China's Meat Makeover

China is a big meat-eater but it's due for an upgrade, according to a speech by the vice chairman of China's Meat Association earlier this month. The Ministry of Agriculture also has big plans for reshaping the country's vast network of pig pens.

Earlier this month Chen Wei, an official with China's Meat Association, described China as big meat-producing country and a big market that accounts for a third of the world's meat, including half of the world's pork. (Statistics from the UN's Food and Agriculture Organization suggest China's share of meat is 27 percent). This share exceeds China's 18-percent share of the world's population, implying that the country's per capita consumption exceeds the world average.

Meat association official speaks in front of Smithfield banner in Beijing.

Mr. Chen expects China's consumption of meat to outpace its production over the next five years. He estimates that China's net imports of meat will grow to about 10 million metric tons by 2020, which will be roughly half of global meat trade.

Chen anticipates some changes in China's meat industry. The proportion of pork--now over 60 percent of meat produced and consumed in China--will fall and the beef and lamb share will increase. The industry will shift away from freshly-slaughtered meat toward more chilled and frozen meat. There will be more cooked and processed meat products. Chen sees more quality differentiation in Chinese meat products, including logos that indicate safety, grades and other attributes, and willingness to pay premium prices for quality.

Mr. Chen expects more western-style meat products to be consumed in China.  Chen praised Shuanghui (now known as WH Group in English) for playing a guiding role as an advance guard of chilled meat marketing and offering purely western-style products. He celebrated the completion of a new Shuanghui processing plant in Zhengzhou and expressed hope that other Chinese companies will follow Shuanghui's example.

Chen's speech was given at a signing ceremony for a strategic cooperation agreement between Shuanghui--purveyors of Smithfield hams in China--with JD.com, a prominent e-commerce platform. This followed a similar tie-up between China's largest e-commerce company Alibaba and the country's largest feed company, New Hope Group, which has announced its intentions to get into the pork business in a big way.

China's hog-farming sector is also due for a makeover. In April, the Ministry of Agriculture issued a five-year plan for the hog industry that called for "stable growth." The targeted output for 2020 is 57.6 million metric tons, just 1.6-percent more than the output in 2014. This is glacial compared to 4-percent growth rates that were customary since the 1990s and even faster growth during the 1980s. (Pork production fell 3 percent during 2015, but this was not mentioned in the plan). The hog plan calls for a regional shift in production, utilization of hog waste, and a new focus on technology and management to raise productivity.

China hog industry five-year plan objectives
Item	Unit	2014	2020
Pork output	MMT	56.7	57.6
Slaughter by "scale" farms (500 head/yr or more)	Percent	42	52
Slaughtered by scale enterprises	Percent	68	75
Slaughter rate	Percent	155	160
Commercial hogs per sow (for scale farms)	Head	15	19
Labor productivity	Hogs/person	650	1000
Feed conversion	Ratio	2.8:1	2.7:1
Manure utilization rate	Percent	50	>75

The hog plan delineated regions with differing potential for hog production growth. Regions now producing about three-fourths of pork will have no growth or slow growth. Faster growth will be targeted to fringe regions in the northeast, northwest, and southwest that produce relatively little pork now. The shifting of pork production into the hinterland requires upgrade of the slaughter industry linked with cold-chain marketing and logistics to supply densely-populated cities from a distance.

• There will be no growth in pork output in densely-populated cities of Beijing, Tianjin, Shanghai and a swathe of southeastern and south-central China criss-crossed by rivers, lakes, and canals (Jiangsu, Zhejiang, Fujian, Anhui, Jiangxi, Hubei, Hunan Provinces) where pollution is a major concern. This region accounts for 38.6 percent of production now. 
• 1-percent annual growth is targeted for the "key production region" which includes grain-abundant regions of north China (Hebei, Shandong, Henan), less-developed southwestern pork-producing areas (Chongqing, Sichuan) and the far south (Guangxi, Hainan). This region also produces about 38 percent of pork now.
• 1-to-2-percent annual growth is targeted for "potential growth regions" in the grain-rich northeastern provinces, Inner Mongolia, and poor southwestern provinces (Yunnan and Guizhou). This region now accounts for 18.6% of pork output.
• 4-to-6-percent growth is targeted for "appropriate development regions" in northwestern (Shaanxi, Shanxi, Gansu) and far western regions (Ningxia, Xinjiang, Tibet, Qinghai). These regions lack water resources and have a weak foundation for pork production (they have large Muslim and pastoral-oriented ethnic groups that do not traditionally eat pork). This region accounts for only 4.8% of production now.

Improvement of the hog breeding industry is a major emphasis for the 2016-2020 plan. The plan aims to break the industry's dependence on continual influx of breeding stock. Instead, the plan foresees localization of breeds by crossing imported stock with local Chinese breeds. A second emphasis is on supporting breeding farms that preserve purebred local Chinese breeds (analogous to a seed bank). 

The plan aims for "basic self-sufficiency" in pork, but it raises concerns about rising imports of pork. The writers of the plan attribute surging imports to high unit costs which are 40-percent higher than those in the U.S. The plan emphasizes improvements in technology and management to raise productivity.

The hog development plan emphasizes use of the international market for acquisition of breeding resources. It promises support for a strategy that combines "bringing in" and "going out" by bringing in quality breeding resources and advanced technology from developed countries. "Going out" implies more companies will make overseas acquisitions, with a priority on obtaining swine breeding technology and know-how. Other areas for international cooperation and exchange are research on feed, management and waste treatment to raising general production capacity and improve the industry's international competitiveness.