Scoping Study on the Challenges for the Animal Feed Complex in East Asia
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This is a presentation given to the World Bank about our Feed Scoping Study for East Asia. Background of the Study:Rapidly increasing demand for animal products in East Asia is challenging traditional feed industries. This study assess the changes in a comparative fashion, looking at four countries – China, Indonesia, Philippines, and Vietnam – where livestock sector is changing rapidly; and comparing to Thailand and Malaysia where the feed sector is more developed; and Japan and South Korea where current livestock industries are highly developed, but where domestic markets for livestock products are stagnating.
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Scoping Study on the Challenges for the Animal Feed Complex in East Asia
- 1. Scoping Study on the Challenges for the Animal Feed Complex in East Asia Prepared for: The World Bank by: Agrifood Consulting International Francesco Goletti, Pierre Charlebois, and Tom Weaver
- 2. Structure • Rationale • Approach • Findings – Trends in… – Regional policy issues – Specific policy issues by country • Recommendations • Key messages
- 3. RATIONALE FOR THE STUDY Assess the current feed situation in East Asia through comparative assessments and country case studies Identify key areas for possible further research
- 4. APPROACH • Compilation and analysis of a consistent dataset related to feed. • Policy and industry review of feed industry. • Identification of policy issues.
- 5. Data on Feed Low protein • Wheat, coarse grains (aggregate of maize, barley, oats, sorghum, millet, rye and mixed grains), rice, root and tuber (mostly cassava), molasses, brans, dried beet pulp Medium Protein • Corn gluten feed, DDG, field peas, compound feed (double counting is avoided) High Protein • Crop protein meals (aggregate of soybean, canola/rapeseed, sunflower, groundnut, cotton seed, copra and palm kernel), MBM, fish meal and skim milk powder
- 6. FINDINGS China, Indonesia, Philippines and Vietnam
- 7. Trends in… Composition Demand Trade Prices Feed
- 8. Composition Regional trends in key feed component use: Concentrates Protein DDG Coarse grains MBM/fishmeal
- 9. SHARE OF LOW PROTEIN FEED 0.6 0.65 0.7 0.75 0.8 0.85 0.9 0.95 1 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 China Indonesia Japan Korea Philippines Vietnam
- 10. MASSIVE ENTRY OF DDG (Feed use of DDG in six Asian countries) 0 1000 2000 3000 4000 5000 6000 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 KT
- 11. Demand Major growth in animal product demand Largely attributable to: - Increasing household incomes - Increasing populations Largely met by: - Domestic production Major growth in feed demand Largely met by: - Imports
- 12. GROWTH IN ANIMAL PRODUCT CONSUMPTION 1990-2012 0 1 2 3 4 5 6 7 8 9 China Indonesia Philippines Vietnam Korea Japan Meats Milk Fish and seafood 16
- 13. SELF-SUFFICIENCY RATIO 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 Vietnam 1990 Vietnam 2012 Philippines 1990 Philippines 2012 Indonesia 1990 Indonesia 2012 China 1990 China 2012 Meats Milk Fish and seafood
- 14. Feed Consumption in 1990 and 2012 1990 China Indonesia Philippines Korea Japan Vietnam Malaysia Thailand 99.2 4.4 30.6 12.3 mt 3 5,6 2012 China Indonesia Philippines Korea Japan Vietnam Malaysia Thailand 267.3 22.2 25.8 11.2 22.6 mt 6 17,4
- 15. Trade Reducing barriers to trade Global: WTO accession Regional: ASEAN free trade zone Low feed ingredient tariffs Significant increases in feed related imports ALL major feed components: China (massive reversal 2000->2014) Vietnam HIGH PROTEIN feed components: Indonesia Philippines
- 16. WEIGHTED AVERAGE TARIFF 0 2 4 6 8 10 12 14 16 18 20 1996 1998 2000 2002 2004 2006 2008 2010 2012 China Indonesia Korea Philippines Vietnam
- 17. Broad feed price increases & increased volatility Significant increases since 2006: higher, price plateau Maize (ethanol) Cereals (food, feed, biofuel supply and demand) Oilseeds (protein) MBM (protein, BSE) Fishmeal (protein, limited increases in supply) Prices
- 18. RELATIVE PRICE RATIO WITH MAIZE 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 Corn gluten feed DDG Bran Molasses Manioc Wheat 1990-1999 2000-2005 2006-2011
- 19. FISH TO OILSEED MEAL PRICE RATIO 0 1 2 3 4 5 6 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 El Niño
- 20. Regional policy issues Feed vs Food Feed industry concentration Feed safety Feed imports Feed price instability
- 21. Feed vs Food • Broad prioritization of food over feed • Comparative advantages in an increasingly free trading environment – Which countries/regions are better placed to produce feed? – Which are better placed to produce food?
