14 January 2009

7 minute read

China’s total meat production in 2009 is forecast to increase nearly four per cent to 73.8 million metric tons (MMT).Beef production is expected to be roughly unchanged as growth in beef cattle has slowed significantly due to increased production costs, led by energy, feed, and labor.

Increasing Beef Production, but Pace Slow

FAS Beijing (Post) forecasts China’s beef production in 2009 to increase by nearly two per cent to 6.4 MMT, up from the revised 2008 estimate of 6.3 MMT. Increased feed and other production costs have pushed many backyard or smaller operators out of cattle rearing. Although China reported a modestly higher grain harvest in 2008, grain prices are expected to continue relatively high, as the minimum purchase price for this year’s grain crop was raised under China’s grain security strategy. Cattle producers also continue to be affected by outbreaks of Foot and Mouth Disease (FMD).

The sluggish prospects for Chinese beef production is in contrast to production of other livestock products, which enjoy substantial government support. Beef cattle subsidies are not yet on the government subsidy agenda, despite repeated calls from the beef cattle industry for more support. Low subsidy levels can be partly explained by the fact that beef only accounts for nine per cent of China’s total meat production. The high-end beef market is also small in China, which is mainly satisfied by imports. Therefore, beef is not as critical as pork which accounts for over 60 per cent of China’s total meat production or dairy products that have become more and more important source of nutrition in China.

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. If government subsidy or supports for beef producers fail to materialize in the coming years, the beef cow inventory could actually drop, reducing calf crop production after 2009.

Although China’s new Law on Corporate Income Tax (effective January 1, 2008) exempts companies involve in cattle rearing from paying corporate taxes, it has not yet attracted domestic and international investment in the beef sector, unlike the swine sector where investment has grown substantially after in the wake of the new law. As production costs continue to increase and with little government support, profit for beef production continues to shrink relative to poultry and swine.

National Beef Cattle Genetic Improvement Center Launched

With investments totaling $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, analysis, and research on China’s high-quality beef cattle genetic resources. However, it could take several years to commercialize research results.

Chinese Official 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. This is the first time a Chinese official has served as an official of this organization. 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 foster a better understanding in China of OIE principles for beef trade with countries where BSE has been detected.

Domestic Bovine Semen Subsidy Challenges U.S. Bovine Genetics Exports

China banned U.S. live cattle exports to China on December 25, 2003 due to BSE-related restrictions. It reopened its market for U.S. frozen bovine semen in 2005. Since then, the United States has become the largest foreign supplier to China’s bovine genetic s market. An emerging market lies in China’s dairy genetic improvement. The Chinese 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 pure-bred breeding stocks are selected and cultivated at domestic breeding centers approved and registered by 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 United 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 implemented an Emerging Market Program to use 2,500 straws of U.S. frozen Holstein bull semen to train Chinese dairy cow raisers to conduct 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. (For more details, please see Post’s annual dairy report CH8111.)

High Beef Prices Impact Consumption

China Average Retail Beef Prices, 2005-2008 (YTD) (US$1=RMB6.88)

China’s beef consumption in 2009 is forecast to increase by nearly two per cent to 6.3 MMT, up from the revised 2008 estimate of 6.2 MMT. Slower disposable income growth due to global economic weakness and high domestic beef prices are expected to hinder beef consumption growth in the remainder of 2008 and in 2009.

From January to September 2008, China’s average retail beef prices increased by 49 per cent to RMB28,250 ($4,154) per ton, up from RMB 18,988 ($2,792) per ton over the same period in 2007. These high prices were mainly attributed to an eight per cent decline in pork production in 2007 due to PRRS, which hampered supply, and increased demand for substitute meats. The average unit price for imported beef from January to October 2008 was over $5,384 per ton, even higher than domestic prices. Beef prices are expected to continue to exceed pork and poultry prices in 2009 due to slow growth in production.

Increasing Beef Imports

FAS Beijing forecasts China’s beef imports in 2009 to increase by ten per cent to 11,000 MT, up from the revised estimate of 10,000 MT in 2008. Whether or not China resumes imports of U.S. beef is a key question as resumption in U.S. beef trade will likely result in significantly higher import volumes. At the moment, Australia is the largest direct beef supplier to China’s import market while Uruguay recently surpassed New Zealand to become the second largest supplier. Growth in Uruguayan beef imports are mainly attributed to reduced New Zealand beef supplies due to drought and significantly lower prices on Uruguayan beef. Brazil is the largest supplier of re-exports to China via Hong Kong in 2008. Hong Kong’s beef re-exports to China decreased by 51 per cent during January-October 2008, partly because China temporarily reduced import tariffs for meat products from June 1 to December 3, 2008, to curb high meat prices. This encouraged direct shipments by reducing profitability of transshipments.

Most imported high-end beef is targeted toward foreign tourists. While the world economic crisis has not significantly affected China’s tourism, the number of foreign tourists traveling to China continues to fall. It the sluggish tourist numbers continue into 2009, the beef import pattern may shift toward more lower-priced offals consistent with Chinese tastes and preferences.

Decreasing Live Cattle and Beef Exports

Post forecasts China’s live cattle exports in 2009 to decrease by six per cent to 30,000 head, down from the revised 2008 estimate of 32,000 head, and beef exports to decline by 21 per cent to 48,000 MT from revised estimate of 61,000 MT. This reflects the slow increase in China’s cattle and beef production. Hong Kong and Macau are China’s dominant live cattle export markets, with Hong Kong accounting for 90 per cent 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.

Further Reading

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January 2009