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China Livestock and Products Semi-Annual - February 2006

by 5m Editor
5 February 2006, at 12:00am

By USDA, Foreign Agricultural Service - This article provides the pork industry data from the USDA FAS Livestock and Products Semi-Annual 2006 report for China. A link to the full report is also provided. The full report includes all the tabular data which we have omitted from this article.

Report Highlights

As the result of the highly pathogenic avian influenza (HPAI) outbreaks in China and other parts of the world, Chinese beef demand increased in 2005 as consumers shifted from poultry to red meat. However, China's ban on imported U.S. beef remains in place, though market access was achieved for bovine semen/embryos and non-ruminant products (e.g., swine/poultry feeds, pet foods, etc.).

Additionally, China's zero tolerance for certain pathogens on pork, beef and poultry products continue to impact trade. During 2006, China's pork production, comprising over half of the world's total supply, is forecast to increase 5 percent to 52 MMT, while beef production will rise 6.9 percent to 7.7 MMT. China's beef imports are not forecast to increase in 2006, while pork imports will decrease 4 percent due to a surplus in domestic supplies and low prices.

Situation and Outlook

China’s beef production for 2006 is forecast to increase 6.9 percent from last year to 7.7 MMT due to strong demand and a consumption shift from poultry to red meats because of health concern to the persistent presence of HPAI in China and other countries. China’s booming economic growth has also resulted in greater investment in the cattle and beef industry. Although beef prices remain relatively high, rising Chinese consumer incomes has made these purchases possible. As a result, beef consumption is forecast to increase 6 percent in 2006.

China’s pork production, which comprises over half of the world’s total, is forecast to increase 4.7 percent to 52 MMT, but the pace of growth is forecast smaller than that of 2005. Pork products comprise the majority of the animal protein in the Chinese diet. In recent years, significant profits have resulted in rapid production and supply increases, and China’s pork industry is expected to enter a stable and lower priced period during 2006. This trend may translate into decreased imports in 2006.

On October 1, 2005, China implemented a regulation called the “Hygienic Standard for Fresh (Frozen) Meat of Livestock” (GB 2705-2005). Although the new standard does not address pathogen tolerances, Chinese officials indicate a zero tolerance for pathogens existed previously based on the “China Food Hygiene Law” announced on August 2, 2001 (see CH1042 dated November 2, 2001).

China’s beef imports are forecast to remain flat at 3,000 MT in 2006 in part due to the BSErelated import ban on the United States and other countries with BSE. If the ban were lifted, FAS Beijing believes that the U.S. market potential could reach over $600 million (see below). Since January 2004, following China's ban on imported U.S. cattle and bovine products (including beef), USDA has provided China a significant amount of BSE and meat safety technical information, hosted two teams of Chinese BSE experts and held bilateral animal health discussions. Though China's ban on imported U.S. beef remains in place, market access was achieved last year for bovine semen/embryos and non-ruminant products (e.g., swine/poultry feeds, pet foods, etc.). During 2006, USDA will continue efforts to re-open the Chinese market to U.S. beef.

Live cattle imports in 2006 are forecast to decrease 8 percent to 48,000 head due to import policy changes and higher international prices. Live cattle exports are forecast to decrease 3.8 percent to 51,000 head due to decreased demand in Hong Kong. Pork imports are forecast to decrease 4 percent to 48,000 MT in 2006 due to sufficient supplies and reduced pork prices. Pork exports in 2006 are forecast to recover about 17.6 percent to 300,000 MT after the disease, Streptococcus suis, is under control. Pork exports will continue to expand in 2006 due to the uncertainties surrounding poultry and HPAI.

U.S. Market Access Update—Approval for Non-Ruminant Feed and Bovine Semen/Embryos

On July 11, 2005, the General Administration for Quality Supervision, Inspection and Quarantine of People’s Republic of China (AQSIQ) announced (Decree No. 97) approval for 52 U.S. facilities to export animal genetic products to China. Later in the year, Chinese quarantine authorities visited the United States in order to audit and register the establishments, eventually leading to the market re-opening. According to the decree, 38 bovine embryo transfer centers, 10 bovine semen collection centers and 4 swine semen collection centers have passed the Chinese examination procedures and are eligible to export their products to China.

To see the export requirements for these genetic materials, please refer to the following website: http://www.aphis.usda.gov/vs/ncie/iregs/animals/ch.html

Then, on November 28, 2005, AQSIQ approved imports of non-ruminant U.S. pet food, porcine protein, rendered products (tallow) and spray-dried porcine blood. USDA and Chinese officials continue to discuss access for U.S. non-protein bovine tallow. Prior to China’s BSE-related trade suspension on U.S. cattle, beef and products, U.S. exports of semen and embryos exceeded $1 million. Further, China tightened its import regulations to reduce misuse of tariff-free breeding cows for commercial purpose. As the result of China’s shortage of genetic stocks to improve the dairy industry, FAS Beijing forecasts excellent opportunities for imported U.S. bovine semen and embryos.

During 2003, U.S. direct exports of beef and beef variety meats to China totaled $123.3 million; live cattle totaled $1 million; bovine semen totaled $0.5 million; embryo totaled $0.9 million; bovine hides and skin totaled $488 million; and tallow exports totaled $22.6 million. According to industry contacts, excellent opportunities exist for growth in imports of pet food and pet care products. China’s imports of these products--stemming from pet care products and dog and cat food primarily in coastal China--grew in value 14% between 1998 and 2003. Pet shops dominate the retail distribution, followed by grocery stores. Industry sources expect retail sales of pet products to reach almost $1 billion in 2008.

