China: Country of Contrasts15 February 2013
Report from VIV China by Stuart Lumb who highlights the rapid changes in pig production and life generally in China as traditional ways are now giving way to 21st century technology to keep the population supplied with its favourite meat.
Driving through Henan province, the black tarmac highway suddenly turns yellow. No, it is not the Yellow Brick Road, immortalised in the epic movie 'The Wizard of Oz' but thousands of freshly harvested heads of corn, spread laboriously by hand over the road. The tarmac warms up in the sun's rays and so makes an ideal cost-saving way to dry the province's corn crop. Shortly afterwards, the author jumps into the 21st century, gazing intently at a huge bank of CCTV screens, which show pictures of pigs in a modern 1,000-sow farrow-to-finish piggery. Similar technology greets the visitors to VIV China, which is held biennially in Beijing.
The last such event attracted 300 Chinese exhibitors along with 150 international companies, with much of the equipment on show being similar to that displayed at any other international salon. Big bulk feed bins and conveying equipment were much in evidence, although the vast majority of pig feed and feed ingredients in China are still transported in 40-kg bags, a weight which is illegal in many countries. Some would argue that it is cheaper to employ staff to move feed around manually; however, labour to work on farms is not as plentiful as it used to be with the drift from rural areas to the cities on-going, lured by the promise of good wages. Labour costs will continue to rise as minimum wages, quite rightly, improve. In 2012, there was a 13 per cent increase in the minimum wage as set out in the State 12th Five-Year Plan (2011-2015), with mandatory social welfare adding to the payroll costs.
Electronic sow feed (ESF) stations have been in use in Europe for over 25 years and many of the big international companies had their ESFs on display, and it was very interesting to note that several Chinese equipment outfits also had their own ESFs on show. Quite how many get sold is a mute point although it is suggested that very large farms have installed ESFs to promote the image of embracing new technology.
In contrast, there were plenty of traditional gestation stalls in evidence.
On the feed front, it was significant that despite antibiotic growth promoters still being allowed in feed in China, many feed companies were promoting acidifiers and natural types of AGPs. European and North American breeding companies were in evidence, eager to do business in the huge Chinese market and given the rocketing price of feed, producers will be falling over themselves to take advantage of the superior genotypes that are now available to them.
Pork and China are inextricably linked. Pork is such a fundamental and essential part of the Chinese diet that price rises cause great concern to the average man and woman in the street, such that China treats pork as a strategically important food. The standard of living is rising in China - no bad thing - which means more can be spent on pork per person and this, along with the rising population, means demand for pork will undoubtedly continue to be strong, especially for value-added and convenience products. Annual per-capita meat consumption has increased over four-fold since economic reforms in the late 1970s, standing at 37kg of pork, 13kg of poultry along with 9kg of beef and sheep meat.
With regard to future pork consumption, food safety was cited in a 2010 university survey as the number one concern for most consumers. Several food scandals have caused short-term falls in consumption and it can take months to rebuild consumers' confidence. Significantly, consumers seem to be willing to pay a premium for pork produced in a secure supply chain. With the pork industry's current fragmentation it is expected that it will take years to develop a widespread coordinated supply chain that consumers feel confident about from the point of view of food safety.
Pig Meat Outlook
Pork consumption is likely to increase slowly at around one to two per cent annually. Overall meat consumption will favour poultry over pork, due to the former's relatively low price. Pork's share of consumption is expected to further decline to 62 per cent by 2020, although given the sheer size of the pork industry, pork will retain its dominant position long-term, and will continue to show the greatest growth in volume. It is predicted that consumption will increase in lower income categories living in urban areas, as well as by the rural population, which will become more urbanised as time goes by.
The value-added segment will also grow, fuelled by demand from the urban middle class and from the more wealthy population groups.
Pig prices have been all over the board since 2006 due to supply and demand becoming unbalanced. Small producers were quitting but not enough larger more commercial units were replacing them, leading to fewer pigs being produced. Soaring pig prices in 2008 and 2011 were indicative of shortages in those years.
Furthermore, PRRS ('Blue Ear disease') in 2008 caused a dramatic 20 per cent decline in herd size that year, along with much price volatility. The main driver of inflation in 2011 was laid at the door of pork prices.
In early 2012, pork/pig prices started to fall as production increased slightly, plus demand dropped along with the impact of imported pork. Declining prices will impact on profitability and discourage expansion, which could lead to another shortage of supply. This is the nature of the pig cycle: obeying the simple economics of supply and demand. However, the cycle can be distorted by imports, the release of pork kept in cold stores and subsidies or financial incentives.
