Livestock Policy Discussion Paper No. 7 PERSPECTIVES AND STRATEGIES FOR THE LIVESTOCK SECTOR IN CHINA OVER THE NEXT THREE DECADES.

Transcription

1 Livestock Policy Discussion Paper No. 7 PERSPECTIVES AND STRATEGIES FOR THE LIVESTOCK SECTOR IN CHINA OVER THE NEXT THREE DECADES Ke Bingsheng Food and Agriculture Organization Livestock Information and Policy Branch, AGAL September 2002

2 Preface This is the seventh of a series of Livestock Policy Discussion Papers. The purpose of the series is to provide up-to-date reviews of topics relating to the livestock sector and its development in various regions of the world. A strong emphasis is placed on the compilation of quantitative information, methodological aspects and on the development of policy recommendations for the topic at hand. The livestock sector plays a vital role in the economies of many developing countries. It provides food, or more specifically animal protein in human diets, income, employment and possibly foreign exchange. For low income producers, livestock also serve as a store of wealth, provide draught power and organic fertilizer for crop production and a means of transport. Consumption of livestock and livestock products in the developing countries, though starting from a low base, is growing rapidly. This paper explores the development of the livestock sector in China, which is now the largest in Asia, and outlines its future course. The study covers production trends, development of demand in urban and rural areas, marketing and trade of livestock and livestock products, environmental and health aspects of livestock production and changes in livestock development policies that have occurred over time. The author of the study, Dr. Ke Binsheng (ke@agri.gov.cn) is Director of the Research Center for Rural Economy of the Ministry of Agriculture of the P.R. China. It is hoped that the paper stimulates discussion and any feedback would gratefully be received by the author and the Livestock Information and Policy Branch of the Animal Production and Health Division of FAO. Disclaimer The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of the Food and Agriculture Organization of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitations of its frontiers or boundaries. The opinions expressed are solely those of the author(s) and do not constitute in any way an official position of the FAO.

3 Table of Contents Page EXECUTIVE SUMMARY... IV 1. INTRODUCTION BACKGROUND SIGNIFICANCE OF THE LIVESTOCK SECTOR IN CHINA PRODUCTION AND CONSUMPTION STATISTICS PRODUCTION SYSTEMS DEVELOPMENT OF MEAT, MILK AND EGG PRODUCTION LIVESTOCK SECTOR STRUCTURE BY SPECIES...6 The pig sector...6 The poultry sector...7 The beef sector...7 The dairy sector TECHNICAL PARAMETERS BY SPECIES AND PRODUCTION SYSTEM...9 The pig sector...9 The poultry sector...12 The beef sector...13 The dairy sector PRODUCTION ECONOMICS BY SPECIES AND SYSTEMS...15 The pig sector...15 The poultry sector FEED INDUSTRY AND FEED ISSUES...16 The feed processing industry...16 Non-conventional feed resources...18 Feed resource use DEMAND FOR LIVESTOCK PRODUCTS GENERAL TREND URBAN AND RURAL DISPARITIES AND INCOME EFFECTS PRICE DEVELOPMENTS AND CONSUMER PREFERENCES GEOGRAPHICAL CONSUMPTION PATTERNS FUTURE DEMAND PROJECTIONS MARKETING AND TRADE MARKETING SYSTEMS AND CHANNELS INTERNATIONAL TRADE IMPACTS OF WTO ENTRY...30 Tariff reduction for livestock products...30 Tariff rate quota for feed-grains...30 Sanitary and quarantine issues POLICY DEVELOPMENT POLICY GOALS...32 Reduced support of urban industrialization...32 Reduced emphasis on the agricultural sector to earn foreign exchange...32 More concern with farm income growth...33 More emphasis on market stability and on long-term food security...33 More concern with environmental protection...34 Stronger focus on the state budget and state-owned enterprises...34 More concern with food quality and safety INSTITUTIONAL AND PRODUCTION POLICIES...35 Institutional reform...35 ii

4 Subsidies...35 Technical assistance programs...36 Other forms of support and general services FEED POLICY...37 Promoting feed production...37 Feed safety CONSUMPTION RATIONING POLICY...38 Rationing...38 School milk program DOMESTIC MARKETING AND PRICE POLICY TAX POLICY FAVOURABLE TREATMENT OF FOREIGN INVESTMENT IN THE LIVESTOCK SECTOR ENVIRONMENTAL POLICY INTERNATIONAL TRADE POLICY: TARIFFS AND LICENSES INCOME AND SOCIAL EFFECTS ENVIRONMENTAL IMPACT, PRESSURES ON NATURAL RESOURCES AND EFFECTS ON PUBLIC AND ANIMAL HEALTH INCREASED PROBLEMS AND AWARENESS FACTORS INFLUENCING THE EXTENT OF THE POLLUTION PROBLEM...47 Livestock type...47 Operation size and type...48 Seasonality VARIOUS EFFORTS MADE TO ADDRESS THE WASTE DISPOSAL PROBLEMS...49 Location and relocation...49 Fertilizing wheat fields with liquid waste...50 Sump deposition...50 Composting...50 Heat-drying of chicken waste...50 Using special equipment for separating water and waste:...51 Using animal waste to generate methane: in 1 combined experiment:...52 Effective Micro-Oganism Technology: ASSESSMENT OF THE CURRENT POLICY AND REFORM CONSIDERATIONS...53 REFERENCES...57 iii

