China - Animal feed sector study

Report No. 10922-CHA China Animal Feed Sector Study June 24,1993 Agriculture Operations Division China and Mongolia Department MICROGRAPHICS East Asia and Pacific Regional Office FOR OFFICIAL USE ONLY Report No: 10922 ChA Type: SEC .o ' .}~~~~~~~~~~~~~~~~~~~~' Document of the world Bank This document has a restricted distribution and 'May be used by recipients - - only in the performance of th?ir official duties. Its contents may not otherwise be discrosed without World Bank authorization.  CURRENCY EQUIVALENTS (As of June 16, 1993) Currency Unit - Yuan (Y) $1.00 - Y 5.700 Y 1.00 - $0.1754 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES Metric system PRINCIPAL ABBREVIATIONS AND ACRONYMS USED ADG - Average Daily Gaia JCRR - Joint Commission on Rural AI - Artificial Insemination Reconstruction BF - Backyard Farmer JV - Joint Venture CAAS - Chinese Academy of Agricultural LC - Least Cost Sciences LCF - Least-Cost Formulation CAPI China Administration of LP - Linear Programming Pharmaceutical Industries ME - Metabolized Energy CFIDC - China Feed Industry Development HIGA - Multilateral Investment Guarantee Corporation Agency CFIA - China Feed Industry Association MFu - Most Favored Nation CDMMYT - International Maize and Wheat MGA - Ministry of Agriculture Improvement Center HOC - Ministry of Cammerce l/ CNBTS - China National Bureau for Technical MOFERT - Ministry of Foreign Economic Supervision Relations and Trade CNCQSTF - China National Center for Quality NFIO - National Feed Industry Office Supervision and Testing of Feed PRC - People's Republic of China CP - Crude Protein QC - Quality Control CSC - Cotton Seed Cake R&D - Research and Development CTDFI - China Technical Development of Feed ROS - Return on Sales Industry SAIC - State Agricultural Investment DAH - Department of Animal Husbandry Corporation DCP - Dicalcium Phosphate SCP - Single-Cell Protein FCR - Feed Conversion Ratio SEZ - Special Economic Zone FDI - Foreign Direct Investment SH - Specialized Household FIAS - Foreign Investment Advisory Services SOE - State-Owned Enterprise FPQMC - Fesd Products Quality Monitoring SPA - State Pharmaceutical Adm4nistratic Center SPC - State Planning Commission GOC - Government of China SSB - State Statistical Bureau GVAO - Gross Value of Agricultural Output TA - Technical Assistance IBRD - International Bank for TDN - Total Digestible Energy Nutrients Reconstruction and Development tpa - tons per annum IDA - International Development tph - tons per hour Association TVE - Township and Village Enterprise IFC - International Finance Corporation UNDP - United Nations Development Program VAT - Value Added Tax 1/ As of May 1, 1993, the Ministry of Commerce has been merged with the Ministry of Materials to form a new Ministry of Domestic Trade, which incorporates the units and functions ascribed in this report to MOC.  FOR OMCIAL US ONLY CHNA ANIMAL FEED SECTOR STUDY Prefaco This report is largely based on the findings of two World Bank Ani- mal Feed Sector Study missions which visited CMina in Novembet 1991 (2 weeks) and again In March/April, 1992 (3 weeks). The initial mission was led by Ms. V. Elliott (Economist, EA2AG). The latter mission consisted of Mr. A.C. Brande2 urg (Mission leader and livestock specialist, EA2AG), Ms. H. Kim (Eco- nomist, EA2AG), Mr. A. Nyberg (Economist, EA2AG), Mr. S. Sanghvi (Economist, EA2AG) and consultants Mr. J. Holder (feed milling industry specialist) and Mr. G. Posochelle (protein feed processing specialist). Mr. C. de Haan (Live- stock Adviser, AGRTN) also contributed separately to field studies. The teport also benefited