November 19, 2003
Chinese Feed Enterprises Study Underlying Causes for Current Price Hikes of Raw Materials for Feed Production
The first national conference of Chinese major feed enterprises, jointly organized by the China Feed Industry Association (CFIA) and Zhenghong Science and Technology (located at Hunan province), was successfully convened in Changsha, Hunan province from October 28 to 31.
The conference aims to bring together experts in the feed industry in China and cultivate closer relationship between the members of China Feed Industry Association. The theme of the conference is - "To have China's feed enterprises work together; to tackle the challenges of the industry and facilitate the development of the feed industry. "
Secretary-general of CFIA and executive chairman of the Association of Major Feed Enterprises, Mr Liu Tongzhan, hosted the conference. And the conference executive chairman and CEO of Zhenghong Science and Technology, Mr Wu Mingxia delivered the opening address on behalf of the organizers.
Mr Qin Yabing, Deputy Director of the Animal Husbandry and Veterinary Bureau of China's Ministry of Agriculture, representing the bureau (China Feed Office), congratulated on the opening of the conference and spoke on the significant contributions of the progress in the Chinese feed industry towards the animal husbandry and aquaculture production industries. This has enabled the animal husbandry industry in China to sustain favourable progress in recent years.
The CFIA, which aims to improve the standards of service within the industry, to encourage fair competition between enterprises, as well as positive regulated developments, plays a bridging role in the development of feed industry in China. CFIA hopes that the conference would result in the expansion and collaboration of Chinese feed enterprises.
On behalf of Hunan province Deputy Secretary-General of Hunan provincial government, Mr Chen Jifang, expressed his best wishes for the opening and the overall success for the conference.
During the conference, Mr Bai Meiqing, Director of CFIA, presented a vital report on - "Year 2003 - An extraordinary year and its positive implications on China's feed industry", and gave a summarized narrative on the progress in China's feed industry in 2003.
"The year 2003 has been an extraordinary year for China, as well as its feed industry. The latter has been significantly affected by firstly, the unforeseen outbreak of SARS; secondly, the price hike in raw materials for feed production, such as the price hikes of soybean which correspondingly pushed up the prices of soymeal, lysine and fishmeal, caused substantial losses to Chinese feed enterprises, and some of which have even folded their businesses; thirdly, trade barriers imposed by developed countries on the export of Chinese livestock products resulted in a fall in overall consumption of feed products," said Mr Bai.
In terms of the global developments for feed products, global industrialized feed production totaled 604 million tons in 2002, slightly less than the highest record of 605 million tons in 1997. The impetus for the growth was primarily population increase and urbanization in the developing countries. In 2002, consumption of global industrialized feed averaged 96 kg per person per annum, which is lower than the highest record of 105 kg registered between 1995 and 1996.
Production by Chinese feed enterprises in the first quarter of 2003 was progressing steadily before the SARS outbreak in the second quarter, during which prices began to fall systematically, picking up only in late August. On the whole, feed production saw a steady increase, against reduced profits.
Partial statistics on the first half of 2003 showed that, between January and June 2003, national feed production hit 39.6 million tons in China, an increase of 4.4% compared to the same period of last year. This included 30.05 million tons of complete feed, which increased by 3.6% compared to the same period of last year; 7.95 million tons of concentrated feed, which increased by 9% compared to the same period of last year; and 1.6 million tons of premix feed, which increased by 3.2% compared to the same period last year.
In terms of the overall feed production in China, national feed production for the first half of 2003 has been increasing steadily, albeit some minor fluctuations. Under normal circumstances, the production trend for January to June 2003 should be as such: relatively high for January; lowest for February; gradual picking up in March until the peak season.
However, as a result of the SARS outbreak, feed production in China has begun to slide marginally after March, falling more sharply in May and June. However, feed production began to pick up again in July and August, followed by steady growth in September and October.
Total feed production in China for year 2003 is estimated to reach 87 million tons, with a sustained overall growth of between 5%- 6%.
Based on a thorough economic analysis of feed industry in China, while there has been a steady increase in feed production, economic efficiency has continued to slip. The reasons, analysis shows, include factors with short term and long-term effects on the industry.
The favourable factors are as follows:
- The sustained increase in the demand for feed in China;
- Globally, continual efforts by developed nations to regulate their industrial structures of the animal husbandry industry, as a result of the consideration for environment protection, have created opportunities and conditions for the development of animal husbandry industry in the third world countries, and at the same time benefited China's animal husbandry industry in the same way;
- It is forecast that China's animal husbandry industry in 2004 will fare better than 2003.
