Faced with a long-term decline in cattle stock and a widening gap in productivity compared to other producing countries, the Chinese beef industry is having a difficult time catching up with demand on home turf.
Despite recent efforts by the Chinese government to provide some support local producers, the country will need to allow a substantial increase in imports to cover the supply gap, according to a new report by Rabobank on beef imports in China.
Indeed, analysts at the Dutch bank expect such imports to grow between 15% and 20% each year for the coming five years.
"China became a huge importer of beef in 2013,” explained Rabobank analyst Chenjun Pan.
"According to official statistics, China's beef cattle stock has been in continual decline since 2004, due to a lack of government support, low productivity, and the lack of farmers willing to invest in beef production, deterred by high costs and a shortage of labour".
Rabobank expects rising urban income levels and government support to spur a slow recovery, but this will not be fast enough to catch up with accelerating demand. The structural supply deficit will force an increase in beef imports, including smuggled beef, of nearly 20%—or even double the current import volume by 2018—according to the report.
China's beef cattle supply shortage is a structural issue and the industry itself faces many challenges.
It lags behind other major beef-producing countries in all the key aspects, such as genetics, breeding, productivity, farm management, and grassland and feed resources.
According to Rabobank, the Chinese government will need to decide which agricultural products it wishes to maintain or achieve self-sufficiency in, and which it will allow to be more exposed to imports.
Growing government support
Beef is not a strategically important agricultural product in China, although the government needs to maintain a certain level of self-sufficiency to ensure beef supply to the Muslim population.
Support for beef producers in China will increase but will remain lower than support for other livestock sectors, leaving beef producers to face the challenges of limited land, water and feed resources.
Given the challenges facing the industry, Rabobank expects to see only marginal beef production growth in 2014 to 2015, while female cattle stock will be restored to a limited extent through government support.
Production will likely see further increases between 2016 and 2018, assuming that the whole herd size benefits from the recovering female cattle stock over the previous years.
Even with the expected slight recovery of domestic beef supply, China will no doubt continue to increase its reliance on imports.
The country’s attitude towards opening markets to more countries has become more positive, and a ban on Australian fresh and chilled beef imports has just been lifted.
Moreover, China is likely to open the door to Brazilian beef in the coming months, and by the end of 2014, may open the market to US beef.