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Rising Consumption of Animal Products in China and India: National and Global Implications Wenge Fu, Vasant P. Gandhi, Lijuan Cao, Hongbo Liu, Zhangyue Zhou* Abstract Over the past two decades, the consumption of animal products has increased rapidly in China and India, driven by rising income and large populations. Such strong demand for animal products could have substantial impacts on both their own and global food and feed demand and supply. This paper examines the nature of rising demand for animal products in China and India and discusses national and global implications.
Key words: animal product consumption, China, global demand and supply, India JEL codes: Q11, Q18
I. Introduction Over the past two decades, China and India, the two most populous developing nations in the world, have experienced rapid economic growth. Changes in the levels and patterns of food consumption have also occurred. Most noticeably, Chinese and Indian consumers have increased their consumption of animal products, such as meat, eggs and dairy products, and reduced cereal consumption. The strong demand for animal products in these two
*Wen-Ge Fu, Associate Professor, College of Economics and Management, China Agricultural University, Beijing, China. Email:
[email protected]; Vasant P. Gandhi, Professor, Indian Institute of Management, Ahmedabad, India. Email:
[email protected]; Li-Juan Cao, Lecturer, College of Economics and Management, Nanjing Agricultural University, Nanjing, China. Email:
[email protected]; HongBo Liu, Lecturer, School of Business, James Cook University, Townsville, Australia. Email:
[email protected]; Zhang-Yue Zhou, Professor, School of Business, James Cook University, Townsville, Australia. Email:
[email protected]. The authors wish to thank Professor Wei-Ming Tian of China Agricultural University and Professor Ji-Min Wang of the Chinese Academy of Agricultural Sciences for useful discussions and the referees for valuable comments and suggestions to improve this paper. ©2012 The Authors China & World Economy ©2012 Institute of World Economics and Politics, Chinese Academy of Social Sciences
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Rising Consumption of Animal Products in China and India
countries could have major implications not only for their own food and feed demand and supply but for the whole world as well. Human development history has consistently shown that when consumer income increases, food consumption levels and patterns evolve. This has happened in developed economies and is happening in many developing economies. Changes in food consumption in the developing economies of Asia, one of the fastest growing regions in the past few decades, have received some attention from researchers. Examples of studies on food consumption in various Asian economies include Rae (1997), Regmi and Dyck (2001), Tian and Zhou (2005), Bittencourt et al. (2007) and Pingali (2007). Researchers have also devoted their efforts to examining food consumption dynamics in China and India; see, for example, Gandhi and Mani (1995), Abdulai et al. (1999), Wang and Zhou (2005), Liu et al. (2009) and Gandhi and Zhou (2010). There have been limited attempts to examine China’s and India’s rising demand for animal products together and from global perspectives. Such examination is of great importance due to the large populations and current rapid economic growth of these two countries. Several questions concerning their fast increase in animal product consumption are yet to be addressed. What is the nature of the recent rapid rise in demand for animal products in China and India? What are the key drivers of such growth in demand? Will demand continue to increase rapidly if consumer incomes continue to rise? Will these two countries have the ability to produce enough animal products domestically to meet the increasing demand? If not, what are the likely sizes of imports? At the global level, perhaps more importantly, what will happen if both China and India need to import large amounts of animal products or animal feed? How would the imports impact on global food and feed markets? Will the world have the resources to produce to satisfy China’s and India’s growing appetite? This paper attempts to answer some of the above important questions and to discuss the likely implications for food and feed demand and supply for these two nations and globally. Due to difficulties in obtaining the necessary comparable data from the two countries, no sophisticated econometric analyses could be undertaken. Instead, we have focused on laying a foundation for future research, and hope to stimulate interest in this important area. In the next section, we highlight the rising demand for animal products in China and India. Section III addresses the drivers behind such dietary changes. In Section IV, we consider China’s and India’s likely demand for animal products in the near future and their ability to meet the demand. Section V concludes the paper and discusses implications of these two countries’ rising demand for animal products. ©2012 The Authors China & World Economy ©2012 Institute of World Economics and Politics, Chinese Academy of Social Sciences
