Economic Issues Confronting the Smallholder Swine Sector in East Asia

1. Economic Issues Confronting the Smallholder Swine Sector in East Asia Christopher Delgado ILRI-IFPRI Markets Program SLP Sweet Potato Workshop November 5, 2004 Chengdu, China

2. Context: The “Livestock Revolution”

3. Value of Food Consumption Increases for Meat, Milk, Fish, and Major Cereals, 1971-1995 Developed Developing Commodity Countries Countries (billion 1990 US $) Meat 37 124 Milk 14 29 Fish 27 68 Major cereals 3 65 Source: Livestock to 2020: The next Food Revolution, 1999

4. % of Human Food Calories from Animal Source Foods Source: Livestock to 2020: The Next Food Revolution, 1999

5. Share of Developing Countries in World Production 1982-84 1996-98 Meat Food Fish 36% 52% 51% 24% 72% 38% Milk Source: Calculated from FAOStat

6. Production Growth Per Capita in Developing Countries, 1975-2001 % per annum Poultry 5.9 Buffalo Milk 4.4 Pork 4.0 Vegetables & melons 3.4 Beef 3.2 Buffalo Meat 3.2 Fish 3.0 Milk (All) 1.7 Cereals 0.4 Source: FAOSTAT data, 2004

7. What is Driving the Livestock Revolution?

8. Annual Growth Rates 1970-99(% per annum) Source: Delgado et al, 2003

9. Real World Prices, 1990 US$ 500 100 kg Beef 400 1000 kg Milk 300 1 MT Maize 200 100 kg Poultry 100 70-72 80-82 90-92 96-98 2020 Source: IFPRI-FAO-ILRI, Livestock to 2020, updated

10. Conclusions on Demand Drivers • Growth highest in high income-growth countries that start from low income base • Urbanization and population growth also explain greater growth in milk/meat consumption of developing countries • Falling prices have encouraged overall meat & milk consumption • But individual meats price sensitive primarily because of substitution for each other

11. Will the Demand-Driven Livestock Revolution Continue?

12. Projected Developing Country Consumption Growth to 2020(% per capita per annum) Pork 1.3% Beef 1.8% Milk 1.8% Poultry 2.1% Source: IFPRI’s IMPACT model

13. Per Capita Consumption in Developing Countries (kg/capita/year) 1997 2020 Commodity Beef 6.0 8.6 Pork 10.4 13.3 Sheep & Goat 1.7 2.2 Poultry 6.5 11.5 Meat 24.6 35.7 Milk (LME) 43.2 61.3 Source: IFPRI’s IMPACT model

14. Developing Country Shares of World Production 1996/98 and 2020 Source: IFPRI’s IMPACT model

15. % Change in World Prices in 2020 (total percent change since 1996-98) Beef -3 Pork -3 Sheep & Goat -3 Poultry -3 Eggs -3 Milk -8 Vegetable Meals -1 Source: IFPRI’s IMPACT model

16. Structural Changes in Production in East Asia

17. Annual Pork Production/Head of Inventory in China, Japan, USA (1961-2003) USA Japan 100 kg China 20 kg Source: Simpson, 2004 using FAOStat

18. Cereals Feeds Use/Meat Output(by weight) Source: Computed from Delgado, 2003

19. Scaling-up: Commercial vs. Backyard Hogs in the Philippines 1980-2000 Backyard Commercial 1980 2000 Source: UPLB-IFPRI-ILRI 2002

20. Scaling-up: Commercial vs. Backyard Hogs in S. Luzon 1980-2000 2000 1980 Source: UPLB-IFPRI-ILRI 2002

21. Changes in Scale in China’s Swine Sector (%) Sources: 1992 Ke Bingsheng, 1998; 2002, Simpson, 2004

22. Mean Profit/kg Philippines Hog Sales Across Farm Size Quintiles (Family Labor Not Costed) 25 21 18 20 13 15 (Php/kg liveweight) 11 Mean profit per kg 11 10 5 0 85 326 978 5,229 17,808 Mean farm output by size quintile (in kg of liveweight sales per batch) (Source: UPLB-IFPRI-ILRI Survey of 144 Small and Medium Farms in S. Luzon 2001)

