September 28, 2011
  
China's declining self-mixed feed sector

An eFeedLink Hot Topic

By Fang Shijun in Shanghai
 
 
Over the past few years, the production volume and use of China's self-mixed feed have been falling while those of complete feed are increasing. Even though China's self-mixed feed industry will eventually vanish as more livestock farms are being integrated, rising prices of feed raw materials such as corn and wheat due to tight supplies will become a catalyst to its decline.
 
Earlier on, concentrated feed (a type of self-mixed feed) was mainly used by backyard farmers, a majority of whom were also agriculture product growers. Corn was widely available in farms from northern to southern China. Backyard farmers usually added concentrated feed they bought in the market to corn and wheat grown in their farms to formulate their own feed.
 
Corn is the most commonly used energy feed raw material in China, accounting for nearly 70% of the country's global demand for corn. Since 2007, tightening world grain market, global economic crisis and inflation had caused global prices of agriculture products to soar. Between 2005 and 2010, China's corn prices had jumped 58.13% from RMB1,227/tonne (US$192) to RMB1,941/tonne (US$304), with an average annual increase of about 10%. The average corn price is expected to hit RMB2,300/tonne (US$360) this year.
 
As inflation became full-fledged in recent years, farmers lost cost savings from using concentrated feed to produce self-mixed feed. Coupled with livestock diseases and price fluctuations of pork, backyard farmers across China were making huge losses, causing them to leave the industry. Weaker demand subsequently led to a decline in the use of concentrated feed.
 
According to statistics from eFeedLink, the market structure for complete feed, concentrated feed and premixes had undergone significant changes since 2006 when prices of feed ingredients started to increase.  Between 2005 and 2010, the proportion of complete feed in the market rose by 5.39% while concentrated feed dropped by 5.42%; premixes use was relatively stable. Since 2005, China's concentrated feed production had been steadily declining, falling by four million tonnes or 17.57% by 2010.
 

Table:2005-2010 China's feed market by feed type (%)

Feed type/Year

2005

2006

2007

2008

2009

2010

Complete feed

72.47%

72.86%

74.62%

75.95%

76.04%

77.86%

Concentrated feed

23.42%

23.07%

21.43%

19.96%

19.82%

18.00%

Premixes

4.11%

4.06%

3.96%

4.09%

4.13%

4.14%

Note:eFeedLink statistics

 
Since 2006, the number of backyard farmers in China had been decreasing at a fast pace while well-capitalised integrated farms with stronger management techniques started to grow in number and became the dominant player in the market. By the end of 2009, the proportion of integrated hog farms had increased to 79% from 37% in 2005, while those of integrated layer and broiler farms grew to 83% and 64%, respectively.
 
Premixes, another type of self-mixed feed, are a mixture of vitamins, trace minerals, medicaments, feed supplements and diluents, commonly used by large farms to add value to their feeds. The decline in backyard farming and the emergence of integrated farming implied rising use of complete feed and premixes. But in reality, the development of China's feed premixes did not gain much headway due to surging feed grain prices, which led to higher cost of producing self-mixed feed.
 
As such, the proportion of premixes was stable with no significant changes over the years, as growing demand expected from China's increasingly integrated livestock sector was counterbalanced by high ingredient prices, which caused premixes to lose cost competitiveness.
 
In contrast, concentrated feed production declined sharply between 2005 and 2010. Its market share dropped to 18% in 2010 from 23.42% five years ago, whereas the proportion of premixes was maintained at around 4% throughout the same period.
 
Other than mounting price pressures in the feed material market and structural changes in China's livestock farming model, farming profits also play a role in the cyclical structure of the feed industry. As profits improve, more farmers will choose complete feed over concentrated feed and premixes.  The opposite is true when profits slide or when losses are made.
 
Over the next few years, the structure of China's feed sector will evolve as more integration takes place in the livestock industry. Concentrated feed, a main ingredient of self-mixed feed, will be the first to disappear from China's feed industry. While premixes will survive longer, its elimination is inevitable, leaving complete feed to be the single major feed type in China in the foreseeable future.
 


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