5 Executive Summary Livestock play a very important role in economic growth and poverty alleviation in China. The purpose of the current study is to equip national and international decision-makers with baseline information on, and a strategic assessment of, what is now Asia s largest livestock sector. Production Despite uncertainties over the accuracy of official statistics, it is clear that livestock production in China has grown very rapidly over the past two decades. The sector s value share in overall agriculture has increased from 15% in 1978 to nearly 29% in The main reasons for this strong performance are institutional change, the development of the feed industry and technical progress in animal breeding, nutrition and disease control. Most production is small-scale and relatively efficient, making use of residues and byproducts from crop production and processing that would not otherwise be used. For many small farms, livestock, especially pigs, are now an important source of cash income. However, the small farm sector now co-exists with large-scale enterprises based in or near cities, producing mostly pigs and poultry. Over the past two decades, the number of pigs slaughtered has more than doubled, to nearly 520 million in The offtake rate has risen from 62% in 1980 to 123% in 1999 and animals have become heavier, leading to a doubling of productivity. Small producers, with an output of one to five pigs per year, still account for around 60% of pork production, but their attitudes have become more commercial, with the amount of income rather than the size of the herd assuming the greatest importance. Net earnings from pig production ranged from 150 to 200 Yuan/head in 1999, roughly % of the national average income in the farming population. Progress in breeding, nutrition and disease control have greatly contributed to the expansion of production. Poultry meat production has seen the fastest growth of all meat categories over the past 20 years, from 1 million tons in 1980 to 11.5 million tonnes in Egg production has shown similar growth, from 2.5 million tons in 1980 to million tons in The poultry sector is much more concentrated than that of pork, with 56% of production coming from farms with more than 1,000 birds. The net profit from poultry production varies greatly across provinces, with poultry waste sometimes accounting for a significant share. Beef production has risen very rapidly over the past two decades, from a low base of 0.25 million tons in 1980 to over 5 million tons in Production has switched away from the traditional pastoral provinces in the west of the country, disadvantaged by their remoteness and by the problem of overgrazing, towards the centre and east, where market access is better and intensification easier. The introduction of new breeds, artificial insemination and new feed resources has accounted for much of the growth. Nevertheless, the sector is still dominated by smallholders, with farms having 100 or more cattle accounting for less than 10% of total production. iv

6 The number of dairy cattle has risen sixfold in the 15 years to 1995, when the herd numbered 4.17 million head. Most animals are dual-purpose, with the result that average milk yields have not increased much over this period. Intensive dairy systems are concentrated round the cities of the north, where yields are over 3,500 kg per lactation, more than double the national average. The pastoral areas of the west have much lower yields, of 500 to 800 kg per lactation. Dairy production has a relatively large-scale structure, with holders of 100 or more cows accounting for 20% of total numbers. As in the case of beef, much of the growth is the result of technical progress, in addition to growing demand. A major factor has been the diversification of products, with ice-cream, yoghourt, butter and cheese now widely retailed in major cities. Virtually non-existent 20 years ago, industrial feed production has soared, reaching 67 million tons in The feed sector has been a decisive factor in the rapid growth of intensive pig and poultry production: pig feed accounted for 40% of industrial feed production in 1999; layer feed and broiler feed accounted for a similar share, together making up 48% of production, while fish feed had a share of 10% and the remaining 2% was divided among cattle and other species. Foreign investment has played a major role in the industry s growth, with 368 foreign-funded companies operating in the country in 1998, mostly in the eastern coastal provinces (close to the major areas of pig and poultry production). The success of these companies has stimulated the establishment of indigenous feed companies, which are now gaining market share. Small-scale feed mills have mushroomed and now number around 11,000, each producing 3,000 tons or more of feed annually. The consolidation process already under way is expected to continue. Larger companies tend to produce higher-quality feed. China has also invested substantially in the development of non-conventional feeds, especially the treatment of cereal straws with ammonium to improve feed value. This technology has the added advantaged of reducing smoke pollution, caused when farmers burn stubble in their fields. Forestry by-products (leaves and fruit), distillers grains and dregs, oil cakes (cotton, rapeseed, etc), slaughter by-products, chicken dung and mineral supplements have also received attention. Demand Urbanization and rising incomes have been the major driving forces behind a rapid rise in the consumption of livestock products. Urban dwellers have higher incomes than rural people, eating twice as many eggs and 50% more meat. In one study, the highest income group consumed about 70% more pork than the lowest income group. All livestock products have higher income elasticities than crop products. Pork consumption appears to have the lowest growth rate for both urban and rural households, while poultry meat and egg consumption have grown fastest, more than doubling since An apparent fall in the urban consumption of meat during the 1980s is puzzling, but may possibly be explained by a sharp increase in eating out, among other factors. Beef and mutton consumption have doubled, but from a low base, with the absolute amounts increasing by only 1.5 and 0.5 kg per capita respectively. Beef consumption has shown extraordinarily high growth, especially v

