FEED Business Worldwide - April, 2012

 

The ongoing transformation of China's feed types 

 

by FANG Shijun in Shanghai

 

 

Several years ago, China's feed production overtook that of the United States as the world's largest. However, while the feed demand and output continue to grow rapidly, the type of feed being made and consumed is shifting. Generally, the volume and use of China's self-mixed feed have been falling, while the  proportion accounted for by complete feed is increasing.

 

This change reflects the shift in livestock husbandry scale, from backyard farming to integrated poultry, swine and layer facilities. Over time, China's self-mixed feed industry will eventually vanish in tandem with increasing consolidation. What is less appreciated is that rising prices and tight supplies of feed raw materials such as corn and wheat are accelerating this ongoing restructuring.

 

   

Earlier on, concentrated feed (a type of self-mixed feed) was mainly used by backyard farmers, a majority of whom were also agriculture product growers. Corn was widely available in farms from northern to southern China. Backyard farmers usually added concentrated feed they bought in the market to corn and wheat grown in their farms to formulate their own feed.

 

 

Since 2007, falling world grain inventories, global economic crisis and rising feed grain prices has caused prices of agriculture products to soar. Between 2005 and 2010, China's average corn price jumped 58.13% from RMB1,227/tonne (US$3.76/bushel at 2005 exchange rates to RMB1,941/tonne (US$7.29/bushel at 2010 exchange rates), with an average annual increase of about 10%. Nor does this trend show any signs of abating: Despite an expected 5 million tonnes of imports, the average corn price is expected to hit RMB2,300/tonne (US$9.22/bushel) this year.

 

Over a succession of feed cost inflation episodes, farmers lost cost savings from using concentrated feed to produce self-mixed feed. Coupled with livestock diseases and volatile pork price fluctuations, China's backyard farmers suffered large financial losses, causing them to leave the industry. In this way, every episode of feed price inflation accelerated the pace of backyard livestock farmers leaving the industry. As they are the main consumers of concentrated feed, every grain price spike induced, a sharp drop in demand for concentrated feed.

 

This can be seen in the fact in the fact the way that every feed type responds differently to feed grain inflation. The trend is for complete feed consumption to rise steadily and faster than overall feed demand. - And it does so more quickly during years of high inflation, when backyard farmers exiting the industry boosts large-scale producer's share of total output.

 

It is however, an entirely different story with concentrated feed. While concentrated feed demand has been steadily falling for years, demand falls much more quickly during years of high feed grain costs. For example, eFeedLink's tracking shows that declines in feed consumption were sharpest during 2008 and 2010, when demand fell by 6.84% and 9.21% respectively. Both were years of rapid corn price inflation and the setting of new price records.   

 

This consistent shrinking of concentrated feed's market share occurred in tandem with changes in the size and scale of China's hog industry. Since 2006, the number of backyard farmers in China has been falling at a fast pace while well-capitalised, integrated farms with stronger management techniques started expanded and became the dominant form of hog production. By the end of 2009, the proportion of integrated hog farms had increased to 79% from 37% in 2005, while those of integrated layer and broiler farms grew to 83% from 64%.