31 August 2008

9 minute read

Executive Summary

China’s total meat production in 2009 is forecast to increase by nearly four percent to 73.8 million metric tons (MMT). Beef share is forecast to account for nearly nine percent and pork share is forecast to account for about 62 percent.

Beef production growth in 2009 is expected to slow, due to smaller than expected increases in beef cattle heifers. As a result, beef production is forecast to grow by only two percent. Pork production in 2009 will recover quickly due to strong demand. However, swine and pork production levels are not expected to recover to pre-blue ear disease levels.

On April 10, 2008, China’s National Statistics Bureau (NSB) announced significant revisions for 2006 meat production numbers after completing the Second National Agriculture Census conducted at the beginning of 2007. Total meat production in 2006 was revised down eight percent to 70.9 MMT from 77.4 MMT in 2005. Beef production in 2006 was revised down 19 percent to 5.8 MMT from 7.1 MMT in 2005, and pork production in 2006 was revised down seven percent to 46.8 MMT. NSB also revised the animal inventory and slaughter figures to match beef and pork production in 2006. It is uncertain whether NSB will change China’s historical livestock numbers before 2005. FAS/Beijing and the Chinese meat industry believe the revised 2006 and 2007 numbers are in line with actual production and slaughter. The PS&D tables for cattle, beef, swine, and pork included in this report have been revised based on these changes in 2006 production.

Production

Increasing Beef Production, but Pace of Growth Slow

China’s beef production in 2009 is forecast to increase nearly two percent to 6.4 MMT, up from the revised 2008 estimate of 6.3 MMT, which was revised down 19 percent from the previous estimate of 7.7 MMT in line with new industry and NSB figures. The pace of growth is forecast to be .5 percent smaller in 2009 than in 2008 because of the expected slow increase in calf production in 2009.

Cattle production in 2008 has been pressured by increases in the price of production inputs. From January to June 2008, the average corn and soy meal prices were U.S. $255 per ton (1,760 RMB) and U.S. $586 per ton (4,040 RMB), respectively, according to the Ministry of Agriculture. The price of imported alfalfa in the first half of 2008 increased 70-80 percent. As the prices for feed grain, fuel, water, electricity, and labor continue to increase, this production pressure is expected to persist into 2009. According to China’s cattle industry, the bulk of profits lie in the fattening and slaughter sectors as opposed to beef cow rearing for reproduction, which is slow because it takes about one year for a cow to produce one calf. Gross earning from one calf (not including labor and grass material costs) is only about U.S. $145 (1,000 RMB) on average. Therefore, beef cow producers are not expected to expand new placements by a large margin in 2009. (Please refer to CH8014 for more detailed background information.)

2008 Production Impacted by Natural Disasters

China’s livestock production in 2008 was severely impacted by natural disasters. The earthquake that struck Wenchuan County in Sichuan Province on May 12, 2008, killed 1.52 million head of pigs, 60,000 head of cattle, 178,000 head of sheep and goats, and 14 million rabbits and poultry birds. A brutal ice storm in Central and South China at the end of January 2008 also negatively impacted China’s livestock production. Foot and Mouth Disease (FMD) outbreaks, though reduced, still occur on occasion. Unlike the insurance subsidy provided for breeding sows, China has no subsidy program for beef breeding cattle. Breeding sow farmers pay U.S. $1.80 (12 RMB) per head of the total U.S. $8.70 (60 RMB) required to receive U.S. $145 in insurance coverage per head (1,000 RMB). The balance of payment is covered by the government. Increases in production costs have pushed many small or backyard operators out of cattle rearing. This provides an opportunity for commercial cattle farms to increase production and off-set the gap left by small or backyard operators exiting the market. However, natural disasters and animal disease outbreaks, combined with increasing production costs and a lack of government support for beef cow insurance, have made China’s cattle producers reluctant to expand their herds. As a result, calf production in 2009 is only expected to increase two percent.

Although China’s new Law on Corporate Income Tax, effective on January 1, 2008, exempts companies involved in cattle rearing from paying corporate taxes, it has not attracted domestic and international investment to the beef sector as it did in the swine sector. This is largely because the beef cattle raising period is much longer than the rearing time required for poultry and swine. As production costs continue to increase, the profit for beef production continues to shrink relative to poultry and swine.

National Beef Cattle Genetic Improvement Center Launched

With investments totaling U.S. $623,188 (4.3 million RMB), the National Beef Cattle Genetic Improvement Center opened its doors in March 2008 at the Northwest Agriculture and Forestry University in Yangling, Shaanxi Province. This university is well known for its animal science program. In response to an urgent need to improve beef cattle production efficiency to curb high production costs, the university will focus on building a platform to demonstrate industrialization of genetic improvements for beef cattle production and feeding technologies through information collection, evaluation, and research on China’s high-quality beef cattle genetic resources. However, it will take some years to bring research up to practical use, so is not expected to significantly impact beef production in 2009.

