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Livestock industry in China - The cost of 'Chi hao'

Livestock industry expands, and so do multinationals

by Uwe Hoering and Susanne Gura, June 2010


German milk is considered to be of 'high quality' and 'safe', different from milk polluted with melamine in China for example. Therefore Gerd Müller is confident, that „against the background of the booming Chinese market there are tremendous opportunities for milk, butter and other animal products from Germany“. (1) The Ministry for Agriculture’s Secretary of State is not only concerned about the nutrition of the German consumers, but also about the well being of the Chinese – and about the German dairy industry, about breeders and manufactures.


It's the milk, that matters

Indeed, demand is booming in China since the Government started a school milk programme in 1998. For this it took advise from the food multinational Nestlé and its foundation, which co-financed a study claiming that girls grow taller when drinking milk regularly. And since Chinese politicians like to take up everything that promises growth, the development of an own dairy industry was supported with tax benefits and loans to increase the number of cows, the productivity and the processing capacities. Since then, sale of dairy products grew double digit every year – till the melamine scandal and the following crash in demand.

Among the global players that participated in this profitable upswing was Nestlé. Nowadays it runs more than 20 processing plants and a huge research center, the first outside of its home base Switzerland. Another one was the French multinational Danone, claiming world leadership in fresh dairy products. In December 2006 it formed a joint venture with Mengniu Dairy, China's largest milk processor, expanding its China business considerably.

Two third of the milk for the growth of Chinese girls and the processing industry come from around 1.5 million small farmers with five cows on average. The milk yield is often low; the quality varies as well as the quantities delivered to the dairies. Because of increasing prices for fodder, energy and transport many milk farmers incur losses, which are partly covered by subsidies. At the same time competition increases from several hundred large dairy farms which have come up in the last years. The biggest so far with 10.000 heads of cattle was set up in Hohhot, capital of Inner Mongolia, an autonomous region north of Beijing. It belongs to the market leader China Mengniu Dairy, which supplies one third of the commercial market. Together with the Yili Industrial Group, which is based in Inner Mongolia as well, the company skims the cream from the milk of 2.5 million cows.

What China’s cows don't deliver is being imported – mainly from the US, Australia and New Zealand. For Germany's dairy industries it might be difficult to catch up. May be the German breeders have a better chance, because industry and government are eager to import more breeding animals to make up for the backlash from the melamine scandal.


Chi Hao – Good food

Thanks to the school milk program, lactose intolerance, which hampered the dairy industry, is disappearing. And Chinese don't drink just more milk. Gone too are the times of Chi bao, when people were happy to fill their stomach and the monthly ration of meat was around one kilo. Now it is the time of Chi hao, of plenty, rich food. (2) Compared with the year 1980 the meat consumption per person has quadrupled to around 54 kilogram per year in China and has reached half the consumption level of the United States.

In the cities, supermarkets are booming. They offer packed dairy products, portioned meat and a huge variety of processed foods. In 2008, the US-company Tyson Foods, the world’s largest meat processor, announced cooperation with the private Jinghai Poultry Industry Group to produce and process chicken and sell them under the Tyson brand. The global fast food chains also promote their way of consumption: Kentucky Fried Chicken, which opened its first restaurant in 1987, now runs around 2.500 KFC's and Pizza Huts all over the country. McDonald's is expanding as well, for example with hundreds of drive-in outlets.

Beef production reaches just ten percent of pork production and is declining. High prices for feed and the dominating position of middlemen make cattle keeping for small farmers less attractive, and anyway they prefer water buffaloes. Supermarkets are being supplied mainly by large slaughter houses, which either have their own cattle farms or contracts with selected cattle keepers.

In contrast to beef, pork is an essential part of good food. In 2007, there were more than half a billion pigs. Within ten years the consumption of pork doubled. Extremely large factory farms are being set up, like the one of the US-market leader Smithfield with half a million animals. Several international genetics companies have their own breeding units in China. A few companies like COFCO are controlling the market. In 2007, China became the fourth largest global pork exporter.

Then, the pigs put a brake on the export ambitions and, even more importantly, interfered into domestic politics. To be more precise – due to an outbreak of the Blue Ear disease, tens of thousands of animals died and hundreds of thousands were culled to stop the spread of the disease. Snow storms in early 2008 killed another 800,000 animals. Price increases for pork meat of 70 percent pushed up the inflation rate. The government offered subsidies to revive production and to tame the discontent of the consumers – successfully. In 2009 there already was an oversupply of pork, prices dropped, the consumers were happy – and the hopes of German pig breeders to invade the Chinese market with new large factories were smashed. Probably the only country in the world, the government started to build up a strategic pork reserve as a precautionary measure.

