China's beef prices and imports surge

A 2013 beef market report by the Chinese Academy of Agricultural Sciences (CAAS) noted that Chinese beef prices rose 30 percent during 2013 and have tripled since 2002. Soaring prices and a surge of imports during 2013 were due to tight supplies combined with flourishing demand.

At the end of December 2013, the average price in beef-producing provinces was 57 yuan per kg (about $4.23/lb) and the price in southeastern provinces was over 70 yuan ($5.20/lb). Since then, prices have gradually fallen but remain at a high level. Compared with pork prices--blamed as a chief cause of inflation in past years--beef prices have shown much stronger upward momentum since 2011 (see chart).

 

Source: China Ministry of Agriculture data analyzed by dimsums.blogspot.com.

According to official statistics, China’s beef output increased 1.7% during 2013 to reach 6.73 million metric tons. However, some doubt the accuracy of the numbers. An Economic Reference News article on the beef industry in early 2013 reported that beef cattle numbers have been falling dramatically in Shandong and Anhui, two traditional beef-producing provinces.

The CAAS analysis cites several reasons for sluggish growth in production. First, a grassland ecological restoration program has reduced the number of cattle (and sheep--also soaring in price) in major pastoral regions of western China to rehabilitate overgrazed pastures. The program has raised production costs by channeling livestock from nomadic-style grazing to confined production systems with higher costs. (Interestingly, this program was initiated in 2011, the same year beef prices began their surge.) The analysis says this is a short-term disruption of production.

The CAAS analysis also cites higher costs of labor, feed, disease prevention, transportation and other factors. A 200-kg calf now costs 8,000-10,000 yuan in 2013, up from 5,000 yuan in 2011. Net returns are low, and the long production cycle of fattening cattle makes it uncertain that farmers will recover their investment. Thus, many farmers have quit raising cattle and slaughtered their heifers.

Consumer demand for beef is rising in China. Beef and mutton were traditionally consumed by Muslims, Mongolians and other ethnic minorities in grassland regions. Now the predominant Han ethnic group—which traditionally consumed pork as their primary meat—is increasing consumption of beef due to health considerations and popularity of hot pot and barbeque restaurants. The average per capita purchase of beef was reported to be 2.5 kg per person in urban areas and 1 kg in rural areas during 2012, well below the world average. Economic Reference News cites experts who believe two-thirds of beef is consumed away from home.

During 2013 China imported 294,200 metric tons of beef valued at $ 1.27 billion, a four-fold increase from the previous year. The average unit value of imports was equal to about $ 2/lb, less than half the Chinese price of beef. Imports came from Australia, Uruguay, New Zealand, Canada, and Argentina. China’s exports of beef fell by half to 5,874 metric tons.

 

The flourishing demand and high prices have stimulated a new mode of beef production in Heilongjiang Province. A Harbin investment company has just announced a plan to entice farmers to invest in an 11,000-head Angus beef cattle production project. Chinese farmers contribute 500 yuan to a "risk fund" for each animal they raise in the facility. The company centrally purchases feeder cattle and provides free feed, vaccines, and water treatment. Farmers raising cattle at the facility receive a payment of 4 yuan per kilogram of weight gain. According to the announcement, the net return to the farmer/investor/employee is expected to be 1000 yuan per head. This is described as a new style of cooperation between companies and farmers.