Saturday, May 16, 2015

"New Normal" for China's Livestock Industry

Just as the broader Chinese economy has entered a "new normal" phase of less-rapid growth and structural change, the livestock industry has also entered a "new normal" that is changing the structure of consumption, production, and marketing of livestock products. China Animal Husbandry and Veterinary News laid out these changes in a recent article.

Over the last two-plus years, China's central communist party authorities have pricked a "bubble" of excessive and wasteful livestock product consumption by ordering officials to cut back on banquets, special cafeterias, and gifts.

New supply and demand relationships have become apparent over the past two years. Hogs and chickens are in excess supply with prices declining, but China has structural shortages of beef and sheep meat which may persist in the future. A new change since last year, said the Animal Husbandry News, is a slight decline in the price of mutton after years of increase. The News says there are complex factors behind this, including an outbreak of a small ruminant disease, pressure from imported lamb, and the decline in consumption due to the crackdown on banqueting.

Production capacity is adjusting in response to changes. The hog industry is shedding capacity as backyard farmers quit rapidly. Some mining and real estate companies that began raising hogs in recent years mismanaged the farms which now lay idle. Even companies with many years of experience in the hog industry have curbed their expansions.

The livestock industry is squeezed by rising production costs and downward pressure on prices from cheaper imported meat and milk. Prices of most of China's livestock products now exceed prices in the international market. The article considers the pressure from imported pork, beef, mutton, and milk to be "extremely serious" and will threaten the domestic industry's survival "unless regulatory measures are taken."

Within China, hog production is shifting regionally from south to north. The south has more limited resources (presumably they are referring to availability of land, feed and perhaps labor), and many local governments there have declared limits or bans on raising livestock as an environmental protection measure. Northern provinces have better access to domestic corn. A number of big companies have shifted production to northern provinces.

Crop and livestock production are becoming more closely linked (this is a mantra of the Ministry of Agriculture this year). Traditionally, the location of livestock production was largely decoupled from crop resources--most animals were raised in the south and about 40% of corn is raised in the northeast.  This is changing as commercial feed becomes dominant and is pushed forward by cost pressures on livestock producers.

Access to land is becoming more challenging for livestock farmers. The News article says that land has historically been under collective ownership, but now rights to the land have increasingly been returned to villagers. This makes it harder to consolidate a large parcel of land since a livestock farmer would now have to arrange to rent from dozens or hundreds of land-holders. There are also increasingly strict regulations on shifting land zoned for grain production to other uses.

Marketing of livestock products is also changing as direct sales, electronic exchanges, futures markets, and e-commerce develop rapidly. The younger generation of consumers will be accustomed to these new methods, permanently changing the marketing of meat and milk products.

Consumers are paying more attention to nutrition and safety. The Animal Husbandry News authors think this will favor poultry over pork, since it has less cholesterol and greater nutritional value. Demands for quality and safety are growing.

Finally, the article asserts that the "new normal" demands an unspecified adjustment of government policy support for the livestock industry. While the emphasis on helping farmers must not be changed, the Animal Husbandry News author urges officials to evaluate policies in light of experience and requirements of the "new normal" to add value and offer new options.

2 comments:

Frank Sit said...



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