Trends in China's Feed Industry

An online posting lists trends for the feed industry over the next five years. It notes that China's feed industry has reached a stage of maturity following two decades of growth. The article describes the industry as one where everyone is trying to expand, resulting in keen competition that will lead to consolidation and a greater attention to raising capital. The article sees consolidation, more attention to raw material costs, forward-integration into livestock farming, and more attention to health, safety, and corporate responsibility.

The article sees rapid consolidation in the industry. It predicts that 30% of feed companies will exit the market over the next five years. In 2009 alone 1321 feed companies disappeared, but there were still 12,291 companies left.

The industry will transition from labor-intensity to capital-intensity. More firms will go into equity markets to raise capital. Small and medium companies will become merger targets.

The feed industry will enter a "high cost era." The price of raw materials will rise as the industry expands production in the face of limited supplies of grains and oilseeds.

The article asserts that the traditional reliance on corn and soymeal as the core feed ingredients is not suited to China's "national conditions." The article describes the corn-soymeal reliances as being dictated by "international grain merchants, spreading their market." Rising prices of corn and soymeal prices are eroding profits on feed. The author asserts that other kinds of grain and meals will become more prominent in the next five years, weakening the corn-soymeal dominance of feed formulas.

The article warns that raw material (grain and oilseed) price fluctuations will become commonplace. In the past, China's prices were relatively stable, but global capital flows are causing more fluctuation in commodity prices. After WTO accession, it's harder to insulate China's market from the global economy.

The author sees forward-integration into hog, dairy, and poultry production as well as other businesses like veterinary medicines and vaccines. Some companies, like Agfeed, have already begun operating large hog farms. The author says vertical integration and control of more stages of the supply chain are necessary to control overall risk.

The scale of production on livestock farms is still relatively small, but this will change rapidly. "With the state encouraging larger scale," the increase in scale and specialization of farms will "surpass most peoples' expectations."

With living standards rising, Chinese consumers are moving into new stages of consumption. They are interested in health and safety, and they are paying more attention to "green food," organic, and "pollution-free" foods. In the next five years brands considered healthy will grow rapidly.

Companies will pay more attention to "corporate responsibility." The article says that most companies are now in the exploratory stage or just give lip service, but in coming years the corporate social responsibility concept will spread. According to one industry leader, "If you lose sight of social benefits, it's hard to sustain economic benefits."

Feed companies will also expand into service businesses, like [loan] guarantee companies and specialized livestock service companies. Information technology and networking will become necessary tools for feed businesses.