7 since Prices have shown uneven development, with those for mutton rising eightfold and those for beef and pork rising sixfold and fourfold respectively. Chicken used to be the most expensive meat in China but is now the cheapest, while mutton has become the most expensive, followed by beef and pork. Consumer preferences have changed, with a shift to leaner meats as vegetable oils have replaced fat for cooking. Fast-food restaurants have become popular in cities, driving up the price of beef. There are strong regional patterns of consumption, with rural households in the south having higher consumption levels than those in the north. Urban consumption follows a similar, though less marked, pattern. The pastoral western provinces have low consumption of poultry and pork, while fish partly substitutes for meat in coastal provinces. It seems safe to predict that China s total demand for meat and other livestock products will increase strongly over the next 30 years, with a growth rate of around 3 to 4%. The pressure exerted by this steep rise in demand will drive further intensification. Marketing and trade Between 1958 and 1977, the private trading of livestock and livestock products was forbidden in China. The reforms of the late 1970s and 1980s led to a rapid increase in the marketing of livestock by individuals, mainly smallholders at first and then, increasingly, larger enterprises. During the 1990s, the private sector became the dominant player in livestock marketing, as subsidies to the state sector were progressively abolished. The state does, however, continue to play a role in such areas as processing, storage, transport and foreign trade. Private traders, butchers, supermarkets and restaurants have all flourished in urban areas. China has kept and strengthened its position as a net exporter of livestock products in the world market. The share of livestock in total food exports has risen from 15% to 18% in recent years. Imports have also risen markedly, from 5% to 20% of total food import costs. External trade does not, however, have a significant impact on the domestic market. It is thought that the country s 1999 accession to the World Trade Organization (WTO) should benefit its livestock sector, despite tariff reductions. Policy development Policy changes have greatly influenced the production, marking and consumption of livestock products in China. The reforms of the 1980s dismantled the collectivist system, increasing incentives for individual producers, with the result that a strongly market-oriented system has now emerged. In addition, there is now reduced support for industrial enterprises in urban areas, reduced emphasis on obtaining foreign currency earnings via the livestock trade, more concern with farmers' incomes, greater emphasis on long-term food security and self-sufficiency, increased attention to minimizing government budget deficits and reducing the debts of state-owned enterprises, and more concern for environmental protection and for food quality and safety. vi

8 Institutional reforms have been paramount in stimulating the development of the livestock sector. Livestock are now owned by individuals, not by the state; the right to use land now resides with the individual, not the collective; and markets have been liberalized. These changes have greatly increased incentives to the producer, but have aggravated the environmental problems associated with livestock production. Subsidies to the livestock sector have been greatly reduced over the past decade. Those on feed have been abandoned altogether, while those to large livestock farms, particularly urban pig enterprises, have been curtailed. Investment subsidies to promote specific types of operation are still used in some places, however. Technical assistance to promote production is provided through government programmes at national and local level. A nationwide breeding system is maintained to introduce high-quality breeds. Currently, there are over 1,700 state-owned breeding farms and 3,100 artificial insemination stations in the country. Demonstration farms promote the use of ammonia-treated straw to feed cattle and the spread of improved pigs (with lean meat). Many forms of training are also provided by government. Policies are now in place to promote feed production and regulate feed safety. A special decree issued in 1999 prescribes that all new feed products and additives must pass feed safety and environmental impact examinations before entering commercial production and use. The use of hormones in feed is banned. The state marketing monopoly for livestock products has been abolished and a highly competitive market has emerged in its place. In fact, livestock markets were liberalized earlier than those for grain, with the abolition of the obligatory delivery system taking place in the mid-1980s. Price controls have been lifted and subsidies markedly reduced, although they persist in some larger urban areas. In the nation as whole, private traders are now thought to have the dominant market share, over 80%. However, the hygiene of meat handled by small traders is an area of increasing concern for government. Meat inspection in larger slaughter facilities, formerly selfregulated, is now the responsibility of an independent state agency. Taxes still have a punitive effect on China s already low farm incomes. Slaughter taxes, imposed on slaughter houses by local governments at levels decided by each province, can be an important source of revenue. Value-added tax, set at relatively high levels (up to 17% of the market value of animals), is also collected at slaughter. Owing to widespread evasion, and concomitant food safety risks, these taxes may soon be abolished. Environmental policies relate to two sets of problems: traditional overgrazing and modern peri-urban pollution. Grassland in the west of China remains state-owned and publically used. As a result, overgrazing is inevitable. The problem has received greater attention in recent years, as sandstorms from Inner Mongolia have hit Beijing and other coastal cities and areas more frequently. The government has drafted legislation to grant the right to use grassland to individual herdsmen. The pollution problems associated with modern urban enterprises tend to have local effects only and have not so far been subject to national legislation. Local policy measures to reduce pollution are in place in some cities. vii

