PIG HUSBANDRY IN CHONGQING AND SICHUAN Consulate General of the Netherlands in Chongqing / Netherlands Business Support Office in Chengdu, Sichuan

Version 0.1 April, 2014

This report is part of a series of economic overviews of important regions in China, initiated and developed by The Netherlands Economic network in China. For more information on these reports please visit www.zakendoeninchina.org or contact the Consulate General of the Netherlands in Chongqing [email protected]. Unauthorized use, disclosure or copying without permission of the publisher are strictly prohibited. The information contained in this report, including any expression of opinion, analysis, charting or tables, and statistics has been obtained from or is based upon sources believed to be reliable, but accuracy and completeness cannot be guaranteed. As general and sectoral information on industries in western China is invariably scarce, outdated or both, all surveys conducted by the Consulate-General in Chongqing are ‘work in progress’. Hence as more information becomes available, reports will be updated on a regular basis. Please visit our website for the most recent version.

INTRODUCTION China is the world’s largest producer and consumer of pork. Currently half of all pigs worldwide are raised and eaten in China. In 2012, Chinese farmers and companies produced 50 million tons of pork (from 660 million head). This was double the amount of the pork produced in all 27 EU countries combined. Prospects for future growth look optimistic: in 2014, swine production is expected to reach 723 million head, and by 2015 pork production is expected to increase to more than 54 million tons, a 7% increase compared to 2010. Figure 1: China ranks number 1 in pork production and consumption

Agricultural development has been a key component of China’s economic rise over the past 40 years. China has been very successful in overcoming land and resource constraints to feed its 1.4 billion population, a development that has enabled a growing number of citizens to include meat consumption in their daily diet, rather than having it as a rare treat. Since 1980, average per capita meat consumption in China has quadrupled, such that in 2009, on average, Chinese citizens ate 58 kg of meat, 39 kg of which was pork. Pork is a key part of China’s food tradition, and although overall meat consumption has diversified to include more chicken and beef, pork still dominates the meat market. Pork consumption volumes is expected to grow at a slow pace of 1-2% annually. During the current five year plan (2011-2015) the Chinese government wants to increase meat production and modernise the meat industry. The start of econonomic reforms gave rise to a rapid period of marketization that led to a very decentralized playing field, consisting of many small producer, mostly backyard farmers. Now the government is encouraging market consolidation through the development of standardized, larger production units. Following some disease outbreaks and food scandals, investments are being made in test systems and control programs to secure food safety. While the majority of pork production is a domestic affair, Chinese pork demand outstrips supply, making foreign investment and imports increasingly common. Foreign cooperation is also sought after in the area of technology and policy reform. All these trends are very much visible in Western China, where the live pig industry is a pillar industry of the region’s rapidly developing economy. This report focuses on the pork industry in Sichuan, one of China’s major agricultural base areas, and in Chongqing, its neighbor 33 million municipality and one of 4 municipalities to fall directly under the central government. In the past years, demand for meat products in this part of China has grown with over 20% a year on average. In 2012, demand grew by 23% in Sichuan, and in Chongqing this number came up to 28%.

Figure 2: China’s pork market

INDUSTRY OVERVIEW Because of China’s pork industry’s on-going transition towards standardization and larger production units, the industry is currently extremely diverse and ranges from smallholder farms that raise fewer than 10 pigs to massive agribusiness firms that raise and process 100,000 hogs a year. However, the trend is clear: smallholder farming (1 to 10 pigs/year) dropped from 95% in 1985 to about 27% in 2009. Bigger commercial firms (over 500 pigs) account for about 30%. In between forms, such as farming coops of small-scale farmers who survive by integrating their production process, also play an important role in the market. Figure 3: Chinese hog farming development

