October 14, 2004

Profits in Cattle and Beef Production Strong in China

China is 95 percent self-sufficient in beef supply.  China's current profit and loss for grain and beef conversion is 2:1.  The production costs are much lower than the US or other competitor countries. Although feed prices have gone up considerably in China, beef prices have moved above feed prices.  Cattle and beef production is generally profitable for farmers.  In Hunan province, beef cattle can earn RMB 300-500 ($36-60) per head.  Most beef cattle are raised on small-sized household farms.

China's beginning stock of cattle for 2005 is forecast to increase 3 percent from 135 million head to 139 million head.  The number of slaughtered beef is forecast to increase 6 percent from 47 million head to 50 million head in 2005.  Beef production for 2005 is forecast to increase 6.4 percent from 6.7 million MT 2004 to 7.1 million MT. The increase in beef production is driven by strong domestic demand and rising incomes.

There are 8 main beef producing provinces in China, accounting for 70 percent of the total production.  The top three provinces are Henan, Shandong and Hebei.  They are also major grain producing provinces.  Beef marketing areas mainly include Beijing, Tianjin, Fujian Province and Guangdong Province.

The National Statistic Bureau (NSB) announced that, in the first half of 2004, China's GDP growth was 9.7 percent over the same period of 2003.  The strong economy has translated into consumption of more nutritious food including meat. However, beef production lags demand, especially high quality beef, and China's beef production will continue climbing during the foreseeable future.  

The beef consumption increase was also attributed to the bird flu outbreaks which made many consumers switch to red meat.  In response to China's ban on U.S. beef, many consumers who currently eat US beef consume more domestic beef. This is because beef supplied by other exporting countries does not fill the supply gap.  

China's live breeding cattle imports for 2005 are forecast to increase from 100,000 head to 150,000 head.  Imports for the first 6 months of 2004 already exceeded the total number of the whole year of 2003.  The sharp increase of live cattle imports is driven by the urgent need for genetic improvement of both dairy and beef cattle.  

However, the pace of import growth may slow down because the Ministry of Agriculture recently revised its regulation on breeding cattle import stating that live breeding animal imports shall comply with Chinese laws and with breeding need and operation capacity.  Importers shall present a feasibility breeding plan when applying for breeding animal imports. This process may give the Government the power in the future to reject issuing import permit to those trying to import commercial cattle under the name of breeding animals to escape the customs tariff, or whenever the Government thinks breeding need is enough or breeding operation of importers is not qualified. 

Australia and New Zealand dominate exports to China and will continue to dominate in the next couple of years due to their BSE-free situation and their competitive prices for Chinese importers.