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November 3, 2008
 
Talking Point: A relook at China's feed and crushing industry

 

As the global economic crisis affects the country's exports, the Chinese government looks toward domestic agriculture to stimulate growth. eFeedLink relooks at China's feed and crushing industry, which may be influenced by the government's policy change in the farming sector.

 
An eFeedLink Exclusive Commentary
        
            

1)  Who are the largest foreign and domestic feed and crushing companies in China today?

 

Feed type

2005
(million tonnes)

2006
(million tonnes)

Percentage change (%)

2007
(million tonnes)

Percentage change (%)

2008 forecast
(million tonnes)

Percentage change (%)

Hoh Feed

40.77

35.39

-13.20

33.20

-6.19

37.77

13.76

Layer Feed

19.59

18.03

-7.69

20.01

10.98

19.37

-3.19

Broiler Feed

27.09

26.14

-3.51

30.00

14.77

27.41

-8.64

Aqua Feed

10.04

11.64

15.94

11.20

3.78

11.72

4.63

Ruminant Feed

3.75

4.05

8.00

4.49

10.86

4.93

9.79

Other

1.86

2.07

11.19

2.21

6.76

2.32

4.82

Total

103.10

97.32

-5.61

101.10

3.88

103.20

2.08

Source: eFeedLink

 
The largest foreign and domestic companies in the feed and crushing sectors are as follows:
 
Largest domestic feed company:
 
Sichuan New Hope Agribusiness Company
 
Production volume in 2007: 6.7 million tonnes. That amounted to 6.7% of the total feed produced in China in 2007.
 

The company's feed mills are located in all of China's provinces except Tibet. Types of feed produced include hog feed, layer feed, broiler feed, aquafeed and ruminant feed.

 

Largest foreign feed company in China:

 
The Thailand-funded Chia Tai Group
 
Production volume in 2007: 7.1 million tonnes. That was equal to 7.1% of the total feed produced in China in 2007.
 

The group's feed mills are found in all regions of China except Tibet. Varieties of feed produced include hog feed, layer feed, broiler feed, aquafeed and ruminant feed.

 

Largest foreign crusher:

 
The Singapore-based Wilmar International Limited
 
The group owns more than 10 soy crushing plants in China. Annual crushing capacity stands at 9.57 million tonnes, amounting to 14.3% of the annual total crushing activities in China. 

 

Largest domestic crusher:
 
COFCO
 

This state-owned enterprise owns 6 soy crushing plants in China. Annual crushing capacity stands at 5.6 million tonnes, about 8.5% of the annual total crushing activities in China.

     
 
2)  What are the key trends in China's feed industry? Who invested in the 1990s? Who invested after 2000 and why?
 

The proportion of feed output accounted for by state owned feed enterprises has been declining throughout the years. However, the number of foreign funded feed enterprises have not increased tremendously instead. Having said that, foreign feed enterprises are few in number but sometimes capture much market share. Rather, the percentage of joint ventures and private feed enterprises has been increasing steadily.

 

Since the start of 2007, many small-scale feed enterprises were either eliminated from the industry or bought over by large-scale enterprises.

 

Foreign feed enterprises have an advantage over feed production technologies and feed quality. However, their survival is weaker than that of domestic feed enterprises.

          
 
3) What are the main changes occurring in large domestic and foreign feed companies?
 

To avoid the risks associated with the feed price cycle, large-scale feed enterprises in China have been diversifying in many other non-related areas in recent years.

 

For example, apart from feed production, the New Hope Group is also investing in real estate, dairy production and chemical processing.

 

Tongwei is doing research in aquaculture breeding and aquaculture genetics. Tongwei's other investments include chemical processing and bio-medical production. On the other hand, foreign feed companies's Chinese investments tend to diversify themselves in the feed and livestock supply chain.
 

Cargill, for example, has invested in feed production, oil crushing, deep corn processing, fertiliser production, food processing, and other feed-related upstream or downstream activities. It owns or co-owns 27 enterprises in China, among which are 12 feed mills and 4 soy crushing plants. Cargill's annual soy crushing capacity stands at 4 million tonnes. That's about 6% of the annual total soy crushing activities in China.

         

Bunge specialises in trading agriculture products and operates soy crushing facilities. It's 3 large soy crushing plants have an annual soy capacity stands of 1.6 million tonnes. This is about 2.5% of the annual total soy crushing activities in China. Bunge does not have any feed mills in China yet.