9 The role of livestock production in poverty reduction is fully recognized in China, where poverty alleviation programmes frequently give it high priority. International organizations have also provided support to the development of the livestock sector. The poorer sectors of society, including women, children and small-scale producers generally, as well as poor urban processors, retailers and consumers, stand to benefit greatly from increased opportunities in the livestock sector. Environment and health Research results from two localities, the suburbs of Beijing and the province of Jiangsu, illustrate the environment and health risks associated with large-scale periurban enterprises. The unpleasant smells from large pig and poultry farms are the most direct environmental impact felt by people living close to these farms. During summer, small-scale back-yard producers are also affected by smells. However, the most serious environmental problem is the disposal of animal waste, which can pollute local soil and water resources. Liquid manure, in particular, can cause serious pollution of surface water, making it impossible to drink and leading to eutrophication. Soil fertility, on the other hand, may benefit from the spreading of animal waste. Many pig and poultry farms now have contracts for the disposal of waste with vegetable producers participating in China s rapidly expanding horticultural sector. Community incentives to reduce pollution are strong, as sufferers often belong to the same social group as those who cause the pollution. Livestock production is also a source of nitrous oxide and ammonia emissions to the atmosphere. Various factors affect the seriousness of the pollution problem, including livestock species (pigs are the worst offenders), size and location of enterprise (worse on large or specialized farms in built-up areas), management practices (such as washing out, on large-scale pig and poultry farms) and season (worse in summer). As awareness of the problem has grown, efforts have been made to find solutions, for example by locating new (or re-locating existing) farms away from human settlements, using liquid waste to fertilize wheat fields, disposing of wastes in sumps, promoting traditional composting, heat-drying of chicken waste for use as feed, separating water from waste, methane generation (in combination with greenhouse vegetable production) and the use of effective micro-organisms (EM) technology. None of these approaches has yet provided an easy, satisfactory and sustainable solution to the pollution problem. Continuing the reform process In view of its potential to raise farmers incomes, continuing expansion of livestock production is seen as one of the most important components in China s strategy for agriculture. Despite the progress of recent years, several policy-related constraints still constrain the sector s performance. The policy and decision making structure, inherited from the past, is fragmented. Associated with this fragmentation is the lack of coherence in livestock policy, epitomized by the co-existence of subsidies and taxes on production. viii

10 There are also problems in policy design and implementation, including a lack of qualified staff for quarantine and disease control. Insufficient budgetary commitments mean that some policies exist on paper only. Lastly, there have been difficulties in adapting policy to the needs of the market economy, especially in relation to environmental issues. Further policy reforms in the following areas should therefore be considered: Abolition of the slaughter and value-added taxes on livestock production. Reduction of the subsidies to large-scale commercial enterprises, both stateowned and private. Increased government investment in public slaughter houses, to reduce marketing costs for farmers. Establishment of an independent and free quarantine inspection service and increased investment in qualified inspection capacity. Increased investment in public-sector research. Provision of improved marketing services, including better public facilities and standards and a better information system. Enhancement of competition through the restriction of monopolies and the promotion of farmer co-operatives. Formulation and implementation of sound environmental regulations ix