According to a 1979 survey by the Chinese Institute of Animal Science, there were 100 different breeds or strains in China, divided into six regional types. It is generally assumed that the Meishan is the major Chinese breed. It certainly is highly prolific, hence its importation into Europe many years ago but actually, it is only one breed out of 100!
Traditionally, Chinese farmers raised one to three pigs for family consumption and for selling, but this is all changing.
It is now generally recognised that there are three broad types of producer:
- backyard farms producing 50 pigs
- specialised farms producing between 50 and 3,000 pigs, and
- commercial units producing more than 3,000 pigs.
Significantly, 74 per cent of production came from backyard farms in 2001, declining rapidly to an estimated 27 per cent by 2015. The large commercial units are increasingly buying equipment to replace labour as automatic feeding systems are generally more accurate than feeding by hand.
The vast majority of finished pigs are bought by middlemen who sell them on to slaughter plants, although commercial-sized operations usually sell their pigs on contract to a processor.
Many of the indigenous Chinese breeds are unsuitable for modern day requirements and so the Chinese have looked abroad for new improved genes. Imports started in the 1990s and its estimated that lines from the US account for around 50 per cent of imports, with Canada providing between 20 and 30 per cent. EU breeders arrived somewhat later on the scene but are making rapid inroads in the market.
Key players include PIC (Genus), Hypor, Topigs and JSR Genetics. Companies may set up joint-venture deals or sell through franchise operations. Key breeds are Duroc, Yorkshire, Landrace and Hampshire.
Structural Changes in the Industry
The rapid change in China's pig production started in 2007 when backyard farms were hit far harder by disease than the larger units due to bad sanitation and poor management. Backyard farms are more susceptible to variable input costs and market volatility. Furthermore, the migration of the rural population to the cities to get better paid jobs has pushed up the costs of rural labour, making backyard farming less competitive than larger units.
A number of leading processors are establishing their own farms and developing vertically integrated operations. Wen's Group (producing seven million pigs per year) CP Group, Zhengbang Technology Co, Muyuan Foodstuff Co. Ltd and the Chuying Agro-Pastoral Group all have farms with more than 500,000 pigs. The COFCO Group, the Shandon Liuhe Group and AgFeed have farms with more than 100,000 pigs. In the case of Wen's, the company breeds the pigs but these are bought and finished by contract producers, with feed being provided by Wen's.
A typical commercial 1,000-sow farrow-to-finish unit often is integrated with a feed business. Breeding stock are based on top quality foreign genetics. Sows farrow on a weekly basis and 24-hour staffing of the farrowing houses is the norm. Litters average 11 to 12 piglets born alive and weaning takes place at 28 days.
Generally, sows are inseminated twice, 24 hours apart, and many units have a boar stud which provides the semen for DIY inseminations. Creep feeding starts at seven days.
For the first week after weaning, zinc oxide at a maximum of 2,500ppm is included in the starter feed to control digestive upsets.
Typically, pigs take 150 days to grow to a slaughter weight of 110kg. These include gilts and castrates - as Improvac is not generally considered to be cost-effective in China - and are bought by dealers who then sell the pigs on to the processors.
Units employ their own vets who supervise wide ranging vaccination and medication programmes. In the unit office, there is often a huge bank of video screens relaying live CCTV shots of pigs and staff in the different pig buildings.
On the processing front, major national players are Shineway, Yurun and People's Food. Despite overcapacity in slaughtering, Shineway plans on having a slaughter capacity of 45 to 55 million pigs by early 2013, with Yuhun announcing that it will be able to slaughter 70 million pigs by 2015.
Imports and Exports, Pig Meat and Maize
In 2007, China was a net exporter of pig meat. Then in 2008, it became a net importer due to internal supply shortages, importing from the US, Brazil, Denmark and the UK.
According to a recent Rabobank report, whilst China has increased pork imports in recent years, this should be seen as a temporary strategy rather than a long-term one. One reason is that Chinese consumers prefer fresh pork over imported frozen product. Additionally, China's cost of pig production is currently one of the highest on the planet due to low productivity - the national average is still below 15 pigs per sow and year - plus feed conversion is poor. Naturally, boosting productivity will boost pork output. Corn is the main feed ingredient and there is also scope for improving corn yields in China.
If China could improve its corn yields and swine FCR towards US levels then goals of self-sufficiency are mathematically achievable. However,there are many challenges in achieving this success, such as the continuation of disease problems, food safety issues, logistics and the lack of a cold chain.
If China does not import pork, it is believed there that all indications point to the need to import corn. How much of each will depend on improvements in the supply chain.
The author wishes to express his thanks to Lu Nan, manager of Olmix China, for his invaluable help and assistance during the author's trip to China.