 
 
4)  Explain how new laws are limiting foreign ownership in China's feed mills, oil seed crushing facilities and related lines. How are these law expected to affect the structure of China's feed industry?
 

China has not formalized any legal restrictions on foreign ownership in China's feed industry. However, as China's feed industry is already very mature, it is not easy for foreign investors to have a strong foothold in the China feed market. Nevertheless, two foreign companies that have done exceptionally well are the Thailand's Charoen Phokphand (CP) Group and US-based Purina, which is co-owned by Cargill.

 

Conditions are much more restrictive in its oil crushing sector. China started to restrict foreign ownership in its oil crushing industry in December 2007. Under the new rulings, Chinese shareholders must own a controlling share of soy processing enterprises. This is to prevent foreign investors from dominating China's oil crushing industry.

 

This gives China's crushers an opportunity to take the entire market share arising from rising oil crushing demand. At the same time, since China's oil crushing industry continues to be largely controlled by state-owned enterprises, this makes it easier for the government to impose price control regulations and therefore control food price inflation.  

  
 
5)  How fast are the various types of feed production (e.g. Aquafeed, ruminant feed, poultry feed, hog feed, etc) expanding and why?
 

After two decades of very fast growth, the last five years has seen feed markets for hog feed, layer feed and broiler feed reach the point of market saturation. The aquafeed feed line was growing very quickly until the end of 2005 but now, it too is also approaching the market saturation point.

 

The only line that continues to grow quickly is ruminant feed, which represents less than 5 percent of the total feed production. However, recent years has seen the rearing of ruminants and water fowls like geese and ducks expanding at a fast rate due to increased demand for milk, mutton, beef and other types of meat. As China's economy grows, a more affluent population is willing to spend more on on alternative meats such as rabbit and, at the same time, becoming more concerned with health and food nutrition.

 

These changes have led to the ruminant and water fowl feeds developing at a faster rate than traditional lines such as hog or layer feed.

 
 
6)  What is motivating feed's ongoing industry consolidation?
 

Over the last two years, higher livestock rearing costs, feed price inflation and the rising severity of diseases has impacted livestock inventory numbers and curtailed growth in feed demand. As a result, smaller feed companies were eliminated from the industry while others were merged into larger firms.

 

With profit margins becoming increasingly narrow, large companies with scale economies were able to enjoy lower unit costs and maintain their profitability. This gave a strong advantage large-scale feed enterprises, which used the crisis to expand their market share.

 
 
7)  Which feed sectors are expanding the most rapidly and which are limitd in their growth potential?
 

The scope for expanding the production of secondary oil seeds such as cottonseed meal and rapeseed meal is limited. Due to China's limited arable land, the production of these feed ingredients is unlikely to undergo any significant increase over the near-term.

 

On the other hand, due to its central role in the feed, meat and human food chain, soymeal, despite its 70 percent dependence on imported soya beans, is the most rapid.

 
 
8)  Is feed making or crushing capacity increasing for any particular type of livestock feed, grain or oil seed? Is the relationship between feed production, oil production and crushing changing?
 

Overall annual crushing capacity in China has reached 80 million tonnes, but actual yearly production is only around 37 million tonnes. As crushing capacity far exceeds actual production volume, the Chinese government has prohibited the construction of new crushing plants.

 
 
9)  Which parts of China are seeing investment in new feed mills? Give reasons why.

New feed mills are setting up in provinces like Sichuan, Shandong, Guangdong, Jiangsu, Liaoning as these provinces are the main livestock rearing provinces.
 

10)  Are large Chinese companies setting up feed mills in other parts of Asia? If yes, give details.

The New Hope Group has established 3 overseas plants in Vietnam and the Philippines.

 

In July 2007, leading aquafeed maker the TongWei Group signed a 49-year lease for 7 hectares of land in Vietnam's Tan Huong Industrial zone in the Tien Giang province for the production of aqua feed.

 

The Guangdong Haid Industrial Group and Guangdong Hengxing Group also have significant investments in Southeast Asia.
 
 
11)  Are Chinese or multinational feed companies investing in mills designed to turn alternative feeds such as cassava, DDGS, rice bran etc. into feed? If yes, give details.
 

The only feed lines that use DDGS at this time are ruminants, particularly those used by dairies. They are often fed DDGS from Chinese ethanol plants and also DDGS imported from the United States. The little corn-based ethanol China produces corn DDGS is mostly done in the northern and north-eastern provinces. However, because of government restrictions on the production of corn-based ethanol, there is neither the supply nor much incentive to expand domestic supplies of DDGS.

    
      
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