- 22. Feed industry concentration • Food security – Efficiency vs livelihoods • Can smallholders remain competitive; should they be protected? • What are the implications for: – Food safety – Food quality – Disease – Sustainability – Biodiversity
- 23. Feed safety Domestic • Increasingly politicized – Particularly China, Philippines, Vietnam • Examples – China: several recent, and ongoing, changes in food safety legislation – Philippines: highlighted at the Livestock Philippines Expo 2013 – Vietnam: ongoing development of VietGAP Trade • Market access/trade aspirations: SPS compliance
- 24. Feed imports • Domestic supply of key feed components is lagging behind demand • High and dependence on global feed markets
- 25. Feed price instability • Various price stabilization policies in place • Feed prices more variable than food prices • Feed price variability has increased • Increasing instability – For what reasons? – How does feed instability affect food prices and food security? – Are current stabilization approaches effective? optimal?
- 26. Specific policy issues by country
- 27. China • Meeting demand from monogastric industries • Managing/utilizing waste produced by monogastric industries • Promoting improved soybean seed and post-harvest management • Implementing feed and food safety regulations
- 28. Indonesia • Supporting feed production, food security (rice) and economic (palm) policy objectives – Promoting soybean production – Increasing competitiveness of domestic maize • Encouraging investment in small-scale production • Leveraging private feed sector in smallholder production – Market links and rural livelihoods
- 29. Philippines • Supporting insurance markets to encourage investment in production • Transferring R&D outcomes to smallholders and allied value chains • Leveraging private feed sector in smallholder production – Market links and rural livelihoods
- 30. Vietnam • Promoting soybean production • Improving extension, access to technologies and inputs • Improving feed and food lab quality and capacity at regional levels • Building capacity and influence of policy researchers
- 31. RECOMMENDATIONS
- 32. Address protein feed deficit Why? • Strengthen domestic feed and animal industry competitiveness • Minimize price volatility • Minimize effects of feed price hikes on domestic food security • Generate livelihoods How? • Land use: assess comparative advantages – identify areas for soybean cultivation • Assess current policy incentives e.g. rationale for nitrogen fertilizer subsidies • Improve producer access to inputs and technology transfer • Link producers to market chains; producer organizations • Investigate and utilize new technologies and alternative feeds, such as byproducts
- 33. Improve feed safety Why? • Public health benefits • Consumer confidence • Export and domestic market access How? • Lab capacity • Surveillance system design and implementation • Incentives • Penalties
- 34. Collect and analyze feed data and build policy research capacity Why? • Inform future policymaking How? • Capacity building at national and subnational levels • Facilitate access/influence over decision makers
- 35. KEY MESSAGES
- 36. Livestock product demand => demand for feed Industry concentration higher protein feed demand Lagging domestic supply => imports, particularly protein Feed prices and greater price volatility Current trends
- 37. Areas to address • Comparative advantage and Area of production • Productivity (input quality, technology transfer) • Linking feed producers to market chains • Feed safety and market access (SPS compliance) • Public sector capacity in data collection and analysis and policy making
- 38. Thank you
Editor's Notes
- Background of the Study Rapidly increasing demand for animal products in East Asia is challenging traditional feed industries. This study assess the changes in a comparative fashion, looking at four countries – China, Indonesia, Philippines, and Vietnam – where livestock sector is changing rapidly; and comparing to Thailand and Malaysia where the feed sector is more developed; and Japan and South Korea where current livestock industries are highly developed, but where domestic markets for livestock products are stagnating.
