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Effects of China's plan to lower soybean content in feed
19 Plays2 years ago
Garrett McDonald of the U.S. Department of Agriculture's Office of Agricultural Affairs at the U.S. Embassy in Beijing discusses China's plans to lower soybean content in animal feed produced there.
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Transcript
Introduction to Episode and Guest
00:00:06
Speaker
Hello and welcome to the Feed Strategy Podcast.
00:00:08
Speaker
I'm your host, Feed Strategy Senior Reporter Anne Roos.
00:00:12
Speaker
Today I'm speaking with Garrett McDonald, Agricultural Attaché in the U.S. Department of Agriculture's Office of Agricultural Affairs at the U.S. Embassy in
China's Soybean Reduction Initiative
00:00:20
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Beijing.
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He's here to discuss China's plans to lower soybean content in animal feed produced there, why it is moving toward this goal, and what those aspirations might mean for international trade.
00:00:30
Speaker
Hi Garrett, thanks so much for joining me on the podcast.
00:00:33
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Happy to be here, Anne.
00:00:34
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China has said it wants to lower soybean content in animal feed produced in the country.
Trends in China's Soybean Meal Usage
00:00:39
Speaker
What have been the recent trends on soybean use for feed in China?
00:00:42
Speaker
Well, you're correct about that.
00:00:44
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And so the Ministry of Agriculture and Rural Affairs, or MARA, as we say for short, it's certainly trying to encourage industry here to reduce soybean meal usage.
00:00:55
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So if we look at MARA data on soybean meal inclusion rates in feed,
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we do see a drop in the average inclusion rates from 2021 to 2022.
00:01:06
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It goes from about 15.3% to 14.5%.
00:01:11
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But if we expand that a little bit and look over the past five years, the actual trend has been more of an up and down in the inclusion rates.
00:01:20
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I also think it's important to note that the 14.5% rate in 2022 is
00:01:27
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This was reached during a year when soybean meal prices here hit record highs, and the livestock and poultry sectors, as well as much of the economy in general, was really struggling with the PRC's zero COVID policy and lots of lockdowns.
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So it's not entirely surprising to see inclusion rates lower during this period.
00:01:48
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And I'll just note there, the PRC is the People's Republic of China.
China's Self-Sufficiency Goals
00:01:52
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Correct.
00:01:53
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What is the reason for this move toward lower soybean use?
00:01:56
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So the PRC has longstanding goals to increase self-sufficiency in numerous areas, including agriculture.
00:02:04
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And soybean meal inclusion is one of those areas that MARA is looking to show progress.
00:02:11
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So each year, the CCP, that's the Chinese Communist Party, and the State Council issue what's known as the number one document.
00:02:21
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which is sort of a high-level policy paper that offers guidance on development goals in China's agricultural sector.
00:02:30
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So in line with this document, last April, the Ministry of Agriculture issued a three-year plan to reduce or substitute soybean meal in feed.
00:02:42
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And its goal is to reduce soybean meal by half a percentage point
00:02:48
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per year.
00:02:49
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So from 14.5% in 2022 down to about 13% in
Alternatives to Soybean Meal
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2025.
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Is this goal achievable by using alternative ingredients?
00:03:00
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And what ingredients are they using as alternatives?
00:03:02
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So for any given period, industry can adjust feed rations that might result in lower rates of soybean meal inclusion.
00:03:11
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This might include anything from greater use of amino acids to swapping out other meals, such as peanut meal, cottonseed meal, or greater use of rice bran and wheat in the rations here.
00:03:24
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A feed ration is a balance sheet, so there are many ways that you can adjust to the various inputs.
00:03:30
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But the reality is that in terms of having a consistent availability and quality, there
00:03:36
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there really is no equal alternative to the protein component that's provided by soybean meal.
00:03:43
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So it's, I think, also important to remember that in China, you know, China's not a major soybean meal importer.
00:03:51
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China imports soybeans and crushes them because they need both the meal and the oil.