11 1. Introduction 1.1 Background This study is prepared for the Food and Agriculture Organization as a sub-regional report of the project Perspectives and strategies for the Asian livestock sector in the next three decades. The purpose of the study is to equip decision-makers at the national and international level with baseline information and strategic assessment on the Asian livestock sector. The livestock sector encompasses livestock production, processing and distribution. It includes production on the traditional farms as well as production in industrial livestock facilities that are characterized by high capital labor ratios. The time frame of the study is to Hence, the discussion and material presented are presented in terms of short to medium term developments (five to ten years) and the long term (up to 30 years). As the largest producer and consumer of livestock products, the situation of the sector in China has great significance on the world livestock sector at large, and on the Asian market in particular. Much of the information contained in this study has been collected through field visits to farms, officials from ministries, especially the Ministry of Agriculture, and from the State Statistics Bureau, the government body officially responsible for statistics in China. A large volume of internal reports and documents of various governmental agencies, which are not listed in the references, has been used. 1.2 Significance of the livestock sector in China Livestock plays a very important role in China due to its multiplicity of functions. For many parts of China (other than the pastoral regions and suburbs of big cities), large animals are important primarily not for their meat and milk products, but for the draught power they provide for crop production and local transportation. Swine raising has been highly valued, especially in the 1960s and 1970s as a major source of fertilizer. In the period of grain surplus such as in mid-1980s, early and late 1990s, pig and poultry raising was encouraged and regarded as a means to solve the grain surplus problems. However, the livestock sector has never been given the same importance as the crop sector as a major source for food. The share of animal production value in the overall agriculture has increased over the past two decades, from 15% in 1978 up to nearly 29% in 1999 (MOA, 2000). Livestock production in China has been characterized by its small-scaled structure. China has not only the largest swine inventory and pork production, but also by far the largest number of swine holders in the world. According to the results of the first national agricultural census, 70% of the rural households, or 135 million farmers, keep swine. Pig numbers average only 2-3 per household (SSB, 1998). Changes have taken place in the past decade, but they have not been very significant. 1

12 The small-scaled production system is cost-efficient. A considerable part of nutrient needs for the livestock of the small farmers are provided by residues and by-products of crop production, which are otherwise of no value. For example, pig raising in the South is heavily dependent on green fodder and roughage including leaves and vines of sweet potato and rice bran (Xu et al, 1994). This has not lowered the production cost, but also significantly reduced the feed grain/meat ratio, or the amount of feed grain for each kg of meat, to a level much lower compared with the industrialized production system. According to a survey on 6,000 pig farms, the average feed grain/meat ratio is estimated at 1.8:1 for pork in Sichuan province, the most important pig producer in China (Lu, 1997). For many small farmers, livestock raising is an important source of cash income. Surveys organized by the Ministry of Agriculture indicated that, on average over all kinds of farmers, pig s sales alone accounted 6-12% of farmers cash income (MOA, 1992). The central part of the country and the group with medium-level income has the highest shares. The share from pigs in cash income for almost all groups has risen by 1-2 % over the period of In the major producing areas of pigs such as in Sichuan Province, pig sales make up to 20% of farmers cash income, as estimated by local agricultural administrators and farmers interviewed by the author and CAU students. For the major pig producing regions, often the poor and less developed inland areas, tax revenue from pig marketing and slaughtering accounts for the major share of the township or even the county revenues. In the process of transformation, the co-existence of traditional and modern production system is a new feature. In contrast to the vastly scattered traditional small holders, there is a growing number of large scale pig and dairy farms in the suburbs of large cities, mostly state farms in the past, but also increasingly owned by individual farmers or private investors. The production methods and productivity of these large operations are comparable with those in the developed countries. The large-scale pig and milk farms in the proximity of large cities are assuming an important role in securing the provision of livestock products to the urban population and hence the social stability. 1.3 Production and consumption statistics In most developed countries, many statistics on livestock production are based on veterinary inspection before slaughter and are very reliable. In China, the veterinary control system is rather weak. Over 80% of the pigs in China are slaughtered and marketed by a great number of small traders, usually villagers. There are hardly any communal slaughter facilities and small traders slaughter one or two pigs in their backyard each time (usually each day). There is no incentive to go through the inspection process, which involves fees and transportation costs. In almost every province, the slaughter of pigs is subject to a slaughter tax and various fees, which often account for up to 5% of the pig value. As a result, a large portion of the slaughter evades the inspection process and thus makes the official statistics incomplete. 2

13 As an alternative, China has long adopted a hierarchical report-based system to get livestock production statistics: village leaders make an estimate of livestock numbers and production in the village and report the figures to the township administration. Township administrators in turn compile the data from the villages and report them to the county authority. The county heads compile the data from the townships and report them to the province government. During the collective time before 1980s, this system was technically rather reliable, for the collectives had written records. However, with the dismantling of collectives and the introduction of individual household-based production, the reporting system lost its basic ground. Although village leaders still make reports, these reports do not result from book keeping records or surveys, and are rather estimated. In addition, there is a tendency to exaggerate the production figures by officers at various levels as production growth is often regarded as an important indicator for the performance of local government. In recognition of this bias, the central government and sometimes also provincial governments make downward adjustments to the compiled report-based figures according to experts views, market balance (price change) situation, etc. It is generally assumed that the real situation falls somewhere between the abovementioned report-based statistical data and the figures derived from slaughter tax revenue, with the former as the upper limit and the latter as the lower limit. Example figures from survey by CAU students in a county in Guizhou province indicated that taxed slaughtered hogs accounted for only 35-40% of official statistics for the recent years. The gap can not be completely attributed to tax evasion. At least part of the disparity is due to over-reporting. The problem of over-reporting of meat production becomes more serious in the 1990s. Over-reporting was confirmed by the results of the National Agricultural Census in January The census results are more than 20% lower than the previously reported figures (more details in the following sections). Downward adjustments have been made for the years since then. As for consumption, the State Statistical Bureau annually implements rural and urban household sample surveys on income, expenditure and consumption. These surveys cover about 35,000 urban and 67,000 rural households. Survey data are aggregated by these two consumer groups, for there are substantial differences in income and consumption patterns between the urban households and rural ones. Officials from SSB believe with high confidence that the results of the surveys, both for the rural and urban households, are reliable, for the surveys are based on a very representative sample and carried out in a consistent way. Based on the per capita consumption data from the household surveys and population statistics, total meat consumption for the whole country can be derived. Two approaches can be used to get the total consumption data: One based on the survey and the other one by the balance sheet, which is highly determined by production data. A striking divergence exists between the figures from those two approaches, as is show in the table below. 3

