HongKong Business

China meat demand to soar in coming decade

By Chenjun Pan (HK Edition)
Updated: 2010-05-07 07:37
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Demand for meat will continue to rise in China, with the Food and Agriculture Organization of the United Nations (FAO) estimating that beef consumption in China will increase by 1.5 million tons and sheep meat by more than 1 million tons within the decade.

The growth is supported by continued strong growth in the country's economy, as well as its ongoing urbanization process, which, it is estimated, will add about another 220 cities of over 1 million residents by 2025 to the current 160.

The country is facing challenges in increasing its meat production, under constraint of limited supply of agricultural land and water. While China has 22 percent of the world's population, it owns only 7 percent of the world's arable land. Of this arable land, over 10 percent is estimated by the Chinese government to be polluted, mainly by heavy metals and chemicals. China is already facing a problem of low arable land per capita. This is set to fall even further, with the country suffering from severe erosion and desertification of its productive land and the population set to increase over the next decade.

Water availability is also an ongoing issue in China, as it has only 6 percent of the global renewable fresh water supply.

Unable to meet all its food needs through domestic production, China will increasingly have to rely on imports of some commodities to meet its consumption needs. The government has to decide in which agricultural products it wishes to maintain, or achieve, self-sufficiency, and for which products it is comfortable increasing import levels.

Local pork production is one of the major targets for self-sufficiency. Since a severe disease outbreak decimated herds and reduced production volumes in 2007, the government has put in place major support systems, with producers receiving support through a range of mechanisms, including direct payments to producers and input subsidies. For beef and sheep meat producers in China, support will be minimal, leaving them to face the challenges of limited land and water resources head on. Producers are also likely to face the added pressure of rising input prices, such as fertiliser and grains, and increasingly stringent food-safety requirements, after such issues as the melamine milk contamination in 2009. This pressure is likely to limit a recovery in herd and flock numbers in China, constraining growth in beef and sheep meat production, while providing great opportunities for foreign exporters.

With production growth being slow and demand continuing to rise, China is likely to increase its beef imports over the coming years.

One of the most popular methods for eating both beef and sheep meat in China is to cook with a hot pot, with numerous specialty restaurants providing hot pot cooking, which consumes a lot of meat cuts, including low-value cuts such as brisket and flank. China has also seen rapid growth in Western-style restaurants in recent years, particularly fast-food chains such as McDonald's. By the end of 2009 McDonald's had already opened 1,175 stores on the mainland, with plans to open an additional 150-175 new restaurants in 2010 alone. Meanwhile, the growth in five-star hotel restaurants and other fine dining establishments is also impressive.

The growth in such Western-style restaurants will boost sales in both ends of the meat market, from high-priced loin cuts for fine dining to processed beef for hamburger patties.

Good growth prospect is also seen for sheep meat in China, with consumption expected to continue to overgrow local production. As with beef, there is room for stronger sales at both ends of the market, with lower-value cuts like breast and flap and brisket for use in hot pots, and premium cuts such as racks and loins for consumption in higher-end restaurants.

The major opportunity for live-cattle exports to China will continue to be for dairy cattle and breeding cattle for the purpose of improving local genetics. There is low expectation for major growth in sales of feeder cattle (yearlings). A major factor constraining the trade of feed cattle (yearlings) is the lack of cheap feed in China. While direct sales of feeder cattle to China will be limited, there is potential growth in adjacent markets such as Vietnam, where feeder cattle are slaughtered and then traded across the border to China.

Pressures on land availability and rising input costs will increase the importance of productivity improvement for Chinese cattle and sheep producers. This will open up additional opportunities, including genetic technology and know-how transfer, to help China develop new animal husbandry techniques.

Chenjun Pan is a Beijing-based senior industry analyst at Rabobank, specializing in research on China's agricultural sector. The opinions expressed are entirely his own.

(HK Edition 05/07/2010 page2)