FEED Business Worldwide - April, 2011
From Quantity to Quality: Opportunities & Challenges in the next decade of China's agribusiness transformation
by Eric J. BROOKS
The last three decades have seen a take-off of feed and livestock production that is unprecedented in human history. China, a nation that was eating less than 5kg of meat in the 1960s and 20kg in the early 1980s now consumes 60kg per capita, more than Japan or South Korea.
First stage of development domestically based
This massive increase in the quantity of meat available to China's people has brought with it technical advancement at all stages of the feed-to-meat supply chain. It also created huge forces of economic restructuring which transformed and in some cases, devastated, the way China's traditional farmers raise their livestock.
Yet, up to 2000, these changes, while disruptive to China's rural population, where mostly due to economic and market forces originating within China itself.
It must also be said that while this growth phase did a spectacular job of raising the quality of China's meat, it did not do much to increase its quality to international standards. Indeed, instances such as livestock disease outbreaks or the contamination of meat with antibiotics and banned substances appear to have increased markedly over this time.
To a certain extent, these conditions reflected China's higher livestock housing densities, or the inability of efficient but weaker western hog and poultry breeds to adapt to such conditions. With domestic feed grain supplies growing scarce, the presence of mycotoxins impacted hog performance, immunity and sow fertility.
However, by the late 2000s, it was apparent that something more systematic was also at work. Consolidation brought with it efficiency gains but not the expected drop in livestock outbreaks or increases in meat and seafood safety. Moreover, while foreign technology and capital were required and duly imported into China, they did not take root in the expected manner. Indeed, the transfer of technology and agribusiness management techniques did not always work out as planned.
Milk in melamine's lesson: Technology transfer is not enough
For example, in 2005, Fonterra acquired 43% equity in the dairy giant Shijiazhuang Sanlu Group. Fonterra had a global reputation for producing safe, high quality milk and sought to make money by bringing its knowledge and capital to China's dairy sector.
However, instead of learning Fonterra's superior livestock management and food safety techniques, Sanlu put melamine into milk for eight months before it was discovered by Fonterra's management. When Sanlu refused to stop doing so, Fonterra appealed to local authorities but they did nothing to stop Sanlu from putting melamine into milk.
Consequently, instead of transferring Fonterra's superior management techniques to Sanlu, Fonterra's reputation was stained by an inability to enforce its high standards in China. While Fonterra failed to transfer its dairy management techniques to China, the company did not really suffer: According to New Zealand's National Business Review, "Fonterra has done relatively well out of the Chinese domestic market's fear of local [milk] products."
With melamine still turning up in domestically produced Chinese milk nearly two years after first being discovered at Sanlu Dairy, this entails a loss of not just exports but also of China's own domestic market. In other words, western firms such as Fonterra shake the dust off their feet and carry on, while Chinese partners such as Sanlu limp away badly damaged.
The implications of plastic-tainted baby milk, cancer causing egg dyes, poisoned pet food and numerous other scandals are clear: Even when there is ready access to the best techniques, there is something within the business values or institutional framework of Chinese agribusiness that prevents state-of-the-art technology and techniques from being fully actualised.
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