14 Table 1-1 Divergence in Livestock Consumption Data (million tons) between balance sheet and survey estimates Meat Total Data from Balance Sheet Data from Household Surveys Difference in % of survey data Eggs Data from Balance Sheet Data from Household Surveys Difference in % of survey data Sources: SYC, and Custom Statistics of China. There are several reasons for the divergence. First, eating-out is an important factor. Eating-out for urban residents constitutes about one third of meat consumption in terms of expenditure in the 1995 surveys. On the national scale, meat consumption in restaurants and canteens should not exceed 10% of total meat consumption in quantitative terms. Secondly, the actual urban share of the population should be larger than the statistical figures. The so-called floating population, rural migrants working in the cities and towns, is estimated at over 90 million in Their meat consumption level should be somehow close to that of representative urban households. Thirdly, the difference in meat weight definition may be an important source for the imbalance. Meat production is in principle measured by carcass weight, while the consumption figures are the actually by purchased weight, mostly without bones. Fourthly, consumption by foreign tourists. Consumption of foreign visitors registered at million a year, or less than 4% of the domestic population, should not be significant. Given an average stay period of four weeks a visit and a doubled daily meat consumption level compared with ordinary Chinese, the total meat consumption by foreigners is less than 1% of the total meat consumption in the country. Finally, there might be some bias in the sampling of the households. The sampled households may have a lower meat consumption level than the actual national average, if assumed that the numbers of households with high meat consumption levels have not been adequately included in the surveys. Such households include herdsman populations, urban and rural consumers in less-fish consuming regions, and in the major meat production areas. 4

15 Considering all the above-mentioned factors, it can be estimated that the actual meat consumption may be 40-50% higher than that derived from the household surveys. This estimation is largely consistent with the estimation made by SSB officials, in that they indicated that the actual consumption in 1995 was about 30 million tons. This is also in agreement with the general opinion that until the second half of the 1980s, over-reporting of livestock production was not very significant. Since the late 1980s, especially since the early 1990s, over-reporting has become increasingly serious. In the official statistics, the production data since 1996/1997 have been adjusted. However, the figures for the years prior to 1996 remained unchanged. The author of this report is not in the position to make adjustments. Therefore, attention should be given to the fact that the time series figures in this report are not completely comparable across years. 2. Production systems 2.1 Development of meat, milk and egg production As indicated in Table 2-1, livestock production in China has developed very rapidly in the last two decades. Though the exact figures might be to some extent be overreported, the strong growth trend is beyond any doubt. Table 2-1 Development of livestock production in China (million tons) Year Meat Total Pork Beef Mutton Poultry Other meat Eggs Milk / % 2.01% 4.68% 2.41% 3.23% 3.33% 3.09% 3.47% 1999/ % 1.76% 4.01% 2.35% 3.45% 7.20% 2.68% 1.51% Source: MOA There are a number of reasons for this rapid growth in livestock production, including institutional renovation, introduction and development of the feed industry, technical progress in animal breeding, nutrition, and disease control. The institutional renovations changed the collective operations into private operations and as such improved greatly the incentives of individual farmers to produce more and in a more efficient way. The technical progress in breeding, nutrition and in the feed industry have not only enabled the establishments of large-scale intensive livestock farms, increased their technical and economic efficiency, but also changed the feeding system and rearing methods on the small traditional farms. The improvements in technical efficiency will be discussed in further detail in the following sections. 5