Fresh, unchilled meat still occupies about 60% of China’s pork meat market, with chilled fresh meat and packaged cut meat both making up 10%. Only 15% of meat output is processed. This is markedly different from markets in developed countries where chilled meat reaches almost 100% and 50% of total meat output is processed. These characteristics make for a market with little product differentiation and branding, in which profit margins are low. However, China is currently establishing a cold chain logistics delivery system and increasing the output ratio of chilled meats (30% in cities at or above county level by

2015). This further integration of production with the slaughtering and processing industries creates opportunities for creating competitive brands and introducing products with higher added value. Currently, the decentralized structure of pork market extends to the slaughtering industry. In the Netherlands, the top 3 pig slaughtering enterprises control 75% of the market, but in China the slaughtering industry is much more divided, with the top three slaughtering companies taking only about 10% of market share. However, the slaughtering industry is also quickly moving towards full mechanization of the slaughtering process: by 2015, 50% of manual and semi-mechanized slaughtering will have been automated. Figure 4: Consolidation in China’s pork slaughtering sector

Since 2007, when an outbreak of blue ear disease caused domestic prices to soar, China has started importing significant quantities of pork into its market. While imports make up less than 1% of domestic consumption, these roughly 150,000 tons of pork still come up to 12% of global exports. Pig feed, modern pig breeds and breeding technologies are also increasingly coming from abroad. Also starting from 2007, China has a national pork reserve in 2009. Chinese policy makers introduced a ‘hog price alert’ market intervention program aimed at reducing the cyclical variation in hog prices. Its main function is to buy up pork for reserves to increase demand when prices are low and sell pork to augment supply when prices are high. The program intends to stabilize hog inventories by preventing extended periods of low prices that might force producers to cut down on production capacity. Country Pork Price per Kg in RMB

USA

11.16

EU

14.35

Canada

9.52

South Korea 17.96

Japan

22.30

China

24.32

Figure 5: In 2013,the average price of pork in China was relatively high (1 EUR = RMB 8.5, April 2014).

Sichuan

is one of China’s biggest pork production areas (together with Henan, Shandong, Hunan, Hubei and Guangdong). In Sichuan, most of the larger pig farms are located in the flatlands surrounding capital Chengdu, while small-scale farms can be found in Sichuan’s more mountainous areas. Eight large pig-farming bases in Chengdu produce almost 56% of all pork in Sichuan. Many national companies are present in the province, but the number of farm cooperatives is also on the rise, to around 1,100 on 2013. In 2013, production went up by 3.3% to 74 million head. Export went up by 5.1% to 321,000 tons and Sichuan imported 1.28 m tons of pork and pork products, an increase of 2.1%. Sichuan counts 355 animal husbandry companies, 26 of which are national-level leading enterprises and 87 of which are provincial-level leaders. Sichuan has more slaughtering houses than any other province (around 2000), but most of them are quite small-scale. The main players in the sector are: Shuanghui, Yurun and Jinluo. The sector is rapidly changing, due to investment in slaughtering and refrigerating technology and improving inspection mechanisms.

In Chongqing, pork makes up 55.5% of all animal husbandry. In 2012, hog sales amounted to 19.8 billion RMB up from 19.1 billion RMB in 2011. In that year, 17 million live pigs were sold (3.5 high quality, i.e. more than 60% meat on the carcass), and for 2015, this number is predicted to rise to 23 million (10 million high-quality). In 2012, Chongqing’s number of live pigs and output of pork respectively ranked 8th and 3rd in China. Chongqing stands out in the area of pig breeding, with major research institutes such as the state-owned Chongqing Pig Scientific Research Institute located in the Rongchang district, which is also home to the Rongchang pig breed. The Rongchang pig ranks among China’s top 3 species and has been identified for key promotion and further development by the central government. Chongqing’s pork production surpasses the demand of its local market. 30-35% of its production in 2012 was for export to Eastern and Southern China, with 5-10% going to other countries in the region. Income from pork export exceeded US$ 46 million. Within Chongqing, there are seven processing enterprises qualified to export meat. In terms of processing, Chongqing’s production capacity is above 10 million head a year. Recently, the Nanjing Yurun Group, one of China’s biggest pork producers, invested 270 million in a Chongqing meat processing project that will have an annual production capacity of 2 million pigs. Here too, large-scale farms are increasing, with the number of small-scale farms decreasing in 2011-2012 with 8% to 30.75%. The Chongqing municipal government as well as private investors are heavily investing in building a strong foundation for further growth, for example by designating pork production areas for preferential policies and close monitoring of national food safety standards. Figure 6: Chongqing – Pig Output 2011-2012

