Livestock & Feed Bussiness Worldwide: April 2017
What ails Chinese agribusiness?
by Eric J. BROOKS
The wheels have come off China's once rapidly expanding agribusiness miracle. After rising from 10kg in 1990 to 60kg by 2012, per capita consumption of most meats has levelled out - but fallen steeply in the case of chicken.
Defying expectations that it would imitate the west and turn itself into a big poultry eater, China has seen consumption grow only in price inelastic, expensive red meat lines like beef.
However, with the economy's growth rate only half what it was 10 years ago, we see the impact of rising income inequality in the type of meat Chinese choose to eat and 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 2.8% from 2010 through 2017. This year it is estimated to reach 7.9 million tonnes.
Along the way, China became the world's biggest importer of red meats like beef and pork.
Demand for cheaper white meat hasn't soared, as beef importers are the ones driving meat consumption.
The implication of all this is clear. The price inelastic behaviour 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 continue growing so rapidly. The most conservative estimates had it expanding 4% annually, to 240 million tonnes by this year and somewhere between 260 and 270 million tonnes by 2020. It's not happening.
In 2015, China’s feed output backslided to 179.3 million tonnes, missing earlier projections of 240 million tonnes. With troubles in its broiler sector, production this year is seen at less than 190 million tonnes, not 195 million tonnes as projected just two months ago.
At the 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, explained why China produced only 188 million tonnes of feed in 2016, not 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 10 million tonnes less feed than it used to.
Disease outbreaks in Chinese shrimp farms and a flood of low-cost, white fish (like pangassius) imports from Vietnam had driven aqua feed output to be 10 million tonnes lower than was projected for this time.
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, swine feed demand is down by 30 million tonnes.
With its hogs, chickens and farmed seafood consuming 50 million tonnes less feed than was expected, China's feed demand this time amounts to somewhere near 190 million tonnes, not the 240 to 250 million tonnes everyone had expected.
And due to import substitution – of meat instead of feed ingredients - corn imports this year would be negligible, not 15 million to 20 million tonnes as once projected.
Despite a troubled economy, China’s consumers have not lost their appetite for food. And the tragedy is local livestock growers have lost their stomach to make more meat not because of an absence in demand but because of circumstances in the industry.
In the reports that follow, we examine more closely the reasons for this state of affairs.
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