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II. Rising Animal Product Consumption in China and India In both China and India, the consumption of animal foods has increased rapidly over the past two decades. Table 1 shows the level of major food items for both rural and urban residents since the early 1980s. Clearly, the per capita direct consumption of foodgrains has dropped in both rural and urban areas. The consumption of all animal foods, however, has increased. Income has an important impact on the quantity and composition of food consumption
Table 1. Per Capita Food Consumption in China (1978–2010) Year
Per capita income (¥)
Food-grains (kg)
Meat total (kg)
Poultry eggs (kg)
Aquatic products (kg)
Milk and dairy products (kg)
Rural 1978
134
248
6.01
0.80
0.84
—
1980
191
257
8.41
1.20
1.10
—
1985
398
257
12.00
2.05
1.64
—
1990
686
262
12.60
2.41
2.13
—
1995
1578
259
13.12
3.22
3.36
0.64
2000
2253
250
17.22
4.77
3.92
1.06
2001
2366
239
17.37
4.72
4.12
1.20
2002
2476
237
17.78
4.66
4.36
1.19
2003
2622
222
18.24
4.81
4.65
1.71
2004
2936
218
17.89
4.59
4.49
1.98
2005
3255
209
20.76
4.71
4.94
2.86
2006
3587
206
20.54
5.00
5.01
3.15
2007
4140
199
18.74
4.72
5.36
3.52
2008
4761
199
18.30
5.43
5.25
3.43
2009
5153
189
19.58
5.32
5.27
3.60
2010
5919
181
20.01
5.12
5.15
3.55 —
Urban 1982
535
145
20.93
5.88
7.67
1985
739
135
22.56
6.84
7.08
—
1990
1510
131
25.16
7.25
7.69
4.60
1995
4283
97
23.65
9.74
9.20
4.60
2000
6280
82
25.50
11.21
11.74
11.55
2001
6860
80
24.42
10.41
10.33
13.76
2002
7703
78
32.52
10.56
13.20
18.12
2003
8472
80
32.94
11.19
13.35
21.71
2004
9422
78
29.22
10.35
12.48
22.19
2005
10 493
77
32.83
10.40
12.55
21.67
2006
11 760
76
32.12
10.41
12.95
22.54
2007
13 786
78
31.80
10.33
14.20
22.17
2008
15 781
—
30.70
10.74
14.00
19.30
2009
17 175
81
34.67
10.57
14.30
19.27
2010
19 109
82
34.72
10.00
14.30
18.10
Source: NBS (1982–2011). Notes: Rural foodgrains are unprocessed, while urban foodgrains are processed. Meat includes pork, beef, mutton/lamb and poultry. —, data are not available. ©2012 The Authors China & World Economy ©2012 Institute of World Economics and Politics, Chinese Academy of Social Sciences
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Figure 1. Changes in Per Capita Annual Consumption of Food with Income in China (2009)
Per capita consumption (kg)
200 160 120 80 40 0 1st Q
2nd Q
3rd Q
4th Q
5th Q
1st Q
2nd Q
Rural Foodgrains
Cooking oil
3rd Q
4th Q
5th Q
Urban Vegetables
Fruits
Animal products
Source: NBS (2000–2011a,b). Notes: Urban foodgrain consumption is based on 2006 data. Vegetable consumption in urban area refers to fresh vegetables only; fruit consumption in urban areas refers to fresh fruit and melons. Q stands for quintile. All the residents in both rural and urban areas are placed in five quintiles according to their income level. The first quintile has the lowest income.
and an even greater impact on the consumption of animal products due to their relatively higher prices. Figure 1 shows that when consumer income is high enough, per capita consumption of food grains will start to decline (see the urban part of Figure 1). In contrast, when income increases, consumption of animal products increases in both rural and urban areas. Figure 2 provides further details regarding the rising consumption of animal products when consumer income increases (the consumption level reported for various income groups is based on NBS consumption data that do not include away-from-home consumption). In urban areas, for higher income groups, the increase in the consumption of meat and eggs tends to slow down. However, the consumption of other products by higher income groups tends to increase faster. In rural areas, when rural residents’ income increases, the consumption of animal products increases faster, especially in the case of aquatic products. India’s food consumption change is similar to China’s. In both rural and urban India, although cereal consumption is still very important, the expenditure share on cereals has been decreasing. After cereals, animal product consumption is the next most important food group. In rural areas, the expenditure share for foods of animal origin reached 21.4 percent in 2004/2005 (Table 2). In urban areas, the same share increased to 25 percent in 2004/2005, ©2012 The Authors China & World Economy ©2012 Institute of World Economics and Politics, Chinese Academy of Social Sciences
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Figure 2. Changes in Per Capita Annual Consumption of Selected Animal Products with Income in China (2009)
Per capita consumption (kg)
30 25 20 15 10 5 0 1st Q
2nd Q
3rd Q
4th Q
Rural Pork Poultry Aquatic products
5th Q
1st Q
2nd Q
3rd Q
4th Q
5th Q
Urban Beef and mutton Egg and egg products Milk and dairy products
Sources: NBS (2000–2011a,b). Notes: Q stands for quintile. All the residents in both rural and urban areas are placed in five quintiles according to their income level. The first quintile has the lowest income.
