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April 28, 2014

 

China's beef imports may double by 2018 amid structural supply deficit

 

 

A structural supply deficit of beef in China is expected to force an increase in beef imports -- including smuggled beef -- of nearly 20%, or even double the current import volume by 2018.

 

According to Rabobank's latest report, "China Beefing up Imports to Supplement Domestic Production", China will need to allow a substantial increase in imports in order to cover the supply gap. The bank expects rising urban income levels and government support to spur a slow recovery, but not fast enough to catch up with accelerating demand.

 

Even with the expected slight recovery of domestic beef supply, China will no doubt continue to increase its reliance on imports. According to Rabobank analyst Chenjun Pan, China's beef imports almost quadrupled from 2012 levels to 297,000 tonnes last year, while beef prices in China have risen fivefold since 2000.

 

For the coming five years, Rabobank expects beef imports to grow between 15% and 20% each year.

 

Of late, China's attitude towards opening markets to more countries has become more positive, and the ban on Australian fresh and chilled beef imports has just been lifted. China is likely to open the door to Brazilian beef in the coming months, and by the end of 2014, may open the market to US beef. Clearly, the Chinese government is actively seeking solutions to solve the domestic supply shortage.

 

"China became a huge importer of beef in 2013", explained Rabobank analyst, Chenjun Pan. "According to official statistics, China's beef cattle stock has been in continual decline since 2004, due to a lack of government support, low productivity, and the lack of farmers willing to invest in beef production, deterred by high costs and a shortage of labour".

 

In fact, the productivity gap between China and other beef-producing countries is expected to widen despite support from the Chinese government. 

 

China's beef cattle supply shortage is a structural issue and the industry itself faces many challenges. It lags behind other major beef-producing countries in all the key aspects, such as genetics, breeding, productivity, farm management and grassland/feed resources. According to the report, the Chinese government will need to decide which agricultural products it wishes to maintain (or achieve) self-sufficiency in and which it will allow to be more exposed to imports.

 

The Chinese government launched its first national support program for its beef industry in September 2013, called the "Guideline for Beef Industry Development Towards 2020". The plan aims to increase its domestic production from 6.3 million tonnes to 7.17 million tonnes in 2015 and 7.86 million tonnes in 2020.

 

Beef is not a strategically important agricultural product in China, although the government needs to keep a certain ratio of self-sufficiency to ensure beef supply to the Muslim population. Support for beef producers in China will increase but will remain lower than support for other livestock sectors, leaving beef producers to face the challenges of limited land, water and feed resources.

 

Given the great challenges facing the industry, Rabobank expects to see only marginal beef production growth in 2014 to 2015. Female cattle stock will be restored to a limited extent through government support. Production will likely see further increases between 2016 and 2018, assuming that the whole herd size benefits from the recovering female cattle stock in the previous years.

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