Subsidy to Boost Dairy Cattle, a Chance for U.S. Genetics

China’s dairy cattle beginning stocks in 2009 are forecast to increase by eight percent to 13.2 million head following an estimated seven-percent increase to 12.2 million head in 2008, attributed to strong demand. The 2008 estimate is revised down from the previous estimate of 14.7 million head in line with the latest industry and NSB estimates. The government subsidizes artificial insemination for dairy cows and offers two straws of high quality frozen Holstein bull semen per cow at a price of U.S. $2.20 (15 RMB). A new policy went into effect in late 2007 that provides U.S. $72.50 (500 RMB) for each high quality dairy cow heifer produced from pure-bred breeding stocks with registered bloodlines. These purebred breeding stocks are selected and cultivated at domestic breeding centers approved by and registered with the Ministry of Agriculture (MOA). Many of China’s existing pure-bred breeding cows and bulls that are currently registered with MOA were imported from the United States before the outbreaks of BSE in North America. However, the Unites States cannot presently export breeding cows or bulls to China due to BSE-related restrictions. Currently U.S. trade potential lies with frozen semen exports to China. The U.S. Agricultural Trade Office in Guangzhou has already begun to implement an Emerging Market Program to use 2500 straws of frozen U.S. Holstein bull semen for artificial insemination among selected dairy cows in China. The program is intended to demonstrate the high quality of U.S. genetic materials to Chinese dairy cow producers. Live breeding cattle imports are expected to decline as more frozen semen is used, and U.S. exports of genetic materials should increase as a result.

Consumption

High Beef Prices Impact Consumption

China’s beef consumption in 2009 is forecast to increase by less than two percent to 6.3 MMT, up from the revised 2008 estimate of 6.2 MMT, revised down 19 percent from the previous estimate of 7.6 MMT to reflect the latest industry and NSB data. Higher wholesale and retail prices are expected to constrain domestic beef consumption in 2009.

From January to June 2008, China’s average retail beef prices increased by 54 percent to U.S. $452 per ton (3,117 RMB), up from U.S. $294 per ton (2,028 RMB) over the same period in 2008. These high prices are mainly attributed to a 14-percent decline in pork production in 2006 and 2007 from 2005 production, which hampered supply, and the fact that beef increasingly serves as a substitute for pork. Even when pork and broiler prices declined by five and three percent, respectively, between April to June 2008 in response to increased pork and broiler production, the price of beef continued to rise because of lower production. Beef for human consumption commands the highest price when compared with pork and broiler meat prices. Although the average price of imported beef from January- June 2008 decreased by 21 percent to $4,755 MT from $6,039 MT over the same period in 2007, it was still two percent higher than domestic beef prices. The government provides meat subsidies to China’s lowest-income consumers, varying from U.S. $4.30 to $8.70 per person per month (30-60 RMB) depending on income levels. Many low or middle-income consumers who do not receive subsidies have been forced to switch to lower priced broiler meat as a substitute for pork and beef.

China Elected OIE Commission Vice President for Asia-Pacific Region

The World Organization for Animal Health (OIE) convened its 76th session of the General Assembly in Paris, France at the end of May 2008. At the meeting Zhang Zhongqiu, Deputy Director General of the Veterinary Bureau at MOA was elected OIE Commission Vice President of the Asia-Pacific Region. China has not yet lifted its ban on imports of live cattle and beef products from the United States due to BSE-related restrictions. Zhang’s election to this new position will hopefully aid China in better understanding of the OIE principles for beef trade with countries that have had BSE cases.

Trade

Increasing Beef Imports

China’s 2009 beef imports are forecast to increase by nine percent to 12,000 MT, up from the revised estimate of 11,000 MT in 2008. In the first half of 2008, Uruguay surpassed Australia and New Zealand to become the largest direct supplier of beef to China. This is mainly attributed to a decline in beef production in Australia and New Zealand and also because the price of imported beef from Uruguay dropped 29 percent to $2,209 per ton, compared with $7,594 and $2,993 per ton from Australia and New Zealand, respectively. Brazil is the largest supplier of re-exports to China via Hong Kong. Since the re-export volume is small, the price is elastic.

Decreasing Live Cattle and Beef Exports

China’s live cattle exports in 2009 are forecast to decrease by six percent to 30,000 head, down from the revised 2008 estimate of 32,000 head. This reflects the slow increase in China’s beef production. Hong Kong and Macau are China’s dominant live cattle export markets, with Hong Kong accounting for 90 percent of the export market share. The appreciation of the RMB against the Hong Kong Dollar1 has led to higher export prices, constraining exports as a result.

China’s beef exports in 2009 are forecast to decrease by 21 percent to 48,000 MT. Hong Kong is traditionally China’s largest beef export market. However, China’s exports only account for one percent of its total dome stic production. The forecast decrease in 2009 exports is not only because of slow domestic production, a stronger RMB exchange rate against the U.S. and Hong Kong Dollar, but also because U.S. exports of beef recently resumed to South Korea. During the absence of U.S. beef in the market because of BSErelated restrictions from 2003-2007, South Korea became China’s second largest export market.

Further Reading

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September 2008