from a comprehensive feed milling industry report pre- pared by the Ministry of Agriculture in collaboration with several other min- istries, and from provincial feed milling industry reports prepared by the Feed Industry Offices of Sichuan and Guangdong Provinces. Overall responsibility for oversight of the study was assigned by th.2 Ministry of Agriculture to the National Feed Industry Office (NFIO) which is responsible for developing interministerial and interagency strategy and investment planning for the animal feed industry as a whole. Provincial Feed Industry Offices in Sichuan and Guangdong served as local hosts to the mission and arranged site visits. Numerous other sources were tapped during the two field missions, including the Ministry of Agriculture's Departments of Animal Husbandry and Aquatic Production, and State Farms; the Ministry of Comerce, the Minist%-y of Chemical Industries, the State Pharmaceutical Administration of China, China Customs, staff from prefectural, country and township feed mills, oil extraction plants, rendering facilities, and other enterprises engaged in the processing of animal feedstuffs. Faculty from several univer- sities and research institutes, and staff from the provincial Bureaus of Ani- mal Husbandry in the study provinces also contributed information related to research and development efforts on crop production, animal feeding and prod- uct processing. Staff from joint-venture and Grain Bureau feed mills were also instrumental in providing important information and insights. The mission is grateful for the time, cooperation and contributions provided by all concerned, and wishes to particularly acknowledge the great effort of Mr. Qian Fagen, Executive Vice President of the China Feed Industry Development Corporation, who coordinated the contributions by the Chinese government, industry, and academic units. This document has a restricted distribution and may be used by recipients only in the perforrnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. .hi doumn ha a etitddsrbto n a eue yrcpetnyi h efrac  CHINA ANIMAL FEED SECTO STUDY Table of Contents EXECUTIVE SUIMARY .... . . . . . . . . . . . . . . . . . v I. BACRGROUND . ... .. . .. . . . . . . . . . . . . . .... 1 A. Study Scope . . . . . . . . . . . . . . . . . . e * * * 1 B. Government Policies and Strategies . . . . . . . . . . . 2 C. Organization of the Animal Feed Subsector . . . . . . . S D. Report Organization . . . . . . . . . . . . . . . . . . 6 II. LIVESTOCK PRODUCTION AND THE DEMAND FOR FEED . . . . . . . . 7 A. Livestock Production o. ... . ........... 7 B. Demand for Animal Products . . . . . . . . . . . . . . . 17 C. Livestock Requirements for Feed . . . . . . . . . . . . 22 III. PROTEIN FEEDS ANDFEEDADDITIVES . . . . . . . . . . . . . 31 A. Protein Feeds . . . . . . . . . 31 Bi Feed Additives . . . . . . . . . . . . . . . . . . . . . 38 C. The Feed Additive Cap . . .............. 45 IV. STRUCTURE AND PERFORMANCE OPF THE FEED INDUSTRY . . . . . . . 48 A* Introduction a . . . . . . . . . . . . 48 B. Structure and Performance . . . . . . . . . . . . . . . 48 C. Comparative Feed Industry Study . . . . . . . . . . . 55 D. Feed Industry Is uesues ....... 56 V. INPRASTRUCTURE AND SUPPORT SERVICES . . . . . . . . . . . . 64 A. Research and Development (R&D) . . . . . . . . . . . . . 64 B. Livestock Feed Quality Control . . . . . . . . . . . . . 67 C. Extension and Marketing Services . . . . . . . . . . . . 69 VI. THE POLICY ENVIRONMENE . T... . . . . .................. . 72 A. Policy Initiatives a ...........a. ..................... 72 D. Price and Profit-Control .. . . . . . . . . . . . . . 