Chinese pig, poultry sectors struggle to turn profit

China's pig and poultry sectors struggled in 2014 due to market conditions and a new feed mill licensing system impacting feed production profitability.

If we tracked feed cost trends for pigs and poultry in China in 2014 with a graph line, it would trace an early downward track between January and May 2014 before climbing to a June 2014 peak and finally slipping back to levels last seen nationally at the start of 2012. 

Nevertheless, even if China’s broiler producers eventually returned to profit, its pork producers were still losing the equivalent of US$20 per pig as recently as January 2015. The losses they suffered in April 2014 were reckoned to be the worst in five years. 

Turbulence in feed market

The troubles of 2014 were blamed widely on overcapacity after pork producers added to their inventory to meet rising consumer demand. By the end of 2014, pig stocks had reduced to 420 million with sow numbers below 43 million on official data. Certainly, the elimination of herds hit pig feed sales. Equally damaging for Chinese feed manufacturers last year was a tendency for more pork producers to react to the grain price trend by making their own feeds on the farm rather than buying them.

In the poultry sector, the damage came primarily from a downsizing of laying hen numbers by egg production enterprises, again under price pressures, although the broilers business had its own troubles with bird flu and a weakening demand for chicken due to slower economic growth.

Then there was fallout from a new feed production site licensing system that came into effect in China in mid-2014. This changed the manufacturing landscape by forcing the closure of several thousand mills, according to local reports. Out of 10,000 establishments operating at the start of the year, only about 7,000 received a license to continue in production. 

Some species perform better than others

The news of a 4 percent rise in China’s aquafeed production in 2014 signified that a recovery had started after a 20 percent slump in shrimp feed sales the previous year. The dip could be attributed to bad weather hitting aquaculture operations in the south off the country during a peak season and also the effect of EMS disease on shrimp farming activities in 2013. 

But the only other feed sector seeing an increase last year was for ruminant feeds, up 10 percent as more cattle were put on compound feeds. Volumes were down by 8 percent for pig feeds, by 2.5 percent for broiler feeds and by 10 percent for layer-hen diets.

While some observers have said that 2015 promises a return to better profits from pigs, it has also brought a new environmental clampdown that is expected to restrict pork production in some major centers in the south of the country. 

Changes in the feed industry

One prediction for China’s feed sector in 2015 is that it will see a flurry of company-to-company deals that involve not only mergers or takeovers, but also see the creation of semi-integrated systems featuring independent players from different parts of the food supply chain.

The deputy director of the animal husbandry department at the Ministry of Agriculture in Beijing has said the country’s feed industry faces new conditions. Meat production grew by 9 percent per year in the 1980s and by 7.7 percent annually in the 1990s, but between 2000 and 2010 the annual growth rate averaged just 2.8 percent. Currently it is projected in the short term to increase at just 1.4 percent per year.   

Others point to a continuing under-utilization of feed manufacturing capacity side-by-side with a determination by several major players to keep building new mills. Both the pig feed and the aquafeed segments are due to have significant additional capacity in 2015 as recently commissioned mills start operating.

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