The world has a potential food crisis. We need to produce more food! If we don’t, there will be riots in the streets as feeding a family becomes unaffordable.
Bloomberg notes that, according to a United Nations report, “By 2050 the planet could have as many as 9.7 billion mouths to feed.” Adding that, “Changing diets means we will need to raise global food output by 70 percent from 2009 levels.”
China, with its almost 1.4 billion people and small proportion of cultivated land is on the front line of the need to make more food. If farmers, agribusiness and the agrichemical industry don’t get it right, then the first food riots of the coming decades will be on the streets of Chengdu.
Given this potential surge in demand, shouldn’t every feed manufacturer and feed merchant be heading to China?
Maybe; but like most things in the feed industry, it is not as easy as it first seems.
Why China May Not be the Best Place for Feed Industry Expansion
Just a decade ago, China looked to be the best place for every growing manufactory, and that included the feed industry. Meat consumption was growing, there was significant migration from rural economies to urban centres, and central government agribusiness reforms were encouraging larger farms to replace ‘Ma and Pa’ farming.
As a recent study on the Chinese feed market by the industry journal World Grain, reports, “Livestock production became more commercialized in the 2000s and producers were more willing to pay for commercially mixed feeds compared to backyard producers. Feed companies expanded regionally and nationally, and compared to its initial beginnings, China’s feed industry has become more diverse, while privately-owned companies are leading the way. The nation now has some of the largest feed companies in the world.”
However, feed experts are today not so certain that Chinese livestock farming can support continued high levels of feed industry growth. As Aidan Connolly, chief innovation officer at Alltech, notes, “Feed production for 2017 likely will have surpassed 200 million tonnes, representing growth of between 1% and 2%.”
However, he adds that, “The government is trying to consolidate farms, making them larger and more efficient. China typically needs 2% less feed each year to produce the same amount of meat, so they will require less feed each year. This, combined with an increase in less overall feed consumption, gets us to the 1% to 2% growth per year. I don’t think we’re going to reach 300 million tonnes of feed in the next 10 years. It will most likely be closer to 220 million or 230 million tonnes.”
Furthermore, it is worth noting that the Chinese government is happy to import meat from other countries.
A U.S. Department of Agriculture Economic Research Service (ERS) report from 2015, states that, “China has agreements with Australia to phase out tariffs on imports of beef and dairy products, and it also has agreements with several Eastern European countries to import cattle, sheep and pork.” Adding that, “China is also making overseas investments focused on meat and dairy production, including the purchase of Smithfield Foods by China’s Shuanghui Group.”
“The feed industry will stay at the same level of production,” Connolly believes. “In the past, I was much more bullish because I felt we were going to replace all of the backyard flocks and pigs. I’m less optimistic now.”
Despite this less than positive outlook, some feed manufacturers are still keen to invest in expansion in China, but they are having to be smart about it.
Smart Investment in China’s Feed Industry
There is still room to export and expand in the Chinese feed industry, but those who are successfully making the transition are being clever in their approach. Innovation, branding, and sustainability are the routes to break into China’s agribusiness markets.
As Connolly highlights, “There is a global move toward specialization, with mills producing feed for one species instead of multiple. Not only does it improve safety and avoid cross-contamination, it’s what consumers are demanding. Right now, China’s feed mills are multiple species, but specialization will come to China.”
The ERS report also reports on the current trend toward specialisation in feed markets, writing that, “Feed companies are looking for new feeds; offering premium-priced feeds with special brands or attributes.” Adding that, “Several companies are emphasizing their expansion into branded consumer products sold in supermarkets, company-operated specialty shops and even restaurant chains.”
One such European feed business that has found success in China through specialisation is BioMar. The Denmark-based company recently announcing that it, “… is focusing on the market for sustainable feed in China and Australia.” Adding that it plans for the, “… continuous development of operations in China, focusing on the significant market for high performing feed in the country.”
Specifically, the company is completing construction of a new factory in Wuxi, as well as further development of their Haiwei factory in the south of China.
“Innovative products integrating high performance, functional feeds and sustainability concepts have shown to be a very strong platform for growth,” the company said.
The Correct Feed Additives make the Correct Feed for China’s Market
BioMar’s previous success and continued expansion shows that a route into the Chinese feed market does exist. However, feed manufacturers and suppliers need to expect slower growth than might be initially expected. Simple analysis of meat consumption increases is not enough.
They also need to use product differentiation and USP’s to gain market traction. This can be gained through innovation, and the application of effective feed additives. Feed products that have been scientifically-proven to add value and be able to capitalise on China’s steady, long-term 1% - 2% feed market growth.
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