Hog sale (RMB 10,000) Pork output (10,000 t)

2011 1913.02 150.73

2012 1980.99 148.55

CONSUMER MARKET As of 2011, Chinese citizens consumed about 39 kg of pork a year (vs 27 kg in US). Pork consumption is growing steadily at a 1-2% rate. However, with the production of poultry and beef also rising, the share of pork in total meat consumption has fallen (from 80% of all meat in the late 80s to 64.7% in 2005). In China, meat consumption is still very much a signifier of personal wealth. While consumption is increasing across the board, the expansion of the market has been urban-focused and uneven, with pork consumption, too, closely linked to income levels. Although pork consumption is expected to keep rising for the entire population, the biggest driver of Chinese pork consumption in the future will be lower income groups in urban and especially rural areas. Pork makes up a central component of China’s Consumer Price Index, which the Rabobank has even dubbed the ‘Consumer Pork Index.’ This means the Chinese government closely monitors pork prices, to keep a watch on inflation levels, and to avoid social unrest. In 2012, the price of pork varied from around 21-24RMB/kg. As of early 2014, the trend seems to be towards lower prices (21-22RMB/kg), a side-effect of the expansion of large-scale farms that is likely to please consumers. However, in recent years, a number of food safety scandals (including dead pig meat sales, and various pig disease outbreaks) have worried Chinese consumers. Urban, middle-class audiences, especially, tend to put more trust in imported meat products as opposed to domestic products. Policy action towards standardization and hygiene control has partially been a response to consumer concern. Those who can afford it prefer industrially produced meat, which is supposed to be safer, in large supermarkets. Chinese consumers tend to be less aware of the fact that industrialization carries with it its own risks in terms of antibiotic resistance and disease control. Sichuan and Chongqing represent major markets, in a region in which economic development has been especially dynamic, due to a large scale central effort to develop the inland economy. In 2007, Western China GDP growth for the first time outweighed national GDP growth and this trend is expected to continue. With urbanization policy increasingly focusing on China’s second and third-tier cities, consumption market expansion is to be expected. A local market niche is the growing hot pot market, a favorite food of the region. Sichuan represents a larger consumer base, while in Chongqing there is more interest in high-end consumption. Figure 7: Meat Product Demand Analysis on Meat Product Demand of Chongqing Channel

Products

Supermarket Farm product markets Group purchase Catering / hot pots Total

unit: Low-temperature meat products 3000 200 800 2000 6000

t

Normal-temperature meat products 1000 3000 500 500 5000

Featured meat products 100 300 500 100 1000

Analysis on Meat Product Demand of Sichuan Province Channel

Products

Supermarket Farm product markets Group purchase Catering / hot pots Total

unit: Low-temperature meat products 4000 500 1500 2000 8000

t

Normal-temperature meat products 8000 10000 1000 1000 20000

Featured meat products 300 700 800 200 2000

INDUSTRY TRENDS AND OPPORTUNITIES China is moving towards upgrading its country’s swine population’s genetic makeup, mostly by importing breeding stock and doing research. Both Chongqing and Sichuan have abundant research facilities in this area and have an interest in international cooperation. -

Chinese meat demand outweighs supply, making import figures likely to keep growing.

