March 28, 2017
What ails Chinese agribusiness? Feed output is 50 million tonnes below expectations as meat imports skyrocket
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The wheels have off China's once rapidly expanding agribusiness miracle. After rising from 10kg in 1990 to 60kg by 2012, the per capita consumption of most meats has levelled out and in the case of chicken, fallen steeply.
On one hand, defying expectations that the Middle Kingdom would imitate the west and turn into big poultry eaters, only price inelastic, expensive red meat lines like beef continue to see their consumption grow. On the other hand, with the economy's growth rate only half what it was ten years ago, we see the impact of rising income inequality in the type of meat Chinese choose to eat, and increasingly, import.
From 1991 to 2000, beef consumption more than quadrupled, rising 18% annually, from a USDA estimated 1.0 million tonnes to 5.0 million tonnes. The growth rate slowed to a 2.4% pace, with beef consumed totaling 6.51 million tonnes by 2010.
Then came the surprise –with the economy decelerating, people losing their jobs, pork consumption flattening out and chicken consumption falling 20%, beef consumption grew at a 2.8% from 2010 through 2017, totaling an estimated 7.9 million tonnes this year. Along the way, China became the world's biggest importer red meats like beef and pork. Rather than seeing demand for cheaper white meat soar, beef importers are the ones driving meat consumption.
–The implication of all this is clear: The price inelastic behavior of the wealthy top 5% of Chinese consumers is playing a bigger role in agribusiness than the stalled income growth of the lower 80% of the population.
But there's more at work here than the stalled consumer demand of the masses or the growing hunger of China's wealthy for imported red meat. Government policy, self-inflicted wounds like food safety scandals and acts of God like livestock diseases have combined to stall China's once powerful agribusiness engine in its tracks.
From 1992 through 2002, feed output grew at a 10.4% pace, expanding from 31 million tonnes to 83.4 million tonnes over that time. From 2002 through 2012 inclusive, it grew at a still respectable 9.0% pace, totaling an Alltech estimated 198.3 million tonnes in 2012. No one expected China's feed sector to keep growing so rapidly. Even so, the most conservative estimates saw it expanding 4% annually, to 240 million tonnes by this year and somewhere between 260 and 270 million tonnes by 2020 –but no such thing ever happened.
Instead, by 2015, China's feed output had backslided to 179.3 million tonnes. Instead of of 240 million tonnes, recent troubles in its broiler sector imply that China may only produce closer to 190 million tonnes of feed rather than the 195 million tonnes projected just two months ago.
But stagnant feed demand is taking place alongside world leading import volumes of beef, chicken and pork. Clearly, with supply falling much faster than demand, there is a story of missed industry opportunities behind China's growing agribusiness woes.
At Global Grains Asia 2017 held in Singapore in mid-March Jean-Yves Chow, Mizuho Bank's senior vice president for Asia Financial Solutions, Food and Agriculture examined why China produced only 188 million tonnes of feed in 2016, rather than the more than 240 million tonnes everyone projected at the start of the decade.
Thanks to bird flu and a succession of food safety scandals, its declining poultry population is eating at least 10 million tonnes less feed than was expected. At the same time, uncontrollable disease outbreaks in Chinese shrimp farms and a flood of low-cost Vietnamese white fish like pangassius had caused the country's aqua feed output to be 10 million tonnes lower than was projected for this time.
Similarly, the high cost base and mass losses of Chinese backyard hog farms coincided with a flood of low cost pork imports. With hog numbers close to 400 million head rather than above 500 million head as was projected, this reduced swine feed demand by 30 million tonnes.
In sum, with China's hogs, chickens and farmed sea food consuming 50 million tonnes of feed less than was expected, this is the reason why China's feed demand will total somewhere near 190 million tonnes and not the 240 to 250 million tonnes everyone had expected for this time.
It is also due to the substitution of imported meat in place of feed that corn imports will be negligible rather than the 15 million to 20 million tonnes that was once projected for 2017. The tragedy is that while China's economy is troubled, its consumers have not lost their appetite for food. Rather, it is the industry's circumstances that made livestock growers lose their stomach for making more meat in China itself. In the reports that make up our April 2017 China focus which follow, we examine more closely the reasons for this state of affairs.

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