16 Due to the uneven development rates between meat categories, the composition of meat production has changed. The share of pork has continuously fallen, from 87% in 1980 to 67% in 1999, while that of all other meat categories has risen. The share of poultry has registered the largest increase from 8% to 19%, followed by beef from 2% to 8%, and by mutton from 3% to 4%. The changes in the meat production structure reflect changes on the technical side and on the economic environment. Given its efficient feed-meat conversion ratio, the commercial chicken industry has developed fastest. Cattle raising, under the prevailing systems in China, needs less grain than pigs. Furthermore, mechanization in crop production has reduced the number of draught animals and consequently the inventory beef and milk cattle increased. Sheep and goat meat production has increased, but due to the constraint in grazing areas, the growth rate is slower than that of cattle. Development and changes in product prices, feed prices, the feed industry, technical innovation and extension, as well as policy reforms, have all contributed to the development features of the livestock sector in China. Those factors are discussed in more details in the following. 2.2 Livestock sector structure by species The livestock sector in China has been dominated by the traditional systems. In fact, until very recently, the livestock sector in China was a sideline farm activity. Industrialized intensive operations have developed only about fifteen years ago in China. Though the intensive systems have developed rather rapidly, especially in economically more developed regions, their share in the overall production is still low. The development has also been rather uneven among different livestock species, with poultry developing fastest and the dairy sector slowest. The pig sector According to the 1997 Agricultural Census, there are 135 million pig holders in China, over 92% of which are very small operations with an annual production of only 1 to 5 pigs. These small producers account for nearly 60% of the total production. Large operations with an annual production volume of 200 pigs or more contribute only about 10% to the total pig production, as indicated in Table 2-2. Most of the relatively large operations are located in suburbs of big cities and the coast provinces, i.e. close to the consumer centers. 6

17 Table 2-2 Structure of the pig sector in China, 1996 Million % Holders Slaughtered Holders Slaughtered 1-5 head head head head head head >1,000 head Total Sows * *Inventory Source: 1997 Agricultural Census The poultry sector The poultry sector is much more concentrated compared with other sectors. Over 56% of poultry production is from farms with an annual output of over 1,000 birds. The high feed and economic efficiency, the high consumer preference and the relatively high price are among the major factors leading to the rapid intensification process of poultry production in China in the past decade. Table 2-3 Structure of the poultry sector in China, 1996 Million % Holders Slaughtered Holders Slaughtered 1-50 birds 101, birds 2, ,000 birds ,001-10,000 birds > 10,000 birds Total 104,312 3, Source: 1997 Agricultural Census The beef sector The cattle sector is the fastest growing livestock sector in China, though there seems to have been some over-reporting in the official statistics as mentioned earlier. Several factors explain the reasons for this fast growing pace in beef production. First, the reform policy has greatly increased the incentives of farmers to expand livestock production, as mentioned earlier. Second, the production level at the beginning of the observation period, i.e. at the beginning of the 1980s, was very low. The Chinese beef 7

18 production in 1980 was only slightly over a quarter of a million tons, or a quarter of one kilogram per capita. The inventory was large, at over 70 million head in the early 1980s. However, the off-take rate was very low, only 4-5%. The most important reason for that was that the draught cattle had a large share in the total cattle inventory. Beef from extensive pastoral systems, mostly located in Tibet, Inner Mongolia, Qinghai, Sichuan and Xinjiang, accounted the dominant part of the total beef production. In the eastern farming provinces, beef production was only a byproduct from the fallen and eliminated draught animals. Third, considerable technical progress has been made. New breeds and artificial insemination, new production methods, especially in exploring new feed resources such as ammoniation of crop straws, have significantly expanded the scope of the efficiency of beef production. Mechanization might also have played some role, in replacing the draught animals. Small holders still play the prevailing role in beef cattle sector, as indicated in Table 2-4. Farms with 100 or more head of cattle currently account for less than 10% of the total production, in spite of its rapid development in the recent years. Table 2-4 Structure of the beef herd in China, 1996 Million % Holders Slaughtered Holders Slaughtered 1-5 head 10,434 14, head , head , ,000 head > 1000 head Total 10,770 19, Source: 1997 Agricultural Census in China. The dairy sector The dairy sector has a relative large-scale structure. Holders with 100 or more cows account for 20% of the total dairy cow inventory. Very few dairy cattle existed in China prior to the 1980s. In Chinese statistics, the term dairy cattle implies improved dairy cows. As of 1980, just 641,000 such dairy cows were registered, an inventory that included crosses with beef-type cattle as well as purebred or high-grade dairy animals. However, the dairy inventory has since grown very fast. There is no data on the relative shares in different systems and there is a lack of a clear definition and distinction between intensive and extensive raising systems applicable for China's situation. According to interviews with officials from MOA, the intensive dairy cattle system as understood in developed countries is almost only found on state farms, mostly located in the suburbs of large cities and in the northeast province of Heilongjiang. 8