Swine and Pork: Changes in the pork PS&D table

Based on FAS headquarters guidance, the import and export numbers in the pork PS&D table exclude HS Code 160249. As a result, the trade numbers are smaller, particularly for exports. This revision does not impact U.S. export numbers to China because the exports under this line are limited. To calculate China’s trade figures, FAS Beijing used the Global Trade Atlas (GTA) and the World Trade Atlas (WTA) sourced from China Customs and Hong Kong Census and Statistics Department (HKCSD). For U.S. exports to China, we use the data from the U.S. Department of Commerce and HKCSD for Hong Kong re-exports.

Three year high-profit period ended, pace of growth in 2006 forecast slow

FAS Beijing forecasts China’s pork production in 2006 at 52 MMT, a 4.7 percent increase from the estimated 49.7 MMT in 2005. Despite lower prices since the second half of 2005, China’s pork production will continue to grow in 2006. The pace of growth will slow compared with 2005. FAS Beijing adjusted downwards (1-2 percent) China’s 2006 sow beginning stock at 43.8 million head, pig crop at 700 million head, and ending inventory at 678 million head, from the previous estimations in the last annual livestock report CH5063.

Although many Chinese consumers have shifted to red meat due to HPAI in China, pork prices did not go up like beef and sheep/goat meat. On the contrary, pork prices started falling considerably in the second half of 2005 as the result of surplus supplies. According to the industry, swine farmers also started loosing money in November 2005. The price ratio between swine and grain dropped to 1:5.45, lower than the publicly accepted critical point 1: 5.5. Swine procurement prices in main producing provinces like Henan, Jiangsu and Hebei were only $0.84/kg in the last quarter of 2005 (prices were $1.2/kg in the same period of the previous year). Seventeen provinces are below the critical point, while 13 provinces are above it. The more competitive producers are in remote areas or in feed grain production areas with lower production costs.

Factors impacting swine and pork production

Quick increase in inventory: High swine prices at slaughter in 36 months gave incentives to farmers to increase swine inventories. The pace of increase in swine beginning stocks jumped from 0.7 in 2004 to 3.4 percent in 2005 and forecast 3.8 percent in 2006. Increased production has led to over supplies thus depressing prices.

Increased commercial farms: According to the industry, larger sized commercial farms have been increasing, thus improving production efficiency. The number of swine slaughtered from commercial farms increased 26 percent in 2004 over the previous year. This has helped increase production and bring down prices.

Production pattern and information lacking: Although commercial farms have been increasing, about 70 percent of China’s pigs are still raised on backyard farms where it is difficult to coordinate and monitor production. Swine farmers lack market information. Official statistics are normally announced one to two years afterwards. There are no official forecasts for future production.

Disease and residue control a challenge: Animal diseases (e.g., FMD) are difficult to monitor and control in China’s widespread, small-scale farming system, putting constraints on China’s production for the near term.

Small-scale processing: According to MOFCOM, there are over 40,000 slaughterhouses in China. However, 60 percent of slaughtering is concentrated in the 50 largest plants. MOFCOM will grade them five levels. Only grade 4 and 5 can handle slaughtering. Therefore, the slaughter industry will have to consolidate to improve efficiency.

As prices are not favorable and are forecast to stay low in 2006, large commercial swine farms are expected to stabilize their production. Some smaller-scale ones have started to slaughter their sows. Therefore, swine and pork production in 2006 appears not likely to grow at the same pace of 2005. Better efficiency and forecast low prices may translate into reduced imports in 2006.

Consumption forecast to increase 4 percent in 2006

FAS Beijing adjusted upwards (4 percent) pork consumption in 2006 from the previous annual report CH5063. Pork has served as the main substitute for poultry following the HPAI outbreaks in China. Pork is not only a traditional animal protein in the Chinese diet, but it is also the cheapest compared with other red meats. Pork imports in 2006 forecast to decrease 4 percent to 48,000 MT Despite its massive population, China is almost self-sufficient in pork supplies, and imports account for less than 1 percent of total pork production. Frozen boneless pork—a U.S. export commodity in demand here--accounts for the major portion of China’s pork imports for highend consumers. However, U.S. data shows its pork exports increasing, while Chinese data shows import of U.S. pork decreasing. Smuggling and “sluggish” retrieval of statistics are possible explanations. The United States is the largest variety pork supplier to China, accounting for 37 percent of China’s total imports (226,736 MT) during the first 11 months of 2005. A favorable dollar exchange rate will help the competitiveness of U.S. exports to China. China’s zero tolerance for pathogens remains a trade irritant On October 1, 2005, China implemented a regulation called the “Hygienic Standard for Fresh (Frozen) Meat of Livestock” (GB 2705-2005). Although the new standard does not address pathogen tolerances, Chinese officials indicate a zero tolerance for pathogens (Ecoli and Salmonella) existed previously based on the “China Food Hygiene Law” announced on August 2, 2001 (see CH1042 dated November 2, 2001). Since December 12, 2005, the Chinese Government suspended from exporting a number of U.S. meat and poultry plants.

The China Food Hygiene Law States in Item 3, Article 9 that “it is forbidden to produce, distribute or use foods containing pathogenic parasites and microorganisms, or microorganisms with toxin exceeding tolerances regulated by the state.

Swine and pork exports in 2006 forecast to recover

China’s swine and pork exports in 2006 are forecast to recover and increase 16 percent to 2 million head. China’s swine export markets will not change. For the first time since 2004, Japan will became China’s second largest pork market because of restrictions on U.S. and Canadian beef and poultry from other Asian countries due to BSE and HPAI. This trade picture may continue due to the uncertainty of HPAI.

Further Information

To read the full report please click here (PDF format)

List of Articles in this series

To view our complete list of 2006 Livestock and Products Semi-Annual reports, please click here

Source: USDA, Foreign Agricultural Service - Annual Livestock and Products Report - February 2006