- The study is based on data of the last 20 years
- feeds are covered Malaysia 6.1, Philippines 11.1, Korea 14.9, Thailand 17.5, Vietnam 21.7, Indonesia 21.8, Japan 26.3 and China at 252.6. 372 mt in 2011 Many steps to arrive at a consistent database. Animal populations, animal requirements, FCR. A very laborious process that our colleague Pierre Charlebois carried out.
- Change arrows?
- The improvement of FCR in OECD since the 70’s is linked to the declining share of low protein feed in the total feed consumption (LPF) refers to protein content below 18%. The share of LPF in all countries reaches the level of Japan – maturing livestock sector in these countries. Vietnam is catching up very quickly. However, contrary to Japan and Korea (and other OECD countries), the share of coarse grains in the energy feed market in China and the Philippines remained stable while it increased in Indonesia and Vietnam because it started from fairly low levels. This low level is due to a large presence of by-products (such as bran) and cassava in the respective Indonesian and Vietnamese feed mix.
- In the high protein feed market, a major change in OECD countries, particularly in North America has been the spectacular increase of DDG (dried distillers grains) associated with the increasing use of maize for ethanol. This phenomenon seems to have reaches Asian countries as well. Crop protein feed is increasing rapidly. The main substitutes are fish meal and MBM. MBM is affected by a sequence ofBSE crises. Fish meal is mostly produced from whole small pelagic fish which is more controlled as a result production growth is limited.
- Over the past twenty years, China, Indonesia, Philippines and Vietnam have experienced rapidly growing demand for animal products driven by high GDP and/or population growth. This contrasts with the lower growth of demand for animal products in Korea and Japan. In Japan, overall animal product consumption felt over the period analyzed.
- Most of the increase in consumption of animal products in China and the three ASEAN countries was satisfied by growth in domestic production. The exceptions are dairy products in Vietnam, Philippines and Indonesia and meat and fish in Japan and Korea.
- From a total of 170 mt to 388 mt. in about 20 years in increase of 128%: China dominates the market.
- The maintenance of a high self-sufficiency ratio in meats and fish in China, Indonesia, Philippines and Vietnam has, up until now, resulted in a strong deterioration of the trade balance in feed ingredients of China and Vietnam and of high protein feeds in the Philippines and in Indonesia. A sizable impact on the trade account of China. Imports of energy feeds ($ 4.73 billion), high protein feeds ($ 2.45 billion) and the protein meal part of oilseed imports ($ 25 billion) reached $ 32 billion in 2011
- Since the fall of 2006, prices of cereals have started to increase due to a number of supply and demand factors and have remained on a higher plateaus since then. The new higher price plateau for cereals spread to other markets including oilseeds. Because of the importance of the more expensive energy and fertilizer inputs in the production cost of maize and the large increase in demand for maize coming from the ethanol sector, price of maize has tended to increase relative to other energy feeds.
- Because of the importance of the more expensive energy and fertilizer inputs in the production cost of maize and the large increase in demand for maize coming from the ethanol sector, price of maize has tended to increase relative to other energy feeds.
- Since the BSE crisis in the EU the price of MBM has fallen to a new level relative to oilseed meal. Due to the difficulty of increasing supply of fish meal, the price of fish meal has tended to increase relative to the oilseed meal price especially in years of El Niño.
- Regional trade agreements are changing trade dynamics in East Asia. The ASEAN free trade agreement will affect movement of key animal feed commodities and reliant animal industries while challenging domestic industries throughout Southeast Asia. Japan, Malaysia, Philippines, South Korea and Thailand joined the WTO in 1995. China and, more recently, Vietnam accession to the WTO has enforced import tariff reductions, affecting agricultural commodities and products, which, again, will challenge the competitiveness of domestic industries.
- While the industries are concentrating and feed and meat production industries are integrating in various countries in the region (most notably in the poultry industry of Thailand and Malaysia), highly concentrated industries coexist with smallholder production systems in China, Indonesia, Philippines, and Vietnam. If the trend towards concentration is too rapid, then there is a risk for smallholder farmers to be left out. The issue is to understand if in the new restructuring of the feed and animal product industry in the region there is a still a space for smallholder farmers.
