Current Status and Development Trends of Animal Feed Industry in China

Overview of Global Animal Feed Industry

As the population grows and life quality improves, meat consumption has been witnessing a steady increase. The global animal feed production is also expected to continue to maintain the upward trend to cater to the demand. Growing concerns for healthy foods among consumers are also a key driver for expanding demand for dairy and meat products as a source of various nutrients.

Animal feed generally refers to the food products produced for the consumption of poultry, swine, ruminant and aquatic animals.  The animal feed market grew at a CAGR of around 3.5% globally since 2014. To maximize the animal-produce such as milk, egg, meat, etc., high nutritional feed content is required through scientific formulation. Increasing commercial livestock demand is also pushing the need for cost-effective protein-rich feed to ensure good quality and quantity of the animal-produce.

Soy-based animal feed is currently the most preferred choice due to high protein content, the low price and also the availability in a large quantity. According to the oil world, soybean meal production last year consists of 70.97% or 242.92 million MT of the total 342.27 Million MT oilmeal produced globally. China was the largest contributor to global oilmeal production. The country has produced 86.88 million MT of oilmeals followed by the USA at 49.52 Million MT.

Global Animal Feed Production

According to Mr Li Wei Feng, CEO of New Hope Liuhe Guangzhou, in his CIOC 2020 presentation, total global animal feed production in 2019 was 1.126 billion MT, a decrease of 1% from 2018, but exceeded 1 billion MT for the fourth consecutive year. Market research data shows that the animal feed global production is estimated to reach 1.165 billion MT in 2020. The growth forecast in 2021 is higher than the annual CAGR of 3.5% due to the full recovery of African Swine Flu (ASF) and the increase in the demand for animal-produce around the world post-COVID-19 pandemic recovery.

Chart 1 – 2011-2020E Global Animal Feed Production

Source: CIOC 2020 & Alltech feed survey (2019)

Global Animal Feed Industry Distribution

Global animal feed productions are largely concentrated in Asia-Pacific, Europe and North America regions. In 2019, animal feed production in the Asia-Pacific region reached 363.2 million MT, accounting for 32.2%; European animal feed production was 279.2 million MT, accounting for 24.8%; North American animal feed production was 236 million MT, accounting for 21% of the total global production. China and the United States are the foremost producing countries together contributing to around 33% or approximately one-third of the total global production.

Chart 2 – Global Animal Feed Production in 2018

Source: Li Wei Feng, COIC 2020

China’s Animal Feed Industry Development Status

The distribution of China animal feed industry is affected by a few factors such as livestock and aquaculture production areas and transportation conditions. The industry is mostly concentrated in the eastern coastal areas while some portions are distributed in the inland provinces such as Hebei and Hunan. In 2019, the top 10 provinces in China animal feed production that contributed 70.5% of the total production volume are Shandong, Guangdong, Guangxi, Liaoning, Jiangsu, Hebei, Hubei, Sichuan, Hunan and Henan.

Fig. 1 – China Animal Feed Production (2019)

Source: Li Wei Feng, COIC 2020

In 2019, China animal feed production volume was 228.85 million MT. The Shandong, Guangdong regions exceeded 30 million MT, and some ten-million-ton classified production areas including Guangxi, Liaoning, Jiangsu, Hebei, Hubei, Sichuan, Hunan, Henan.

Prospects of China’s Animal Feed Industry

The outbreak of African Swine Fever (ASF) in 2018 caused some market share of pork consumption replaced by other meat products. This changed the composition of China’s animal husbandry, as well as the composition of animal feed produced in 2019 & 2020. In these 2 years, the proportion of swine feed has declined, while the proportion of poultry, aquatic and ruminant feed has increased. Nevertheless, with the recovery in swine husbanding section, the feed for this livestock is forecasted to account a bigger share in 2021-2023. Despite the significant drop in the demand and production of swine feed due to the impact of ASF epidemic, the total animal feed output of China was able to register a minor increase of 100,000 MT in 2019. This could be largely attributed to the switch of meat demand to poultry and ruminant sources. Subsequently, this resulted in a demand substitution of the feed for livestock, thus avoided the drop in total output volume. In 2020, with the recovery of the swine farming industry after ASF, stronger demand for swine feed has pushed up China’s total animal feed consumption back to its growing trend. The estimated increase in the total output is by 9% (Refer to Chart 3).