The adverse factors are as follows:
- The year 2004 is expected to see a further opening up of grain market in China. Currently only the staple food grains (rice, corn and wheat) are state protected. With the release of all non-staple food grains, the subsidy for food grains will shift from the centre link to the producers. The government's policy to encourage forest conservation and afforestation for the ecological and environmental protection will be continued. This has an overall effect of exerting a macro economic policy on the agricultural product market, and with that, prices of food grains are likely to resume an upward trend. Prices of most agriculture products would continue to exhibit marginal increase, with those of individual products such as soybean fluctuating to a larger extent. The period of low corn prices is over, as such corn prices are currently picking up, and soybean imports are expected to maintain an upward trend.
- Animal epidemic disease management will work on an international platform, leading to greater standardization and transparency in China's management of epidemic diseases. This will, in turn, result in higher expectations for livestock industry and feed production enterprises in animal epidemic disease management, and raise awareness in the importance of crisis prevention and emergency measures.
- The ever present global technical and trade barriers makes it more difficult than ever for the export of agricultural and livestock products of China; anti-dumping forces will continue to grow.
Through the analysis of feed production in 2003, Mr Bai Meiqing issued new demands pertaining to the development of major Chinese feed enterprises. According to him, in the course of future development, Chinese feed enterprises should remain alert and attuned to changes, seeking out development opportunities in adversity and achieving breakthroughs under pressure.
He added that the preceding development of the feed industry should be looked upon as a process during favourable times. After China's entry into the WTO, all enterprises in China are to be treated on a national basis. After 2005, it remains to be seen if the feed products are still entitled to lower multiplication taxes. It is important to understand that the industry will face greater difficulties in the near future.
In addition, feed enterprises must from now on focus all its efforts on quality safety and cost control throughout the entire process to realize improvements in product quality, lower costs and greater efficiency.
It is imperative for Chinese feed enterprises to remain innovative; undertake comprehensive measures; explore potential markets, and channel off feed consumption. There should be an integration of trade, production and farming to realize an industrial merger from production to product marketing, so as to leverage on the advantage of resource sharing and make possible the increased cooperative efficiency.
Besides, Chinese enterprises should establish an appreciation for risk prevention in its management procedures, putting in place countering strategies and process mechanisms, such as establishing a base for producing necessary raw materials for feed production and participate in the business of retaining value of futures over time.
In short, feed enterprises should learn valuable lessons from the events of an extraordinary year; expedite the pace of adjusting and realizing the era of meager profits for the sake of feed enterprises' improvement and progress, added Mr Bai.
On the question of developmental strategies for Chinese feed enterprises, Mr Bai Meiqing pointed out that Chinese feed industry still lacks an exemplary enterprise, a brand and a leader. Most Chinese feed enterprises only operate within China. To become a globally competitive leading enterprise or group, the overall development strategy is as follows: Firstly, a link (research, information, production, market and retail); two, networks (a procurement network for enterprise production, and a retail marketing network); one base area (related production and flow of goods base). The objective is to achieve comprehensiveness of feed enterprise' functionality and greater overall benefits.
During the conference, Mr. Zhang Ziyi, head of Chinese Academy of Sciences and deputy director of CFIA, presented a report on -- "China's feed industry: Its issues and counter- measures in the mid and long term". He pointed out in his report that in the long run China's feed industry should establish a comprehensive set of quality standards; strengthen provenance management; possess a comprehensive market mechanism; expedite scientific advancements and develop industrial management. It should also embrace new technology to facilitate greater information exchange and quicker response. The industry should focus on innovation and progress, capitalizing on its strong points and minimizing the weaknesses. Besides, it should also take environment protection into consideration and strive to develop China's own brand of environmental friendly feed products.
During the conference, the revision for the draft on "The constitution of CIFA on China's major feed enterprises" as well as the society emblem were passed in principle. The "Joint declaration of trust and discipline by major Chinese feed enterprises" was also passed in principle. Deputy director of CIFA and CEO of Guangdong Hengxin Group, Mr Chen Dan, nominated by the conference executive chairman, and was approved by all at the conference to be the executive chairman for the second conference of Chinese major feed enterprises.
During the conference, representatives of Chinese feed enterprises conducted in-depth study on the reasons underlying the current price hikes of raw materials for feed production; discussed fervently on feed-industry-related issues, and contributed lot of ideas pertaining to the healthier development of feed industry and the joint development of feed enterprises in China.