As the Chinese government boosts agriculture productivity in its drive to ensure national food security, we expect government subsidies to continue to grow. In 2011, this spending reached CNY134.5bn (US$21.2bn), with a large portion being channelled into seed, fertiliser and fuel subsidies. That said, we believe the country will inevitably grow more reliant on imports of key grains such as corn, wheat, sugar and even rice in the long term as consumption growth exceeds production growth. Yield improvement would be the fastest way to meet growing demand, and we note that the recent verbal acceptance of genetically modified (GM) seeds is an acknowledgement of the need to recalibrate the governments previously staunch stand against GM products in this respect.
- Soybean consumption growth to 2017: 43.8% to 102.1mn tonnes. Output expansion will be driven by economic growth, which is leading to rising incomes and thus greater meat consumption. Growth will also be driven by strong demand from the livestock sector (for soybean meal), and as soybean oil is the most popular edible oil in the country.
- Pork production growth to 2016/17: 19.4% to 61.6mn tonnes. Production continues to be encouraged by elevated local livestock prices. The increased availability of vaccinations and the ongoing commercialisation of the industry are also likely to boost output in the coming years.
- Sugar consumption growth to 2017: 24.0% to 17.7mn tonnes. Chinese incomes are rising, supporting demand for products in key industries, such as the confectionery, dairy, beverage, and food processing.
- Our universe agribusiness market value: US$433.4mn in 2013. Growth will average 2.7 %annually between 2012 and 2017.
- 2013 real GDP growth: 7.1% (from 7.7% in 2012, forecast to average 6.4% between 2012 and 2017).
- 2013 consumer price inflation: 2.8% ave (from 2.6% in 2012, forecast to average 2.7% between 2012 and 2017).
- 2013 central bank policy rate: 6.00% ave (from 6.00% in 2012, forecast to average 5.67% between 2012 and 2017).
Although we forecast slower-than-average pork consumption growth in 2012/13 due to a weakened economy, production will come short of demand for the fourth consecutive year. China should maintain a healthy appetite for pork imports, with the US being the largest supplier, accounting for 44% of Chinas total imports. In the coming years, we expect China to intensify its imports, as imported pork is becoming increasingly competitive due to rising production costs, animal disease outbreaks, environmental threats and food safety concerns. Pork production will remain supported by government policies (setting up a futures market and maintaining an active intervention policy) as well as by the ongoing industrialisation of the sector. However, we believe the industry will remain highly vulnerable to the lack of land availability, environmental concerns, seasonal consumption and volatile as well as thin margins.
Chinese dairy companies are now significant global players, ranking among the worlds largest in terms of market sales. With US$5.8bn each in dairy turnover in 2011, Yili and China Mengniu Dairy even overtook some of Europes and North Americas traditional players, such as Bongrain, Muller and Schreiber Foods. The global dairy market is shifting towards emerging markets, especially Asia, which we expect will enjoy strong consumption growth over our forecast period to 2015/16. Fifteen out of the largest 20 dairy companies globally have investments in manufacturing in China, one of the most promising markets in Asia. The presence of foreign groups in the Chinese dairy industry is likely to intensify in the coming years, and China will experience further consolidation among its domestic dairy industry.
Hot weather and an outbreak of fungal disease have limited the 2012/13 wheat crop, which was harvested in June-July 2012. As a result, we revised down our production forecast to 108.0mn tonnes. Despite being high compared with historic averages, wheat production will not be above consumption in 2012/13 for the first time since 2005/06. We expect Chinas production surpluses to end in 2013/14 and for the deficit to widen in the coming years on the back of subdued production growth and soaring demand. Output expansion is being constrained by a low availability of farming land. Moreover, China already boasts of high wheat production yields, at 4.9tonne/ha in 2011/12, compared to 5.4tonne/ha in the EU.