Increasing demand for chilled and processed meats. Development cold chain logistics transportation network. Because of public health concerns, bigger production plants are being requested to move out of the cities (for example in Guangzhou). The trend is to move factories away from urban areas, and away from China’s East and South. Large meat companies move to the North and West to be closer to grain supplies and to reach out to new consumers. In this development, the strategic location of Sichuan and Chongqing offers opportunities. The Chinese government continues to strongly advocate the “going out” investment strategy for the meat sector. Leading meat producing groups are encouraged to invest abroad to make full use of foreign resources and to strengthen Chinese meat industry's influence worldwide. For example, Chinese company Shuanghui International Holdings Ltd. bought the world’s largest pork producer, Smithfield Foods, last year. Interest in learning about more sustainable technologies and environmental protection measures that can be used to limit the pollution of large-scale farming. Interest, expressed by agriculture department officials at both municipal and provincial level as well as local companies, in acquiring processing equipment and technology from the Netherlands.

CHALLENGES As reforms to upscale and modernize production are still in progress, the industry faces challenges in the area of financing difficulties, land shortage, relatively low meat per carcass ratio etc. Because the proportion of large-scale animal husbandry establishments is still relatively small at 40%, the market is subject to instability of supply, particularly when negatively impacted by animal health issues. In addition, given that only 10% of the slaughtering houses are large-scale, the ability to monitor and ensure food safety remains limited. With its rapid modernization efforts, China will also have to be careful not to fall into the traps more developed meat industries are facing, such as dependence on one type of feed and overuse of antibiotics. Long-term market development is another area of uncertainty. Will demand for pork keep growing? Will the Chinese government be successful in achieving higher food safety standards? While as of now there is no import quota, this might change in the future, as it is clear that the government places value on a high degree of self-sufficiency in an industry that is so central to the Chinese diet.

MAJOR PLAYERS Sichuan 

Sichuan Gaojin Food Co., Ltd - www.gaojin.com.cn

Sichuan Gaojin is a private joint venture that runs pig-breeding and purchasing, slaughtering, fragmenting, freezing processing, fresh pork chain stores, can food producing, pork deeply-processing

and marketing. It is the biggest pork processing enterprise in Sichuan, and it has been Sichuan’s number 1 producer for the past three years. Annual capacity is 2.5 million head. It is also well-known for exporting pork and processed pork products/ Sichuan Gaojin has been approved as an important agricultural industrial leading enterprise of China, employing more than 3,000 staff, 40% of which have higher education qualifications. 

New Hope Group - newhopegroup.com/en

New Hope Group is devoted to building integrated industrial chains to create the largest agricultural industry cluster in China. It’s annual production capacity of feed has already reached 26.6 million tons and its sales volume has amounted to 12 million tons, which ranks number 1 in China. New Hope has imported advanced production lines and equipment from Holland, Germany, Demark, and Italy. Annual pig processing capacity is over 8.5 million head. 

Sichuan Ju Xing Group - scjxjt.com.cn/about/Intro.asp

Established in 1994, Sichuan Ju Xing Group mainly focuses on large scale farming, with 20 subsidiaries. It is also involved in other industries such as forage, food, chemicals, and new energy. It has invested over RMB 250 million to pig and chicken feeding, processing 500,000 head annually. 

Tie Qi Li Shi Group tqlsgroup.com/index.aspx

With total 51 subsidiaries national wide and over 6,000 employees, Tie Qi Li Shi Group is a hi-tech company specializing in forage, agri-food, and animal husbandry. With an integrated pig industry chain, it provides over 120,000 breeding pigs and processes more than 800,000 pigs annually. 

WENS Group Southwest - www.xnwens.com/index.aspx

WENS Group Southwest is a subsidiary of Wens Group Guangdong, which has invested RMB 230 million to build seven farming companies in Sichuan and Chongqing, and employs over 1,130 staff. It aims to produce 1 million pigs in 2014, and to become one of the largest pork suppliers in this region. 

Chuan Jiao Ltd. - chuanjiaogroup.com/info/?thetype=1&id=56

With a total capital of RMB 72.6 million and 108 staff, this is one of the leading pork suppliers in Chengdu. 

