China feed industry faces continuing pressure but bright future ahead

While the feed industry in China is expected to continue facing challenges such as high raw material costs, there is a great potential to surpass the US as the world''s top feed producer.

China''s feed output in 2009 is projected to be around 140 million tonnes, an annual growth rate 2.4%. This was an 8.4% fall in growth compared to 2008, making it the feed industries lowest annual growth rate since 2001.

The first half of 2009 saw a 5.4% lower growth rate compared to the same period in 2008. But the market picked up after the third quarter, with strong growth seen in the final quarter, and the strong growth pattern is expected to continue into 2010.

China is the world''s second largest feed producer after the US. With expanding fish breeding and poultry rising, both feed demand and production are expected to increase and further stimulate the growth of the feed industry. Rising meat demand is also projected to boost feed demand. As a result, it is projected that China''s feed production will outstrip that of the US and become the top producer in the world. China''s feed industry is estimated to be able to grow to RMB500 billion (US$73.2 billion) in value.

The year saw lower profitability in the industry compared to previous years. In 2008 major industry-scale enterprises had a gross margin of around 9.7% on average, and a net profit margin of 3.5%, while small business profitability was lower than this. As a result, large enterprises had expanded their production capacity and sales growth for three consecutive years, which reduces the number of small enterprises.

The feed industry has continued to be under strong pressure from rising raw material costs. GM corn has obtained the biosecurity certificate and will fill the demand for feed ingredients. GM corn is expected to be ready for use in three to four years'' time and they could be used in industrial feed production. Raw material prices are expected to drop by then, giving the feed industry less pressure and more margins on profit.

Moderate inflation is expected to occur in 2010, which will be beneficial to feed industry profitability and growth.

Feed companies will continue the trend of polarisation. Major producers such as New Hope will increase purchases of raw materials and control downstream sales, reducing costs and rising profit margin. Leading enterprises will continue to expand their industry leadership, brand awareness and market share. On the other hand, regional enterprises will continue to rely on their regional market advantage, and will also have room for growth.

In 2010, China''s feed industry is expected to continue its strong growth, and it is seen as a good investment in the short and long term.