surpassing the share of cereals, which fell to 23.7 percent.1 The crossover would have taken place between the two surveys of 1999/2000 and 2004/2005. The quantity and value of per capita consumption of animal products in 2009/2010 are shown in Table 3. At Rs2508, animal product expenditure in urban areas is significantly higher than that in rural areas, being Rs1565. A substantial part of this difference comes from milk and milk products that stand at Rs967 in rural areas and Rs1644 in urban areas. Out of all animal products, dairy product consumption dominates. In 2009/2010, the share of milk and milk products was 61.7 percent in rural areas, and was even higher, at 65.6 percent, in urban areas (the decline in the share, compared to 2004–2005, is due to the rise in the share of vegetables as a result of faster price increase). The dominance of milk and milk products in animal products is apparently unique to India and might be associated with the vegetarian diet and food habits in India. Meat consumption ranks second after dairy, with a share of approximately 20 percent in both rural and urban samples. This represents a 6 percentage point increase in consumption of meat compared to 2004/2005.
1
Between 2005 and 2010, there was high general inflation. Much of the food price inflation came from
the steep rise in vegetable prices, as reflected by the big increase in the share of vegetables and fruits in Table 2. This then has also affected the share of animal products in the total expenditure. Although the share of animal products in the total expenditure slightly increased for rural areas (to 21.7 percent in 2009/2010), it decreased a little for urban residents. Nonetheless, animal product consumption in quantity terms has increased substantially; for example, chicken consumption has more than doubled. ©2012 The Authors China & World Economy ©2012 Institute of World Economics and Politics, Chinese Academy of Social Sciences
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Table 2. Per Capita Annual Consumption Expenditure in India (1970/1971–2009/2010) Value (Rs) 1970/
1977/
1971
1978
1983
Share (%)
1987/
1993/
1999/
2004/
2009/
1970/
2004 /
2009/
1988
1994
2000
2005
2010
1971
2005
2010
Rural Cereals
170
274
438
499
818
1293
1208
1 733
54.4
32 .7
Pulses
19
35
51
80
129
222
206
403
6.0
5 .6
24.1 5.6
Animal products
48
86
142
225
433
704
791
1 565
15.5
21 .4
21.7
Edible oil
15
30
54
107
149
218
309
467
4.8
8 .4
6.5
Vegetables and fruits
20
40
82
130
263
460
534
1 355
6.5
14 .5
18.8
Other food items
39
68
117
183
342
568
644
1 657
12.6
17 .4
23.0
Food total
312
532
885
1 210
2133
3466
3691
7 204
73.6
55 .0
57.0
Non-food total
112
295
465
687
1244
2368
3014
5 439
26.4
45 .0
43.0
Total consumption expenditure
424
827
1349
1 897
3377
5834
6705
12 644
100.0
100 .0
100.0
Number of sample
87 593
99 766
75 911
83 039
69 206
71 385
79 296
59 119
Cereals
145
237
384
446
771
1267
1270
1 934
35.6
23 .7
18.3
Pulses
21
44
67
106
167
291
270
565
5.2
5 .0
5.3
Animal products
83
150
253
392
725
1211
1341
2 508
20.3
25 .0
23.7
households Urban
Edible oil
29
54
95
159
241
322
436
634
7.1
8 .1
6.0
Vegetables and fruits
40
73
140
233
446
775
846
2 102
9.8
15 .8
19.9
Other food items
90
134
225
342
654
1064
1205
2 791
22.0
22 .5
26.4
Food total
409
692
11 64
1 677
3004
4930
5369
10 570
64.4
42 .5
44.4
Non-food total
226
462
805
1 322
2493
5329
7259
13 244
35.6
57 .5
55.6
Total consumption expenditure
634
1154
1968
2 999
5497
10 259
12 628
23 814
100.0
100 .0
100.0
Number of sample
18 930
58 162
41 983
45 989
46 148
48 924
45 346
41 736
households
Source: NSSO (1970–2011). Note: Rs, Indian rupees.