72 C. Enterpris Taexes.................. 74 D. Trade Policy . . . . . . . . . . . . . . . . . . . . . 76 S. Tariff Policy . . . . . . . . . . 0 . . . 0 . . . . . 78 F. Foreign Exchange Allocation .a. .. . . . . . .a . . . . 79 G. Fertilizer-Protein Cake/Heal Barter . . . . . . . . . 79 H. Joint Ventures 8 . . . . . . . . * . * . o a . . . . . so I. Direct Investment . . . .. * . . . . * . . . * * . . 8 S1  - ii - Paae No. VII. DEVELOPMENT AND INVESTMENT STRATEGIES . . . . . . . . . . . 82 A* Introduction . . . . .. .. . . . .. . a. . . . . . . . . 82 B. Government Goals and Strategies . . . . . . . . . . . 82 C. Development and Investment Scrategies . . . . . . . . . 84 D. Provision of Support Services and Technical Assistance . 88 E. Policy Issues . . . . . .a * . . . . .a . . . . . . . . 93 F. Role of the Bank Group: Interinstitutional Coordination 94 TABLES IN TEXT 2.1 Impact of Lean Pig Program on Lean Pork Yields and Feed Requirements . . . . . . . . . . . . . . . * . . . . 14 2.2 Supply-Demand Equilibria for Pork, 1990, 2000 and 2010 19 2.3 Demand Estimates for Selected Livestock Products - Scenario A * . . .. . . a . . * .. . . * . . . . ..... 20 2.4 Animal Product Consumption Sensitivity Analysis, 2000 22 2.5 Feed Conservation from Improved Feed Conversion Efficiency 23 2.6 Combined National and Target Scenario Balances . . . . . 24 2.7 National Feed Grain Balance With and Without Improved Feed Efficiency ..... 24 2.8 Feed Energy Balance . . . . . . . . . . . . * . * . . 27 2.9 Manufactured Feed Supply and Demand Balance . . . . . . 28 2.10 Livestock Shares of Feed Grains and Manufactured Feeds. 29 3.1 Feed Protein Balance . . . . . . . . . . a . . . . . . . 32 3.2 Production in 1991 of Animal-Derived Protein Feeds . . . 33 3.3 Estimated Vitamin and Mineral Requirement Calculated from Total Manufactured Feed and Part Farm-Mixed Output 39 3.4 Estimated 1990 Production of Feed Minerals . . . . . . . 40 3.5 Content of Average Manufactured and Farm-Mixed Feeds . . 41 3.6 Composition of Least-Cost and Representative Feods . . . 43 3.7 Nonfish Meal Ingredients Replacement of the Amino Acid Content in l kg of Fish Meal. *9 9* o9o **@ 44 3.8 Domestic Methionine Balance . . o . & . . . . 44 3.9 Domestic Lysine Balance . . . . o . * . a . 45 4.1 Historic Growth in Manufactured Feed Production 49 4.1 Use of Feed by Type in 1990 . * . . . . . . . 50 4.3 Supervising Departments of Feed Mills - 1990 . . . . . . 51 4.4 Feed Mill Capacity by Organization and Size (1990) . . . 52 4.5 Sample Feed Mill Cost Structure . ....a.. 33 4.6 Representative Feed Grades and Pricing of Poultry Grower Feed, Sichuan Province ................. 54 4.7 Average Feed Mill Capacity Utilization . . 58 4.8 Methionine and Lysine Manufacturing Cost Structure . . . 61  - lli - 6.1 Profit Margins for Animal Fods . . . 73 6.2 Government Consumer Subsidies for Meat Products . . . . 74 6.3 Tax Rates a . . . . a . . . . . . . . . . a . . . . 74 6.4 Post-Tax Profitability Compariscon by Ownership . . . a 76 6.5 Net Foreign Exchange Loses Through Foed Grain Arbitrage 77 6.6 Potential Foreign Exchango Savings From Substituting Plant Proteins for Fish Meal . 78 6.7 Duty and Tax Structure . . . 78 7.1 Potential Investments for Development of the Feed Industry 87 7.2 Recommendations for Development of Support Services 92 7.3 Summary of Policy Recommendations . 3 80OXES IN TRX 1.1 A Feed Definition P merer 1 2.1 Feed Grains and Ingredients . . 7 2.2 Overview of Three Typical Pig Production Systems 13 2.3 Energy Definitions . o . . o . . . . . * a 26 2.4 Uresa-Treated Straw . . . . 30 3.1 Protein Concentra tes 31 3.2 Feed Additives . 