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China Market Report

Lorne Tannas, General Manager China, Genesus Inc.
ltannas@genesus.com

During the summer months we visited many companies and an overall trend is the continued talk about Meat Quality.  China is still grading with a system that North America did 30 to 40 years ago where the carcass was evaluated by sight.  In some plants they use a score of 1-6.  This is very subjective and doesn’t take into account the lean to fat ratio, IMF and the color.  Many of these companies are talking about implement the Japanese Standard of Meat Quality but have no way to evaluate as yet.  But don’t underestimate the ability for China to change.  The large Mega companies are leading the way.

COFCO has just launched their Duroc Meat line to the retailers this October.  This focus on Meat quality is to improve revenue on higher valued pork products.  This is the next step in line with the record profits of last year where the main focus was cost cutting by COFCO.  Genesus the source of COFCO’s Duroc have been doing intensive Meat Quality work for over 20 years and lead the industry in Meat Quality.

Cost of Feed and cost of Labour are the main inputs cost in raising a pig in China. Cost of feed represents 57% of the pig and Labour 7.8 %.  The actual cost of feed is as much as 75% higher than what we see in North America.  The actual cost of labour is 24% higher than North America.  Much of these costs, has to do with poorer performance.  The larger companies are making great strides in improving performance as seen by COFCO last year.

Like North America, China has problems getting workers to work in Pig Farms.  Labour costs continue to rise.  The industry has gone to more mechanized farms to offset labour requirements.  Currently Chinese farms run 100% to 200% more workers than in North America on farm.  This is also changing.

Feed cost has to do greatly with poor growth.  Chinese producers take 10% – 20% longer to grow a pig than North America.  This in part has to do with facilities and equipment but the main contribution is poorer genetics.  Chinese estimates it takes 9 RMB ($1.35 USD) per day for every day of extra growing time.  We see farms that are taking 10 to 20 days longer to finish a pig.  That is 90 RMB ($13.50 USD) to 180 RMB ($27.00 USD) per pig marketed.  In North America there is not that much profit in a pig.  In China they have enjoyed very good prices for a long time and have made them complacent to improvement.

What we are hearing is there is a need for change toward Meat Quality and better performance.  Some of the Mega producers are taking those steps now.  My experience is that the Chinese will make this happen and it can come quickly.

Source: China National Development and Reform Commission and USDA, Economic Research Services (2016)

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This post was written by Genesus