supply-side incentives, including a price floor set above US$9.50/bushel at a time when corn was selling under US$4.00/bushel internationally.
This has caused corn harvests to rise by an approximate 6% annually in the five ensuing years, greatly exceeding the 3.0% to 4.5% annual corn production increases forecasted by most analysts. It also exceeded China’s feed- and biofuel-driven annual increases in corn demand, which rose at a 5.5% annual rate over this same time.
Partly due to policies which boost corn planted acreage (at the expense of higher soy import volumes) and partly due to crop yield improvements, harvests increased 33%, from 163.9 million tonnes in 2009-10 to a record 218.5 million tonnes in 2013-14 before falling back to 214 million tonnes during the last harvest. With decelerating economic growth and bird flu outbreaks causing feed demand to unexpectedly fall for an unprecedented two consecutive years, this enabled domestic corn supplies to catch up with demand.
Of course, along with making domestic pork expensive enough to attract cheaper imports, there were other consequences to setting a corn floor price more than 100% above CBOT futures. Supply overtook demand and China’s domestic corn reserves got bloated, with 70 million tonnes stockpiled in the 2013/14 marketing year alone. In an effort to dampen prices during 2014’s pre-harvest period, 63 million tonnes of this amount were released for auction, but buyers opted to purchase a mere 25 million tonnes of this offered amount.
Going forward, to support the wide gap between domestic and world corn prices, the government has no choice but to purchase significant volumes of corn this year, too, ensuring bloated inventories in the face of extremely high fixed price floors.
This reconciling of the world’s highest corn prices with bulging inventories is a tight juggling act, but it also has benefits. Instead of the 26.8 million tonnes it initially forecast, the USDA has been forced to revise its China’s estimated 2023-24 total feed grain import volume down by 35.8% to 17.2 million tonnes.
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