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Overseas meat suppliers struggle to keep up with rising Chinese demand Vote_lcap68%Overseas meat suppliers struggle to keep up with rising Chinese demand Vote_rcap 68% [ 178 ]
Overseas meat suppliers struggle to keep up with rising Chinese demand Vote_lcap18%Overseas meat suppliers struggle to keep up with rising Chinese demand Vote_rcap 18% [ 47 ]
Overseas meat suppliers struggle to keep up with rising Chinese demand Vote_lcap13%Overseas meat suppliers struggle to keep up with rising Chinese demand Vote_rcap 13% [ 35 ]

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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Overseas meat suppliers struggle to keep up with rising Chinese demand

Overseas meat suppliers struggle to keep up with rising Chinese demand

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MARKETWATCH2


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

http://www.scmp.com/business/china-business/article/1424880/overseas-meat-suppliers-struggle-keep-rising-chinese-demand
Overseas meat suppliers struggle to keep up with rising Chinese demand

Consolidation in China's meat industry is set to continue.

In 2013 Sophie Wang had one of her best years yet. Arranging the export of 45,000 live cows to China, her firm accounted for over half of Australia’s cattle livestock sales to the mainland and helped feed a growing hunger for meat, milk and infant formula products in the world’s most populous country.

The managing director of Landmark Global Exports, an Australian livestock export handling company, she wishes she could sell more. “It is not because demand is not there, it is because supply is not there,” said Wang.

Amid steady urbanisation and rising wealth, a healthy appetite for meat and dairy products from Chinese households is a boon for global livestock breeders looking for new markets.

Underpinning this trade has been a dramatic change in the Chinese diet. According to the country’s National Bureau of Statistics, per capita meat consumption has doubled while per capita dairy consumption has trebled in the past three decades.

Demand for meat is now expected to level off at 2 per cent annual growth though prices will increase at 10 per cent per annum over the next decade as a desire for safer, premium meat continues to grow, wrote analysts at Netherlands-based Rabobank in a research report.

Like most countries, China relies on imports for some of its food products. Animal products and livestock imports from the European Union last year totalled US$2.8 billion, having more than doubled in three years, according to the National Bureau of Statistics. Imports from Australia trebled during the same time to US$1.6 billion.

Data from Statistics New Zealand show 25,000 cattle worth NZ$63 million (HK$403 million) were exported to China in 2011. In 2012 it was 38,282 head of cattle, costing over NZ$100 million.

“The mining boom that has been occurring for many years in Australia is now being joined by what I call the dining boom,” said David Thorn, global head of consumer sectors at National Australia Bank. One of the largest lenders of credit to Australian agribusinesses, NAB is expanding its trade finance operations to support the regional movement of agricultural commodities.

With widespread concerns about the quality of locally produced meat, worried consumers have spurred sales of imported meat products from around the world, though only Australia, New Zealand and Uruguay are currently permitted to export live cattle to China. Last year, China accounted for a third of Uruguayan beef exports, reports the US Meat Export Federation. Also last year, China expanded this list by signing an agreement with Romania to import half a million cattle and three million pigs over the coming years.

According to Ngoh Seng Keong, a China desk manager at Singapore-based agricultural research company eFeedLink, China also imports pedigree pigs for breeding from Europe, the US and South America.

The interest in importing live animals also reflects a wider economic shift away from smaller backyard farms towards larger co-operatives and agribusinesses where economies of scale and access to credit allow farmers to invest in higher quality breeds and modern facilities. The closure of family-run smaller farms is in line with government efforts to reduce disease outbreaks and associated health scares.

Larger agricultural firms like listed Muyuan Foodstuff and Jiangxi Zhengbang Technology have over 500,000 pigs each. Others, including state-owned Cofco, have farms with over 100,000 swine.

“The game plan is for the bigger guys to get bigger. The guy with the five pigs and the ten chickens is going to disappear,” says Paul Chen, managing director of food and agricultural research, Asia, at Rabobank. Chen points to November’s economic plenum, which identified reforms allowing farmers to both transfer land rights and take out loans against their land rights as important steps towards greater consolidation.

According to a Rabobank report, in 2012 small farms produced 37 per cent of pigs compared with 74 per cent in 2001, while the number of co-operatives rose from 74,000 in 2008 to 689,000 in 2012.

The bigger companies are also expanding beyond breeding and into slaughtering and supply chain management as part of a strategy to monitor meat movement from farm to food plate by building trustworthy brands to restore consumer confidence on the mainland. One example is restaurant notices aimed at reassuring diners about the food supplier.

The impact of consolidation is felt beyond the farm. Part of a wider shift to mechanisation and more hygienic practices, hand slaughtering is being phased out, with the number of licensed slaughterhouses falling from 30,000 in 2006 to 10,000 in 2012. By 2020 the number is projected to be 2,000, says Rabobank.

Analysts expect the agribusiness transformation will continue for two more decades.

In Australia, Wang says, the overwhelming majority of livestock exports are dairy cattle. Wang organises only one to two boatloads of beef cattle each year. She is held back from further trade only by the supply constraints of Australian farmers who on average raise 200 to 300 head of cattle a herd.

It is too small a number to meet Chinese demand and farmers are loathe to spend money on expanding their herds given a spate of recent droughts and unpredictable weather that killed a lot of livestock, said Wang.

She said she has wondered why people are not breeding more given the opportunity. “Australia only has 1.5 million head of dairy cattle … It’s impossible for us to get the hundreds of thousands [for export] as there are just not enough cows.”

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