April 20, 2012 / 1:35 PM / 8 years ago

RPT-INSIGHT-US barnyards help China super-size food production

* Chinese diet demands more protein
    * American genetics help Chinese breed bigger, healthier
animals

    By P.J. Huffstutter and Niu Shuping	
    ALBION, Indiana/BEIJING, April 20 (Reuters) - Inside a dimly
lit barn in northeast Indiana, where the air smells faintly of
corn and earth, the future of China's food supply is squealing
for attention.	
    A farmhand shuffles through the crowd of pigs inside pen
7E3, patting their fleshy pink backs and checking their water
trough. The animals here at the Whiteshire Hamroc farm have been
bred for one purpose: to be flown halfway around the world, on a
journey fueled by China's appetite for food independence  	
    In a country where pork is a culinary staple, the demand for
a protein-rich diet is growing faster than Chinese farmers can
keep up. While Americans cut back on meat consumption to the
lowest levels seen in two decades, the Chinese now eat nearly 10
percent more meat than they did five years ago.	
    China's solution: to super-size its supply by snapping up
millions of live animals raised by U.S. farmers as breeding
stock - capitalizing on decades of cutting edge agricultural
research in America.	
    By taking this step, say breeders and exporters, China will
move from small-scale backyard farms, to the Westernized
tradition of large consolidated operations to keep up with
demand.	
    	
    "I liken it to their telephone system," said Mike Lemmon,
co-owner of the Whiteshire Hamroc farm, which specializes in
exporting breeding swine to China. "Most of China's mainland
went from having no landlines to everyone having a cell phone.
They're doing the same thing with farming."	
    Focus on livestock genetics also represents an emerging
economic bonanza for two of the United States' most powerful
industries: technology and agriculture. Worldwide, the United
States exported a record $664 million worth of breeding stock
and genetic material such as semen in 2011.	
    But as fortune shines on breeders, concerns are being
raised. While U.S. consumption of meat falls, the price of
producing a pound of protein rises, meaning meat companies are
seeing their margins shrink.	
    That has prompted some critics to question whether the
short-term gains of this trend will result in a longer-term loss
of a key export market for American meat producers. 	
    This is, after all, a well-trod path in China's pursuit of
efficiency: import a technology or create a joint-venture; learn
the best practices; apply those practices at a lower cost than
overseas rivals; and emerge as an aggressive competitor in the
global market.	
    Detroit in particular has felt the strain of China's
competitive practices as has Silicon Valley.	
    "China is not going to be dependent on us forever, if they
have anything to say about it," said John Nalivka, president and
owner of Sterling Marketing, an agricultural marketing firm in
Vale, Oregon.	
    	
    "IMPACT ON GLOBAL MARKET"	
    In a country wrestling with food inflation, China's
population spent 25 percent of its annual income on food in 2010
- compared to Americans spending only about 10 percent.	
    One solution to rising food prices: chicken. A chicken
drumstick cost half or less the price of a pork loin, said Wang
Xiaoyue, a senior analyst with Beijing Orient Agribusiness
Consultant Ltd. It also takes about half as much grain to
produce a pound of chicken meat, compared to a pound of pork,
Wang said.	
    That has helped fuel more imports of broiler breeder chicks
from U.S. farmers. So has expansion by fast-food chains,
including McDonald's Corp. McDonald's, which ranks China
as its third-biggest market worldwide, opened a record 200 new
stores in China last year, and has unveiled plans for more.	
    China, the world's most populous nation, isn't the only
country doing this. Sales to Russia and Turkey, the biggest
markets for U.S. livestock-breeding exports last year, have
risen even faster. 	
    But the impact of a vastly larger, more efficient, livestock
sector in China would cause a major shift in the global market,
particularly for grain demand.	
    China could need an incremental 20 million to 25 million
tonnes of corn in the next few years just to keep up with the
growth of the swine industry, according to a recent research
report by Rabobank.	
    	