Considering the tremendous importance of pork it is hardly surprising that foreign companies developed a special interest in pig breeding. The indigenous Meishan-pig for example is receiving special attention, because it is extremely proliferate. Since it develops too much fat, it is attempted to improve its meat production by genetic engineering. (3)


Chicken behind bars

In spite of the advance of large companies, the demand is still mainly met by small farmers, who developed a remarkable entrepreneurship since the reforms end of the 1970s. But more and more factories, huge slaughter houses and the processing industry are taking over. It is estimated that already in 2003 there were more than 50.000 units with more than 500 heads of pig, dairy cows, cattle and sheep in China. (4).

As with milk and pork, the production of chicken and eggs grew tremendously in the past few years. This came along with a fundamental shift. According to the FAO, the UN-Organisation for Food and Agriculture, in 1985 there were still more than 150 million small peasants who supplemented their agricultural activities with a few chicken, improving either their own diets of selling them for an additional income. Since then intensive chicken farms are on the increase with a tendency towards ever fewer and larger private factories, which in 2005 already delivered half of the production. A single unit in Fujian province for example produces 50 million broilers a year. The joint venture of Tyson Foods and Jinghai Poultry Industry Group is planning a mass production unit of a similar size.

In the same period from 1985 to 2005, the proportion of farming households keeping poultry decreased from 44 percent to less than 14 percent. According to FAO, around 70 million small scale chicken keepers gave up chicken rearing between 1996 and 2005, mainly in the economically more advanced regions in the East and around the big cities. Today, mainly poor households in poor regions still keep chicken. With supermarkets everywhere and alternative income opportunities like migrant labour, keeping chicken hardly makes sense. The commercial market is dominated by large integrated companies, controlling the whole production and marketing chain: they deliver chicks and feed and often veterinary service to the contract farmers and collect the fattened animals for slaughter.


Who will feed China's pigs?“

Today, China is the largest global meat producer. And there are ever fewer small farms who could benefit from the growing purchasing power and from Chi hao. The demand bypasses the nomadic cattle holder in Inner Mongolia as well, whose traditional extensive livestock keeping has been marginalized by the mistrust of the State in ethnic minorities, settlement programmes and fencing off ranges. The beneficiaries are companies and local corporations, often state owned like the China National Oils, Foodstuff and Cereals Corporation (COFCO), China's largest food importer and exporter. So far, they are focused mainly on the high end market like modern supermarkets and the well off middle classes, but the expansion goes on apparently unstoppable. In many regions, especially North of the Yangtze River, setting up huge pig and chicken factories continues.

If more and more chicken are kept in cages, more pigs in factory farms and more dairy cows in high-tech stables, more and more concentrate feed is needed. Borrowing from the famous and notorious warning „Who will feed China?“ by Lester Brown from Worldwatch-Institute 15 years ago, a report recently asked „Who will feed China's pigs?“ (6) Well, still China can feed itself more or less including a large proportion of pigs, cattle and chicken. But already around 30 percent of the grain production is used as feed. Additionally, huge imports of feed are already needed. With net imports of 33 million tons in 2007 and 2008 China is the largest buyer of soy on the world market. Brazil is the most important supplier, followed by the US. Observers are expecting an increase in the import of corn too, like soybeans from Brazil mainly genetically modified varieties. And the industrialized meat production is also one of the driving forces behind the attempts by Chinese investors to lease land outside of China like in Zimbabwe and Mozambique.

Most local soy farmers have already capitulated because of the dominance of cheap imports. The factories, processing the imported soy, are mainly in the hands of a few foreign multinationals. (7) The chairman of the Association of Soy Producers recently warned of the political manoeuvrings of the multinationals and demanded to restrict their monopoly power.

In other areas the livestock industry creates problems as it does everywhere else: The factories produce millions of tonnes of sewage, polluting soils and water; antibiotics are used freely in animal production, there are massive animal welfare problems in factory farms; contract farmers are increasingly indebted; and biological diversity of local breeds is lost progressively. Furthermore, the genetic resources in livestock productions are often controlled by European and US-American biotechnology companies, a development which should concern a country like China which is so eager to safeguard its sovereignty.

To blame the consumers and their desire for good food for these social and ecological consequences of the livestock industry and the consumption patterns promoted by it would put the responsibility on the wrong shoulders. The enthusiasm of consumers for „green food“ shows, that they are becoming more aware of their diets. Already, Rock singers like Zhen Xie from the group “Giant Beanstalk” engage for vegetarian consumption and animal rights. So who knows: May be the future development will be as fast as the change from Chi bao to Chi hao, and the next phase could well be Chi qiao, conscious, reasonable consumption. But whether China will need the high quality and safe milk from Germany to achieve this, may be questioned. (1.950 words)


(1) Press release by the German Ministry for Nutrition, Agriculture and Consumer Protection, 15.1.2010

(2) Skillful Means: The Challenges of China's Encounter with Factory Farming.


(4) see Skillful Means

(5) FAO, The State of Food and Agriculture. Livestock in the balance. January 2010

(6) see Skillful Means

(7) Dale Jiajun Wen, How to feed China. A tale of two paradigms. In: Third World Resurgence No 212, 30-34