By James Hansen and Fred Gale,
The latest USDA projections again foresee dietary transition in China. Past projections overstated the pace of change, but there are signs of robust demand for meat and feed grains as China moves into a new stage of development.
Past Projections Overstated China’s Grain Demand
Those projections overstated China’s need for grain imports during the first decade of the 21st century. China was a net exporter of grains until 2007. China imported modest amounts of premium rice from Thailand and imported wheat to replenish state reserves during 2004-05. The projections also failed to predict China’s enormous imports of soybeans, which grew from $75 million in 1995 to $38 billion in 2013.
There are now signs of a surge in China’s demand for imported grains, much of it from the United States. During 2013, imports of cereal grains rose to 18 mmt. That total includes 3 mmt of U.S. corn and 4 mmt of DDGS (distillers dried grains with solubles), a co-product of U.S. corn ethanol production that Chinese livestock producers use for feed. The United States supplied 70 percent of China’s wheat imports. During 2013, China became a major importer of sorghum from the United States and Australia for the first time.
Tighter Labor and Feed Supplies Bring Structural Change to Livestock Sector
During past decades, China took advantage of abundant non-grain feeds and underutilized labor resources to produce large increases in livestock output with little demand for feed grains. Impoverished farmers were eager to earn higher incomes by raising livestock. Small-scale “backyard” farmers relied on widely available crop residues, wastes, vegetation, and other biomass for feed, while under-employed family members provided the labor to collect and prepare feedstuffs and tend animals.
Beginning in the 1980s, officials enacted measures to promote livestock production, including support for development of a feed-milling industry and subsidized imports of more productive animal breeds. Indicators of livestock productivity, including feed conversion ratios and days on feed, improved markedly.
Soybeans--China’s largest agricultural import item—escaped the attention of most 1990s-era projections but played a role in the country’s livestock boom. Imported soybeans provide soybean meal used for animal feed; the increased supply provided protein that improved animal diets and increased productivity in the livestock sector. Importing soybeans allowed Chinese farmers to specialize in producing corn, which produces higher yields and net returns than soybeans. Corn became China’s largest single crop in 2013.
There are signs that China’s demand for feed grains has reached a turning point as a tightening labor supply and rising feed costs force significant structural change in China’s livestock sector. Over the last 5 years, economic growth has absorbed surplus rural labor and rural wages began rising 15 to 20 percent annually. Labor scarcity, animal disease pressures, and rising living standards are prompting rural households to abandon “backyard” livestock production. More recently, livestock production has increasingly become a specialized farm enterprise, with farmers focusing on maximizing growth of animals, and substituting commercial feed for wastes and forages gathered from the countryside.
Rising feed demand has pushed up costs and motivated feed mills and livestock producers to explore new feed ingredients like distillers dried grains and sorghum--both imported from the United States. More importantly, China has switched from being a corn exporter to a consistent importer of 3-to-5 mmt annually since 2009. In 2014, Chinese officials announced a new strategic approach to food security which tacitly acknowledges a need for imported feed grains. The strategy still stresses the importance of self-sufficiency, but it allows for “appropriate imports” and focuses concern on food grains—rice and wheat—while placing a lower priority on corn self-sufficiency.
USDA Projects Rising Meat and Feed Demand in Next Decade
USDA projections show a continuation of China’s robust economic growth over the next 10 years, although at a slower rate than in the previous decade. China’s population is expected to grow at a slow rate of 0.3 percent annually, but will increasingly reside in cities and towns. The urbanization rate has surpassed 50 percent and is expected to increase to over 63 percent by the 2023/24 marketing year. Rising living standards and availability of a wider variety of foods from supermarkets, restaurants, and cafeterias for an urbanized population will promote dietary change and create opportunities for new foods to gain a foothold in the Chinese market.
Per capita pork consumption is projected to rise 6.6 kg by 2023/24, more than three times the increase in poultry (2.7 kg) and more than seven times the increase in beef (0.85 kg). However, poultry is projected to account for an increasing share of China’s meat consumption, with per capita consumption rising 2.4 percent annually during the next 10 years, compared to a 1.5-percent annual growth rate projected for per capita pork consumption. The model does not account for fish and shellfish, an important source of protein in Chinese diet and increasing.
Constraints Could Slow Growth of Meat Output…
Traditional backyard farming systems are now being replaced by larger scale farms that use grain-based feeds, but pigs still predominate. Manure is seldom used as fertilizer now, and its disposal has become a major environmental concern. Swine disease epidemics are a constant threat, and the disposal of diseased carcasses became a concern when thousands of dead pigs were discovered floating in Shanghai’s Huangpu river in 2013.