Grain-to-Feed Policy Boosts the Feed Industry, May Change the Raw Material Supply Landscape

In the view of industry insiders, judging from the development cycle of China's livestock and feed industry, the domestic livestock industry has already passed its period of rapid growth around 2005 and entered a mature stage. However, within the next 5 years, the domestic feed industry can still enjoy growth brought by economies of scale.

On March 5, Premier Li Keqiang pointed out in his government work report: “We must accelerate the integration of farming and animal husbandry, speed up the development of animal husbandry in farming areas, carry out trials of converting grain fields to feed fields in places where conditions permit, and change the dual structure of grain and cash crops into a triple structure of grain, cash crops and feed crops.” To adapt to the new normal, accelerate industrial transformation and upgrading, build core competitiveness, and enhance comprehensive industrial production capacity, this year Shandong Province's animal husbandry sector will focus on advancing the “grain-to-feed” pilot work, vigorously develop various integrated crop-livestock models such as “breeding enterprises + large-scale growers”, “breeding enterprises + planting cooperatives” and “breeding enterprises + their own planting bases”, expand the planting of feed corn and silage corn, and effectively raise the level of straw utilization as feed.

It is understood that silage corn differs from ordinary grain corn. Silage corn does not refer to a corn variety; it refers to storing fresh corn in a silage pit (that is, ensiling it) and fermenting it into feed or industrial raw material. It is a general term for a category of corn used for this purpose, based on agricultural production practices.

From dual to triple: attention to “grain-to-feed” began with the 2015 Central Document No. 1. The document mentioned that “we must accelerate the development of the grass-based livestock industry, support the planting of forage such as silage corn and alfalfa, carry out trials of grain-to-feed conversion and integrated crop-livestock models, and promote the coordinated development of a triple planting structure of grain, cash crops and forage.”

Many people in the forage industry rejoiced, believing that this is a new element proposed in China's agricultural transformation and structural adjustment, and that the Party Central Committee has already placed forage on an equal footing with grain.

At the beginning of this year, when deploying its 2015 work, the Ministry of Agriculture stated that it would encourage grain-soybean rotation, grain-green manure rotation and grain-forage rotation, and carry out grain-to-feed trials in places where conditions permit.

Almost at the same time, Shandong Province announced that this year it would do a good job in the major undertaking of integrating farming and animal husbandry and carry out “grain-to-feed” trials. At the same time, the Shandong Provincial Animal Husbandry and Veterinary Bureau proposed the "Plan for Advancing the Development of the Feed Crop Industry" for industry discussion. Regarding this plan, some experts suggested that it should be designed along the food chain sequence of “planting——processing——utilization——returning to the field”, and that the integration of forage and livestock should be well implemented.

Wang Jimin, deputy director of the Institute of Agricultural Economics and Development of the Chinese Academy of Agricultural Sciences, previously stated that the “grain-to-feed” proposal in the Central Document No. 1 was designed around the formation of an industrial chain for the grass-based livestock industry, and that the integration of planting and breeding must be well implemented.

Feed supply affects food ration security. Grain-to-feed, as the name implies, means converting grain crops to feed crops.

China has consistently adhered to the food security strategy of “basic self-sufficiency in grains and absolute security of food rations”. The three major staple grain varieties——wheat, corn and rice——are regarded as the lifeline of China's food security.

Why carry out grain-to-feed? “The domestic market has relatively large demand for sorghum and alfalfa, but the benefits of locally converting grain crops on site are not obvious. In addition, China still imports a great deal from abroad. Therefore, the state needs to promote grain-to-feed.” analyst Sun Guangmei believes.

Due to continuous technological progress, corn, which was previously used as industrial grain and a feed crop, has become increasingly substitutable with crops such as wheat and rice.

Therefore, the security of feed crop supply is also beginning to affect domestic food ration security more and more.

The views of the above-mentioned person mean that the growth in domestic corn consumption remains rigid growth.

“China's grain demand is now increasingly diversified. It is no longer simply about meeting food ration needs; grain use for industry and other purposes is also increasing day by day.” said Vice Minister of Agriculture Yu Xinrong.

However, in recent years, China's food ration consumption growth has not been obvious. Kong Xiangzhi, dean of the School of Agricultural Economics and Rural Development at Renmin University of China, believes: “China's food security issue is essentially not about the part people eat (mainly rice and wheat); there is no problem there. In recent years, imports of soybeans and corn have increased substantially, but imports of wheat and rice have basically not increased, only adjusting some surpluses and shortages. So the food security issue is essentially about solving the feed security issue under the premise of absolute security of food rations.” “A lot of grain corn is also used as feed after harvest. Therefore, converting grain crops to silage feed allows direct on-site conversion, and its efficiency should be higher.” a relevant industry insider said.

In the past two years, against the backdrop of continuous domestic grain harvests, due to encouragement from national policies, deviations have appeared in the domestic grain planting structure, and domestic corn storage capacity has become increasingly huge, becoming a national problem.

Some industry insiders pointed out that domestic grain storage capacity is tight and fiscal pressure is great. “To put it plainly, there is a bit too much of some grain, but no one dares to say so. Grain production must calculate both the security account and the economic account. Therefore, grain-to-feed must be implemented.” Farmers in Northeast China generally said in surveys conducted by the author that because it is convenient to plant and profits are higher than crops such as soybeans, many farmers still choose to continue planting corn.

“Grain-to-feed” is imperative. In recent years, with the continuous advancement of China's urbanization, domestic consumption of pork, poultry and eggs has grown substantially, but due to small urban-rural consumption differences, the room for consumption growth of the two is limited. However, for domestic beef, mutton and other poultry meat consumption, due to relatively large urban-rural consumption differences, its growth rate has further accelerated along with the advancement of urbanization.

Relevant data show that China's supply of beef and mutton is seriously insufficient, and can only guarantee the minimum consumption needs of rigid-demand groups and Muslims.

The development of cattle and sheep breeding will inevitably further promote the growth of the feed processing industry. The state's promotion of the forage industry can not only meet such growing demand, but also reduce the possibility of further expansion of domestic corn inventories.

Sun Guangmei agrees with the above views. She believes that the promotion of grain-to-feed can partly change the domestic feed raw material supply landscape and also help digest domestic corn inventories.

Driven by various costs, the cost of means of production for domestic livestock feed continues to rise.

⟧ In the view of industry insiders, alfalfa, pasture grass and other roughages, while supplementing livestock with crude protein, vitamins, calcium, phosphorus and amino acids, can save breeding costs.

“Promoting grain-to-feed is an innovation in the national concept of food security. At the same time, it can also improve conversion efficiency, avoid the problem of burning straw during the grain harvest period, and reduce pollution.” said a grain industry observer.

In Sun Guangmei's view, since the pilot has just started, whether it will affect the grain market later still requires further observation.