JSR Genetics - Thoughts from China: The world's factory
Published:October 4, 2006
Source :JSR Genetics
Tim S Rymer, JSR Genetics, reflects on his recent trip to China and the industry he witnessed.
The size and scale of the Chinese pig industry takes your breath away, 1.3 billion consumers eat their way through 600 million slaughter pigs, produced from 50 million sows - 50 % of the world's pig population. But the size and scale of the industry is not enough to guarantee a profit, as today most pig producers are emerging from a period of sustained losses.
The Chinese pig market appears to be split into 3 distinct segments:
1. Traditional back-yard producers operating with 1 to 10 sows
2. Small producers with an average herd size of 50 sows
3. Developing integrators with large commercial units
You would be forgiven for thinking that the Chinese had invented time travel. We visited back-yard producers operating less than 10 sows, in a manner similar to the UK in the late 19th century, that contrast starkly with modern state of the art production facilities which we don't have (yet) in the UK. You witness Chinese women planting rice by hand in paddy fields, but using the latest mobile phones to communicate with each other. Over a 100 years of agricultural development in the same country.
We need to have a paradigm shift when we examine Chinese business philosophy. Labour is not an issue. Mechanisation is not a priority when looking at investment. They want access to the very best technology including foreign capital. Chinese foreign reserves are just about to pass the $1,000bn (trillion) mark. The Chinese are keen to embrace new technology and capital in joint ventures.
However, experience has shown that foreign companies might share the same bed as their Chinese partners but not the same dreams! Chinese agriculture will develop labour intensive agriculture to utilise the plentiful supply of labour in rural areas. The Chinese will still use the latest technology including GM crops but a business proposal which gives them a competitive edge utilising less labour will not be of interest.
As with the Russians, one of the Chinese government's main policies is food security and increasing income in rural areas. Agriculture remains an important part of the economy producing 15% of GDP and accounting for 40% of employment. The climate is not ideal. This year there has been a severe drought in the north and 5 typhoons in 6 weeks in the south (makes a wet 2006 wheat harvest in East Yorkshire seem civilised).
The main retail outlets for food in China are traditional 'wet' markets, wholesalers, food processors and retailers. Since the early 90's increased food sales have been dominated by the growth of supermarkets. Overall supermarket share of the retail market is approximately 20% compared to 60% - 80% in the US/EU. Foreign retailers such as Carrefour, Walmart, Metro and of course Tesco are operating in these markets.
The time travel concept is illustrated again with the traditional wet markets in rural areas (where the carcasses are cut up in-store) contrasting with the urban retail market where wealthy consumers demand quality, traceability and no residues. There is even a thriving organic market in urban China.
There is doubt that the growth in pork production will continue to be in modern integrated supply chains supplying wealthier urban consumers. However pressing the fast-forward button on Chinese agriculture puts tremendous strain on the infrastructure, although the traditional wet markets in rural areas will survive for some time yet.
The country has coped with 8% growth in GDP so far without the economic lid being blown off. I guess it will continue to be sustained - that's China for you.