23. Mean Philippines Smaller Farm Hog Production Efficiency by Size (Family Labor Not Costed) 0.90 0.79 0.80 0.69 0.65 0.70 0.61 0.61 0.60 0.50 0.40 Mean efficiency 0.30 0.20 0.10 0.00 85 326 978 5,229 17,808 Mean farm output by size quintile (in kg liveweight sales per batch ) (Source: UPLB-IFPRI-ILRI Survey of 144 Small and Medium Farms in S. Luzon 2001)

24. Factors Shaping the Production Response In East Asia

25. A Changing World for Producers • Structural changes in production costs • The rising importance and complexity of trade • The rapidly rising stakes in disease control • Rapid vertical coordination in market channels • Increased demand for food safety, convenience, quality • Increased environmental concern and enforcement

26. Rising Off-Farm Income in Four Chinese Provinces (Yuan/Farm)(from small samples of same farms) Source: Fuller, Hu, Huang & Hayes, 2001

27. Consumer Price Change In ChinaJune 2003-June 2004 Source: China Nat’l Bur. Of Statistics cited in USDA 2004

28. New Meat & Dairy Trade Issues Under Globalization • Trade share of production rising • Elimination of export subsidies, TRQ’s continue from GATT • New issues under WTO/SPS: • Environmental requirements • Animal welfare • Health requirements/traceability • Rising incentives to comply with changing SPS • Increased problem of having disease-prone smallholder sector nearby

29. 235 Billion US$ in OECD Agric.PSEs (1/5--Japan--to 2/5--EU--for Dairy/Meat) 5.1 80 0.1 2.6 1986-88 18.1 44 2000-02 60 101 % of Gross Farm Output 235 40 4.6 1.1 0.3 40 1.6 8.1 6.1 0.9 20 2.1 1.0 0 EU OECD Japan Poland Turkey Mexico Iceland Canada Hungary Norway Slovakia Australia Czech Rep Switzerland South Korea United States New Zealand Japan S. Korea Source: OECD

30. Trade: Philippines Meat Imports,1980-2000

31. China’s Livestock Trade Parameters 1996-98 Source: Tuan, Cao & Peng, 2001

32. Rising Stakes in Animal Disease Control • Intensification, closer contact between animals and humans • Increased pollution leading to more disease • Increased trade leading to disease spread and food safety issues • Of 1,709 organisms known to cause disease in humans, 832 are transmissible from animals • Regulatory control can displace poor • New technologies arriving fast

33. Nitrogen Loading In Asia, 2002 Deficient Balanced Severe Loading Source: FAO/LEAD Secretariat

34. Pollution is Not Scale-Neutral Nitrogen Mass Balances for Philippines Swine Farms of Different Sizes, 2002 Nutrient Loading Balanced Source: UPLB, IFPRI-FAO Livestock Industrialization Study

35. The Economic Context of The Livestock Revolution in East Asia Is:

36. A Livestock Revolution: • Driven by rapid rise in consumption of animal products (2.8% p.a. to 2020) • Substitution into starch based diets • Developing countries will produce 63% of meat and 50% of milk in 2020 • Becoming a global food activity • Transforming world feed markets • .

37. It is also: • Resource degradation • Rapid increase in feed grain imports (200 MMT cereals in 2020, half + for feed) • Rapid concentration of production and consumption • Promoting rapid social change in rural & coastal areas • Becoming an even hotter trade topic!

38. Concerns for Poverty & Sustainability • Industrial systems supplanting small producers, mixed farmers, and artisanal fishers (“scaling up”), often for wrong reasons • Degradation of resource base of the rural poor; pollution; environmental “hot spots” • Response to rising food safety and public health concerns could exclude the poor • Desire to export vaccination-free in developing countries can lead to exclusion of poor producers

39. Increasingly Global Issues • Spread of animal disease in all the world through feed and animal products trade • Rapid rise in incidence of transmission of zoonotic diseases (infections transmissible from animals to man) • Traditional exclusion barriers of North no longer very effective; radical changes likely • Livestock/fish sectors are on the trade agenda along with other sectors, which may get preference

40. Key Issues for East Asia • Demand prospects remain good for long-time in future, but trade compet. will rise • Profit margins will be squeezed by rising feed and labor costs; productivity gains key • Food safety/higher quality/disease control and credible certification of same increasingly important to market access • Need viable organizational path to continued participation of the poor in prod.: institutions and facilitating approach to private sector are key