Chart 3 – China’s Animal Feed Production and Growth Rate

Source: Li Wei Feng, COIC 2020

While the output volume was able to maintain at par in 2019 against 2018, the output value registered a drop of 9% y-o-y in 2019. The drop came as a result of the decline in commodities prices especially soybean meal (-14.7%) which is the main ingredient used in animal feed production (Chart 4).

Chart 4 – China’s Animal Feed Production Value and Growth Rate

Source: Li Wei Feng, COIC 2020

China’s Animal Feed Industry Expansion

Moving forward, China’s animal feed industry is anticipated to continue its expansion beyond 2020. This is primarily due to the ability of China to contain the spread of the covid-19 virus effectively and register positive growth of 2.3% in 2020 compared the rest of the world, where the impact was bad. The forecasted CAGR of 2021-2023 output volume will be at 5%, and the animal feed production will exceed 290 million MT in 2023.

The strong increase in poultry feed output recorded in 2019 & 2020 is an interesting sector to observe during the next 3 years whether it could sustain at the high level and continue accounting for the biggest share among all the feeds produced in the country (Refer to Chart 5). Theoretically, the strong recovery of demand for swine products, namely the demand for swine feed expected to suppress the demand for other animal feed type or accumulate the market share to surpass other animal feed areas to a different height, but surprisingly this is not happening in China. This is mainly due to the setting up of more organized large-scale poultry farm by phasing out of small backyard farm with poor hygiene condition. The increasing demand for compound poultry feed and the demand is more stable due to the proper management of the farm from the aspects of operation or cost-control.

Chart 5 – Changes in China’s Animal Feed Composition from 2015 to 2023

Source: Li Wei Feng, COIC 2020

China’s Animal Feed Industry and Palm Oil Industry

The relevancy to the palm oil industry in China’s animal feed industry would be in the animal feed output of ruminants. Due to high fibre and low protein content in palm kernel cake/expeller (PKC/PKE) against other oilmeals makes it more suitable to use in the ruminant feed formulation. The ruminant animal digestive system could be able to breakdown the fibre and convert into energy. This could partially substitute the need for grain inclusion in feed formulation. Besides that, PKC inclusion also results in higher daily milk yield. Cost-effective and high milk yield nature of PKC serve as an important factor for contributing to the demand for PKC in the ruminant sector in China.

According to Chart 5, the ruminant feed is expected to continue to account for 5% of the total feed output, which means this feed will also grow in tandem with the CAGR of 3.5% of total animal feed in next 3 years. Consequentially, the demand for PKC will also be expected to increase by 3.55% annually. Although the current volume is rather small (approximately 800,000 MT/year), there are rooms for more PKC demand in China. Furthermore, the PKC supplied by Malaysia only accounted for 25-30% of the total import, which means there is room for Malaysian to ship more PKC to China. This could be achieved should the Malaysian exporters innovate and value add the PKC produced, so that it has a more competitive advantage against the conventional PKC which is pure compete on price.

No top of the low market share, there is huge potential for more beef demand in China. According to FAO, per capita, beef consumption in China was only at 4.1kg per year, vis-à-vis the 14.5kg recorded for the world average (Chart 6). This indicates that there are huge prospects for more demand of PKC in China should the country increase its beef consumption to at least the world average level, or at least double up to at par with some of these developed countries.     

Chart 6 – Global Beef Consumption (2019)

Source: FAO

Conclusion

In 2019, global animal feed production fell for the first time due to the impact of Africa Swine Fever in China in big scale with some other countries in smaller scales, and US animal feed production surpassed China for the first time in 10 years. However, it is expected that China will be overtaking the US again as the biggest animal feed consuming country in 2020, if not, in 2021.

While China’s pork consumption has exceeded the global average, there is still a lot of room for growth in poultry meat and beef. The animal feed industry is ushering in development opportunities, maintaining a compound growth rate of 3.5% in the next three years and increasing the concentration of leading companies.  Such development is expected to lead the country into higher demand for oilmeals, either through local crushing or import.

Low per capita beef consumption in China is seen to be an opportunity for beef suppliers from overseas to expand their reach into China’s market. This also an opportunity for PKC producers to tap into the possible growing demand of ruminant feed should China decided to encourage the local livestock industry players to breed locally to satisfy the growing demand.

Prepared by: Desmond Ng & Theventharan Batumalai

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