    "CLOGGED PORTS, OVERSOLD FLIGHTS"	
    Few people understand the situation better than Yu Xiaohai,
a farmer who raises broiler chickens outside Beijing.	
    Inside his white-brick barn, several thousand chickens peck
at grain in the dark. Yu used to raise a local breed of broilers
- the yellow-feather chicken (Huang Yuji) - which would take
about 120 days to grow to market weight.	
    Efficiency convinced him to switch to U.S.-bred broiler
chicks that take only 41 days to reach maturity. 	
    "It offers a more steady income," said Yu, as he cleaned the
cages.	
    Worldwide, the United States exported an all-time record of
$664.1 million worth of live breeding animals, semen and
livestock embryos last year, an 82 percent jump in two years,
according to the U.S. Department of Agriculture's Foreign
Agricultural Service.  	
    While other countries such as Russia and Turkey spent more
last year, China was a big buyer on volume: About 14 percent of
all U.S. live animal exports were sent to China in 2011 --
largely breeder chicks.	
    Last year, Chinese companies bought $41 million worth of
live breeding animals and genetics - up nearly threefold from
five years ago, according to USDA FAS.	
    The demand for breeder pigs, in particular, is zooming after
China lifted a two-year ban on hogs and pork imports last
spring. In the first two months of 2012 , China imported 62
percent of the total number of U.S. breeder pigs brought in for
all of 2011. 	
    These animals are not sold for meat. Their value is in their
genes, which allow them to grow faster, fight off diseases
better and birth more babies that survive than their Chinese
counterparts.	
    Even if China's demand cools for U.S. meat exports, the
breakneck pace of Beijing's growing demand for grains is
unlikely to wane or offer relief to the global agricultural
markets that struggle to keep up. 	
    "Genetics and nutrition go hand-in-hand," said Mike
Phillips, president of the trade group U.S. Livestock Genetics
Export Inc. in Salem, Illinois. "The more they use our genetics,
the more they're going to need to import corn and soybeans from
the U.S. and elsewhere."	
   	
    "BIGGER HERDS, EVEN BIGGER PRICE TAGS"	
    That potential, paired with global demand, has prices
rising.	
    U.S. breeder beef cattle prices have increased 40 percent or
more in the past six months, amid shrinking global herd sizes,
say farmers and breeders. The cost of great-grandparent gilts
has tracked the price of hogs. Simlarly, with broiler breeding
stock some customers are eagerly spending as much as $25 a
chick, say breeders.	
    Import bans prevent China-based farmers from buying live
cattle from the United States. So they've snapped up more than
370,000 embryos and straws, the industry parlance for vials of
beef and dairy cattle semen. That is down from 2010, but up 15
percent from two years earlier.	
    Fonterra, the world's largest dairy exporter, has taken to
inseminating its dairy cows in Tangshan with semen from the
United States because the "genetics tend to create more volume
and more protein," said Peter Moore, chief operating officer of
the company's international farming ventures.	
    After all, say farmers and overseas buyers, anyone can raise
a pig or a chicken but only a few people can raise the right
kind of animal that will produce more milk, a better pork
shoulder or a bigger drumstick. 	
    "When you have a nation's diet changing as rapidly as
China's, the most efficient way to build up production is to
improve your animal genetics," said Ronald Lemenager, a
professor of animal sciences at Purdue University in Indiana.
"We have the genetics they want."	
   	
    "CONCERNS MOUNT AMID BOOM"	
    All of this is a massive leap forward for the world's second
largest economy whose farming systems, although being
revolutionized, still lag advances made in Western nations.	
    It could be challenging for the United States to maintain
its technological edge. The pace of public investment in U.S.
agricultural research is slowing, and the focus shifting away
from on-farm productivity and toward issues such as food safety.	
    The budget at the National Institute of Food and
Agriculture, the USDA's arm for funding extramural research, was
essentially flat for the past three years - and fell 9 percent
in 2012.	
    In contrast, China is ramping up investments in agricultural
technology research, including its first national research
center for improving swine genetics. The goal, according to
government officials, is to create a strong base of breeding
stock - and curtail its reliance on breeding imports.
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