Sichuan Wuyou Ltd. - www.wyjt.cn/home.aspx

Sichuan Wuyou is a group consisting of businesses involved with forage production, pig breeding and slaughtering, pork processing, and more. Its annual processing capacity is over 600,000 head. 

Sichuan Kang Hong Animal Husbandry Technology Ltd. khnongye.cn/kh/zh/web/index.asp

Established in 2006, its business varies from pig breeding to processing, producing over 1 million head annually with processing capacity of 75,000 tons.

Chongqing -

Chongqing Dazheng Animal Husbandry Science & Technology Co., Ltd. www.yqrc.com/

Dazheng Animal Husbandry Science & Technologt Co. is recognized as a live pig export and reserve base by the State Economic and Trade Commission and has good production environment and export conditions for quality lean pigs. After the “Millions of quality lean hog industrialization project” is put into operation in 20 base counties, the production capacity of quality lean hogs will be further improved. -

Chongqing Tianson Group http://www.tianson.com/top.asp

-

Chongqing South Group http://www.southgroup.com.cn/

Since 2008, this major investment group is active in the entire supply chain of the pork industry from pig production and pig breeding to R&D, feed production and pork product processing. The company aims to become a major player in establishing ecologically sustainable development in the Chongqing region, and has been designated as ‘Agricultural Industrialization National Key Enterprise.’ -

China Baodi Group: http://www.chinabaodi.com/

Baodi is one of China’s biggest producers of meat products. It is active in over ten provinces and its 46 subsidiary companies employ over 5,000 people. In its production areas, it aims to integrate the entire production chain, to secure food quality and safety. In addition to breeding and production, Baodi is also active in chilled meats processing and logistics. -

Yurun Group: http://www.yurun.com.hk/

China Yurun Food Group Limited (“Yurun Food”) is one of the leading meat product manufacturers in China. It offers a wide range of pork products, including chilled pork, frozen pork, low temperature meat products (LTMP) and high temperature meat products (HTMP). The products are marketed under a number of brands, including Yurun, Popular Meat Packing, Furun and Wangrun, Furun. In the future, the Nanjing-based company aims to further move into China’s inland cities, because of their great market potential.

Large pig slaughtering and processing companies in Chongqing include: -

Chongqing Huamu Group Company - http://www.chinaswine.org.cn/content-60-2337-1.html

Huamu is one of seven Chongqing-based meat slaughtering and processing companies to have an export license. It employs about 2000 people and processes 400,000 pigs a year. In 2013, it received a subsidy for industrial development from the Chongqing municipal government. Dazheng Meat Food Company http://chongqing.mofcom.gov.cn/aarticle/sjqiyeml/200506/20050600122552.html

-

Chongqing Dazheng is the successor of Chongqing Meat Products United Processing Company, which was founded in 1956. Annual pig processing capacity is 600,000 pigs/year. It services the domestic market, as well as HK, Australie and Eastern Europe. It specializes in frozen and chilled meat products,and has a chilled storage space （-23℃― -18℃）with a capacity of 27000 tonnes. -

Chongqing Jinpu Food co.,Ltd. - http://www.21food.cn/company/show-cqjinpufood.html

Chongqing Jinpu is one of Chongqing’s home-grown market leaders. Founded in 2003, the company has developed into a major player with an annual turnover of 3-4 billion RMB and over a 1000 employees. It

is oriented towards the global market, and its swine herd of 3 million head is imported from Germany. Production equipment has also been internationally acquired. -

Chongqing Qianjiang Food (Group) Co.,Ltd. - http://www.hrm.cn/company/16-45138.html

Chongqing Qianjiang ranks no. 6 out of Chongqing’s strongest agricultural producers. It is a model slaughtering and processing company and Chongqing’s top exporter in terms of foreign currency income. Half a million pigs are processed each year, and one of its major customers is the Chongqing municipal government.