19 Table 2-5 Structure of the dairy sector in China, 1996 Number % Holders Inventory Holders Inventory 1-5 head 714,553 1,409, head 70, , head 38, , >100 head 1, , Total 824,591 3,385, Source: 1997 Agricultural Census in China. Geographically, milk production is concentrated in the North of the country. With a share of nearly 30% of total national production, Heilongjiang Province is by far the largest milk producer in China, followed by Inner Mongolia and Xinjiang, each with around 8%. The three municipalities, Beijing, Shanghai and Tianjin, are also important in milk production, considering that they are very small in area. The milk production system in the suburbs of those three large cities is highly intensive. Similar to the beef sector, the rapid growth in milk production has been a result of technical progress and, especially, the rapidly growing demand. The development of the milk processing industry has provided more and diversified milk products and greatly stimulated milk demand. Prior to the reform in the late 1970s, there were hardly any milk products except milk powder. The development of the milk processing industry and the related food industry, including ice cream, yogurt, butter, cheese, cakes and so on, have generated a great demand for milk. On the other hand, market development, especially the expansion of retailer shops with refrigerator facilities, have significantly extended the market reach of milk products. Food shops with refrigerators can now be found everywhere in the cities and towns. Fifteen years ago, there were hardly any such shops, even in a large city like Beijing. 2.3 Technical parameters by species and production system The pig sector The pig inventory remained fairly constant at around 300 million head in the first half of the 1980s, and thereafter increased steadily to over 400 million head in the 1990s, as shown in Table 2-6. The number slaughtered showed the same trend, but at a faster pace. During the last two decades, the number of pigs slaughtered has more than doubled, from around 200 million in 1980 to close to 520 million in The changes in technology and other factors affecting production efficiency are reflected in changes in a number of production parameters. The off-take rate (number slaughtered per year as a percentage of the inventory at the beginning of the year) has increased steadily and considerably, from 62% in 1980 to 123% in At the same time, slaughtered animals have become heavier. The average slaughter weight of pigs has increased from 57 kg to 77 kg. Productivity, measured in terms of meat produced 9

20 per head of inventory, i.e the combined result of off-take rate and slaughter weight, has almost doubled in the past two decades. Table 2-6 Pig and pork production in China Year Inventory at beginning of the year (million head) Slaughtered (million head) Meat Output (million tons) Offtake Rate (%) Carcass Weight (kg) Productivity per year (kg/head) Source: SSB: SYC; SYA The introduction of private incentives and market mechanisms has triggered changes in producers attitudes, objectives and utilities. Many producers now pay high attention and place high priority on the economic returns. It is the amount of income, not the size of the herd, by which a producer earns respect from his or her peers. In addition, progress in pig nutrition and improvement in other areas, including breeding, feeding techology and disease control have greatly contributed to the expansion of pig production. The Research Center for Rural Economy (RCRE) of the Chinese Ministry of Agriculture organized a survey on livestock performance in China in 1996 and in 1999 respectively. The RCRE 1996 survey of the pig sector was conducted in seven provinces, covering 2453 households with pig production. The surveyed farms were divided into traditional farms and specialized farms. Some of the survey results are presented in Table 2-7. Generally, there are differences between provinces and between operation types. Particular features can be summarized as follows: traditional farms show a wider variation in slaughter weight, from about 90 kg in the two provinces on Yangtze river to almost 140 kg in the north province of Jilin. The specialized sector shows a relatively small weight span among regions. Secondly, there is a similar variation pattern in the fattening period, with a range from 170 days to over 300 days in traditional farms, as opposed to 130 to 190 days on specialized farms. Third, in feeding strategy, specialized farms depend completely on purchased feed, while traditional farms, in particular in the three northern provinces, mainly use grain produced by themselves. Fourth, both types of farms purchase processed feed, with specialized farms having a much higher percentage. Feeding efficiency varies significantly, both between types of farms and across the provinces, showing a wide range of feed-meat conversion ratio from under 3.0 to over 4.5. The cold weather in the northern provinces such Jilin and the warm and favourable climate in the southern provinces such as Sichuan, Guangdong and Hunan, may explain some of the difference. In the warm regions, the non-grain feed usage should also be high, given the abundant supply of green fodder. Finally, there is an major difference in daily weight gain between the traditional farms and specialized 10

21 farms, with the latter showing a significant higher value for all provinces. Table 2-7 Technical indicators in the pig sector by farm type and province, 1996 Number of farms surveyed Inventory: Pigs/farm Weight at slaughter (kg) Fattening days* Type Jilin Shaanxi Shandondong Jiangsu Hunan Sichuan Guang- Traditional Specialized Traditional Specialized Traditional Specialized Traditional Specialized Purchased feed (%) Traditional Specialized Purchased Traditional processed feed (%) Specialized Feed conversion ratio Traditional Specialized Daily weight gain Traditional (kg) Specialized * Days from weaning to slaughter. Source: RCRE 1996 survey. As indicated very clearly in the following table, the value of major technical indicators varies progressively with farm size. There exists a close relationship between the values of slaughter weight, fattening days and feed sources. Table 2-7b Technical indicators by farm size, head 6-15 head head head > 50 head Slaughter weight (kg) Fattening days (days) Share of purchased feed (%) Source: RCRE 1996 survey. 11