38 3.3 Feed Minerals . . . . . . 41 3.4 Amino Acids .. .. . . .. . . ....... ...... ...... . 42 4.1 Feed Milling Technology . . . . . . . . . . . * & . . 48 1.1 Characteristics of Study Sites . . . o . . . a o o . . . 96 1.2 Organizational Chart, Ministries and Agencies in the Animal Feed Indtueyt.r ............. 99 2.1 Livestock and Poultry Inventory Projections to Year 2010 100 2.2 Projected Production Parameters for Pigs Raised Under Three Production Systems ............... 101 2.3 Lean Pig Production Models 1990, 2000 and 2010 . . . . . 102 2.4 Demand Estimates and Supply - Demand Equilibrium . . . . 103 2.5 Goverrment-Targeted Livestock Production Scenario . . . 109  -iv- P-Rt No 2.6 Yield Projections for Grain and Oilseed Crops 111 2.7 Imports and Exports of Livestock, Livestock Products and Foodstuffs . . . . . . . . . . . . . . . . . . . . . 112 2.8 National Livestock Feed Balance, 1990 . . . . . . . . . 115 2.9 National Feed Grain and Oillsed Balance, 1990-2010 . . . 122 2.10 Manufactured Feed Supply and Requiremento, 1990-2010 124 2.11 Use oz Manufactured Feed in Backyard and Specialized Household Pig Production, 1990-2010 Models . . 125 2.12 Feed Requirements for Pliga Cattle, Poultry and Aquaculture . . . . . . . . . . . . . . . . . . . . .. 128 2.13 Available Green Forage and Improved Straw, 1991 . . . . 133 2.14 Pig Production Systems in China . .. 134 2.15 Livestock Feed Balance Modeling . .. 136 3.1 Feed Energy and Protein Balance . . 138 3.2 Requirements for Vitamin/Trace Mineral Premix and Macro Minerals . . . . . . . . . . . . . . . . . 139 3.3 Feed Vitamin Supply sad Requirements , . . . a a . . . 140 3.4 Astimated Potential for Incremental Recovery of High Protin Animal eeds ...... . . . ..... 141 3.5 Fish Meal Production and Ownership Structure, 1991 . . . 142 3.6 Amino Acid Supplementation in Livestock Feeding in China 143 3.7 Least-Cost Linear Program Model for Amino Acid Content 4.1 Cost Structures of Feed Mills in Guangdong and Sichuan Provinces . . * . . . . . . a a a a . a . . . . . . . . 147 4.2 Feed Milling Capacity and Production Estimates . . . . . 153 4.3 Estimated World Lysine Supply and Requirements, 1991 . 159 4.4 Cost Structures of Protein Feed Ingredient Recovery Operations, Guangdong and Sichuan Provinces . 160 4.5 Upgrading of Management Skills *.a.. . *.. 163 4.6 UpgradingofTechnology ...... ............... 164 5.1 Comparison of Small Mechanical Oilpress Plant With and Without Preheater Equipment . . . . . . . . . . . . . . 167 5.2 Feed Security R&D . . . . . . . . . . . . . . . . . * a 168 6.1 Fertilizer-Protein Cake Meal Barter . . . . . . . . . . 172 7.1 Capital Investment Estimate for Feed Milling Industry to Year 2000 t . . . . . . . . . . . . . . . . . . . . . 173 IBRD 23963R Regions and Provinces In China  - v - EtEU1XYE SUMMARY A. Backaround 1. Objectv.os of the Study. The Animal Feed Sector Study was under- taken at the request of the Goverment of China (GOC) with the general objec- tives to (a) aalyze current and future supply and demand trends for livestock products, food grain. and manufactured feoed. (b) evaluato exiating and future market. for animal feods; (c) assess the structure and performance of the animal foed Industry; (d) analyze the *xisting industrial and policy framework of this industry; and (a) Identify industry development and investment strate- gies for future development. A comparative study on feed industry development was carried out on the Impact of a liberalized, free-market environment (Guangdong Province) and a more centralized environment (Sichuan Province). ii. Feed industry tareets to the year 2000 includet tripli