- Food safety has become increasingly important on the Vietnamese policy agenda including the development and implementation of VietGAP. China has recently implemented stringent food safety policies in the wake of various high profile food safety incidents, most notably cases surrounding melamine in dairy products. Thailand and the Philippines have relatively strong food safety standards in the commercial sectors and high technical capacity owing in part to animal product exports. Japan, South Korea and Taiwan employ strict regulations on food safety to domestic production and imported produce, particularly in terms of production related residues. Increasingly stringent regulations on animal products, feed ingredients, and antimicrobial compounds (eg maximum residue levels, or sub-therapeutic antimicrobial use in animal production) are affecting trade in animal products. In what way these regulations will affect both animal production and animal products trade in the region?
- High dependence, particularly of China, on feed import is destabilizing global feed markets (and potentially food markets). What options are available to reduce dependency of Asian countries on feed imports? What are the impact of alternative options on feed imports and food consumption of animal products? Some of the options include the following. Technology. Technical capacity in relation to the feed industry, including seed, extension, quality assurance and laboratory testing, is variable across China, Indonesia and Vietnam. The Philippines, Thailand and Malaysia have relatively stronger public and private sector capacity in terms of extension, surveillance and testing laboratories. Japan, South Korea and Taiwan have high technical capacity available within the agricultural sector and employ strong quality and safety surveillance systems. Prices. A number of subsidization programmes in China and the ASEAN countries for rice production negatively impact domestic feed crop production, such as Indonesian and Vietnamese nitrogen fertilizer subsidies that reduce the relative profitability of soybean cultivation. Product development. The choices for feed, ingredients, premixes and other animal nutrition options are increasing and are the result of intense research and development effort by the global industry. While MBM is decreasing, DDG is increasing. New efforts to treat palm meals, food and biofuel by-products, and forages are made continuously. Protein production. Most of the feed import deficit in Asia is related to protein and is manifested in increasing and huge imports of soybeans and meals.
- Given the size of China and other Asian countries imports, the competing uses of feedstock for biofuel (eg maize, cassava), and the volatile prices of energy (affecting the production of chemical fertilizer), feed prices since 2006 have not only increased and reached a new higher plateau, but have also become much more volatile. In order to cope with the risks associated with the increasing price instability, it I important to address some key issues: what are the determinants and contributions of feed price instability? To what extent feed price instability contribute to food and nutrition insecurity? What could be done to reduce feed price instability?
- How can China meet the rapidly growing demand for animal feed from domestic monogastric industries? How can China productively manage the high volumes of waste produced by growing and increasingly intensive monogastric industries? Can the feed industries utilize this waste in production? How can the adoption of improved soybean seed and post-harvest management be encouraged? How effective is the implementation of recent feed and food safety policies, in terms of surveillance methods, testing quality and capacity, and enforcement of penalties?
- How can soybean cultivation and broader industries be developed under current rice dominated policymaking? Does current agricultural policy, which heavily supports palm and rice production, hinder smallholder production of feed crops and hamper national food security objectives? If so, can policy be reconceived in such a way as to support both objectives? How can maize and soybean smallholder’s, and allied value chains, be enabled and encouraged to invest more in their production and businesses to improve yields and strengthen domestic supply? How can improvements in maize seed quality and postharvest management be facilitated so as to improve product quality and compete with current imports? How can current private feed sector interests be best leveraged to support smallholder production, market links and to promote rural livelihoods through feed cropping? Can new policy support domestic production of key nutritional and health animal feed additives?
- Can policy promote insurance markets or public provision of insurance to feed crop producers against extreme weather events to encourage greater investment in production inputs? How can Filipino strengths in research and development of new crops and other agriculture related technologies be more effectively transferred to smallholder agricultural systems and value chains? How can current private feed sector company interests be best utilized to support smallholder production and linkages to markets and to promote rural livelihoods through feed cropping?
- Can feed crop production, in particular soybean cultivation, be competitive under current nitrogen subsidization and other rice production related policy? Can technology transfer, in particular improved seed and cultivation practices via improved extension services, in the feed crop industries be improved through new or realigned policies at national and provincial levels? Can national policy improve the uniformity of lab quality and capacity at regional levels to support increasing consumer and government pressure to ensure food safety and current progress in developing and implementing VietGAP? How can technical and economic research institutions, such as IPSARD, be supported in their conduct of feed related research and in their access to, and influence upon, national and provincial decision makers?