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News and analysis on the global poultry
and animal feed industries.
0805FIChina15
on June 22, 2009

Big opportunity for poultry in China

Economist says that high grain prices give broilers a competitive advantage over swine and may lead to shift in consumption in the world's largest meat market.

Rapid industrial growth and economic development in the People's Republic of China has led to significant changes in the diets of the residents of the world's most populous country. Growth in personal incomes, per capita gross domestic product rose to an estimated $5,300 in 2007, has been followed by increased meat consumption. In 1930, 97 percent of the caloric intake of residents of China was from plant-based foods, but this had dropped to 63 percent by 2002, according to Gordon Butland, consulting economist, who addressed the World Poultry Council meeting in Brisbane, Australia. Along with its economic development, China's urban population has grown dramatically. In the 25-year period from 1980 to 2005, China's rural population has remained constant at 800 million people while its urban population has grown from 200 million to 500 million people.

Pork versus poultry

Pork has long been the dominant meat in China, but chicken has been gaining ground. Over the 15 years from 1990 to 2005, chicken increased its share of total meat consumption in China, rising from 12 percent to 20 percent while pork fell from 80 percent to 65 percent, Butland reported. China produced 44 percent of the world's pork in 2007, more than any other country, and its chicken meat production was 17 percent of the world's total (see table).

While China's chicken meat production is over 70 percent of the USA's, Butland said that the industry is fragmented and there is "no really big national company yet." Native breeds of chickens still are important to the poultry industry in China. Butland said, "Although accurate numbers are not available, it does seem that the number of native birds is slightly higher than the Western broilers, although the tonnage position is reversed."

Fragmented industry

China's agricultural and food processing sectors have been rocked in recent years by animal disease problems, like avian influenza, and feed and food contamination incidents. Butland believes that the drives to control disease in livestock and poultry and deal with food safety issues will lead to a concentration of livestock and poultry production on to larger, more western style farms, and lead to fewer large processing facilities. "It is estimated that there are about 1,500 processing plants, of which more than half process 20,000 birds per day or less. There are very few plants that process 160,000 per day or more," he said. Butland expects consolidation to reduce the number of small plants by more than 60 percent and lead to a doubling of the number of large plants. "Both Chinese and foreign companies have projects to implement large complexes in the near future," Butland said.

"The need for this consolidation is also driven by the needs of the fast food sector. In 2000, there were around 800 outlets of KFC, McDonald's and Dicos, and by 2007 it is estimated that there were over 4,000. It is fair to say that the rate of future growth is dependent on the availability of good quality product," Butland said.

Grain price impact

"The big question mark over livestock production is the grain situation," Butland said. China is the second largest corn producer in the world with around 20 percent of the world's production. The planted area is similar to the U.S., but yields are only just over a half. Stocks of corn have been steadily eroded since 2001 and exports have all but ceased. The Chinese government has introduced a moratorium on building new ethanol plants. In future, China will become an importer of coarse grains.

The situation for soybeans is even more difficult in China. "China produces only about 7 percent of the world's soybeans and imports around 15 percent of the world's production. This is obviously a strategic issue for the country and the press has indicated that China is actively encouraging its companies to buy land in South America. A key factor in the surge for soy is probably the increase in industrialized animal production as compared to backyard production," he said.

Poultry's opportunity

Today's higher grain prices mean higher production costs for all of animal agriculture, but chicken has a competitive advantage over pork because of its lower feed conversion. Butland sees this as an opportunity for the poultry industry in China. He said that this cost advantage, which increases as grain prices rise, is a catalyst for continued growth for poultry consumption in China. But, higher cost of grain can become a purchase barrier for consumers at the low end of the economic spectrum. "Chicken, as the lowest cost meat, seems to be a beneficiary in the short term, but lower income consumers, of which there are many in China, could have difficulty in purchasing product. When this has happened in other countries there has been a movement to smaller birds and or cheaper cuts," Butland said.

Even with higher grain prices, the long term economic outlook for poultry consumption in China should be bright. Meat and poultry prices will need to reach new equilibrium levels as production has been adjusted to cope with higher grain prices. This will ultimately lead to higher costs for consumers for animal products. Chinese consumers' incomes will continue to grow, and this should fuel growth in poultry consumption, even at higher price points. Butland said that the percentage of the average Chinese family's income that will be spent on food will drop from almost 37 percent in 2005 to an estimated 20 percent in 2025.

Poultry trade

"As chicken consumption increases, the balancing of domestic production and consumption of chicken parts should result in increasing imports, especially from the USA and Brazil," Butland said. China is a major export customer for poultry from the USA, with around half of the total volume made up of chicken paws.

Butland said that China is not seen as a threat to the major exporters such as Brazil and the USA. But, he said that China will continue to export some cooked breast meat items to deal with its relative white meat surplus. Japan is a major cooked chicken customer country and the European Union recently removed its ban on imports of cooked chicken meat from China.

Around 5 percent of China's poultry meat imports in the first six months of 2008 were turkey meat products. This total is up 50 percent from 2007. There is no Chinese turkey industry. Most of the turkey imports come from the USA and it is believed that demand is coming from foreigners living in China and the increasing influence of western cuisine on younger consumers.

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