Logistical Challenges in Sourcing Ingredients
00:03:57
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And so as a result, over time, China has built up a massive crushing capacity.
00:04:02
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I think our numbers put it somewhere around 145 million metric tons.
00:04:07
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So there's actually also here a real interest in continuing to crush and utilize these investments.
00:04:14
Speaker
What are some other concerns or challenges around the use of these alternative ingredients?
00:04:18
Speaker
Well, I can't really speak to any of the nutritional challenges or concerns, but I do know from industry contacts that on the procurement side and then the plant management side, the folks I speak to certainly
00:04:33
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face challenges in procuring these alternatives.
00:04:38
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So, you know, many times these are purchased in relatively small volumes, a container here or a truckload there, and it requires adjusting the, you know, their feed ration matrix to bring them in as inputs.
Aspirations vs. Regulatory Targets in Soybean Planting
00:04:54
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So it's extremely taxing for the team at the mill to constantly be hunting for these alternatives.
00:05:01
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And, you know,
00:05:02
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you know, from the experience over the last couple of years, they might get lucky one week and find, for example, like a sunflower seed meal at a good price that they can substitute with, you know, buying it on the spot market.
00:05:16
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But the chances are that when they go back to buy more, the prices have increased or the supply just isn't there.
00:05:22
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So again, I think a lot of the inclusion question in the feed is really going back always to the pricing and availability.
00:05:30
Speaker
So Mara has issued guidelines on lowering the use of soybean meal, but are there specific policies or regulations around it or around increasing production of alternative ingredients?
00:05:40
Speaker
Yeah, so Mara has issued a plan, but it is not a directive or regulation that requires certain targets or goals be met.
00:05:48
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It's more of an aspirational roadmap for the feed sector.
00:05:53
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And we do see policies, you know, as it relates to increasing production, certainly of soybeans, uh,
00:06:01
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And they're doing this primarily through various types of subsidies implemented at different levels of the government.
00:06:09
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As a result, we do believe that there has been a shift in the past two years to more soybean planted area.
00:06:17
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But it's important to note that the vast majority of domestically produced soybeans do not compete with imported soybeans.
00:06:26
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Domestic soybeans are typically consumed for food use.
00:06:30
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And while imports do not predominantly enter the food use channel, those go for crushing for oil and feed.
Uncertain Impact on International Trade
00:06:39
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So with higher domestic production, we do expect to see some of the local beans entering crushing channels since the production as it increases is exceeding food consumption by several million tons.
00:06:55
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But the extent to which that occurs is likely depending on the price gap
00:07:00
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And regardless, we're not talking about significant volumes in the context of China's overall demand.
00:07:06
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Will this shift in soybean use and production have implications for international trade?
00:07:11
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When I talk to industry contacts here, the sense that I get is that much of the reductions, efficiencies and substitutions that are being promoted in this plan have largely been adopted to some degree.
00:07:24
Speaker
So the livestock, poultry, aquaculture sectors in China, they're highly competitive, and companies are always trying and always looking to find ways to trim costs.
00:07:34
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So most companies have already scoured their supply chains to squeeze out efficiencies.
00:07:41
Speaker
Now, certainly if we were to see soybean meal prices spike again, as they did in 2022,
00:07:48
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That could lead to lower inclusion rates and lower imports, which could lead some to think that perhaps this plan is hitting its targets.
00:07:57
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But our assessment continues to be that the plan itself will have a minimal long-term impact on soybean demand.
Episode Conclusion
00:08:06
Speaker
And to the extent that industry adopts on top of what it's already practicing,
00:08:13
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It's likely to be more as a tool to provide producers with more flexibility when they see higher soybean meal prices and not really as a permanent replacement for soybean meal in feed.
00:08:27
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All right.
00:08:28
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Well, thank you so much, Garrett, for talking with me today.
00:08:30
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Thanks for having me, Anne.
00:08:31
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My pleasure.
00:08:32
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And thank you to the audience for listening.
00:08:33
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I'm Anne Roos for Feed Strategy.