The share of fish consumption is higher at 14 percent in rural areas, as compared to 10 percent in urban areas. Eggs make up only a small share, at approximately 3–4 percent. As in China, the level and composition of food consumption change when income increases (Figure 3).2 In rural areas, in general, food demand is low at low income levels, rises when income increases and then tapers off. This can be seen particularly in the case of cereals and pulses. In the case of animal product consumption, however, demand rises very rapidly when income rises. In urban areas, the demand for animal products rises even faster when income starts to increase, whereas the demand for other food groups rises much less.
2
The latest disaggregated data available from the NSSO survey are for 1999/2000. We do not expect that
the broad relationships between income and food consumption would have changed dramatically over the past decade. ©2012 The Authors China & World Economy ©2012 Institute of World Economics and Politics, Chinese Academy of Social Sciences
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Table 3. Per Capita Annual Consumption of Animal Products in India (2004/2005, 2009/2010) Rural
Urban
2004/2005
2009/2010
2004/2005
2009/2010
Quantity
Value
Quantity
Value
Quantity
Value
Quantity
(kg)a
(Rs)
(kg)a
(Rs)
(kg)a
(Rs)
(kg)a
(Rs)
—
568
—
967
—
1000
—
1644 864
Milk and milk products total
Value
—
223
—
599
—
342
—
Eggs (number)
12.1
22
20.8
64
20.6
36
32.1
98
Fish
2.4
90
3.2
226
2.5
114
2.9
249
Meat total
1.7
112
2.6
309
2.6
191
3.9
517
—
791
—
1565
—
1341
—
2508
Egg, fish and meat total
Animal products total
Source: NSSO (2007, 2011). Notes: a Quantity in kilograms unless otherwise stated. In India, eggs are not counted in weight but in number (i.e. 2 eggs, 5 eggs etc.). — , data are not available. Rs, Indian rupees.
Figure 3. Changes in Per Capita Annual Consumption of Food with Income in India (1999/2000) 3500
Per capita expenditure (Rs)
3000 2500 2000 1500 1000 500 0 1st 2nd
3rd
4th
5th
6th
7th
8th
9th 10th 11th 12th
1st 2nd 3rd
4th
5th
Rural Cereals
Pulses
6th
7th
8th
9th 10th 11th 12th
Urban Livestock
Edible oil
Vegetables
Fruits
Sugar
Source: NSSO (2007). Notes: We separate all the surveyed households into 12 income groups. In rural areas, the monthly income range for various groups are as follows: 1st: Rs0–224; 2nd: Rs225–255; 3rd: Rs255–300; 4th: Rs300–340; 5th: Rs340–380; 6th: Rs380–420; 7th: Rs420–470; 8th: Rs470–525; 9th: Rs525–615; 10th: Rs615–775; 11th: Rs775–950; 12th: Rs950 and more. In urban areas, the monthly income range for various groups are as follows: 1st: Rs0–300; 2nd: Rs300–350; 3rd: Rs350–425; 4th: Rs425– 500; 5th: Rs500–575; 6th: Rs575–665; 7th: Rs665–775; 8th: Rs775–915; 9th: Rs915–1120; 10th: Rs1120–1500; 11th: Rs1500–1925; 12th: Rs1925 and more.
Figure 4 provides further details regarding how the demand for specific animal products changes with increasing income. The figure shows that for rural areas, among the different animal products, milk and milk product demand rises the most when income increases. This is followed, with a huge margin, by meat, then fish and eggs. A similar pattern exists for urban residents. Clearly, these patterns indicate that income growth in India is likely to ©2012 The Authors China & World Economy ©2012 Institute of World Economics and Politics, Chinese Academy of Social Sciences
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Rising Consumption of Animal Products in China and India
Figure 4. Changes in Per Capita Annual Consumption of Animal Products with Income in India (1999/2000) 2500
Per capita expenditure (Rs)
2000
1500
1000
500
0 1st 2nd
3rd
4th
5th
6th
7th
8th
9th 10th 11th 12th
1st 2nd 3rd
Rural Milk
4th
5th
6th
7th
8th
9th 10th 11th 12th
Urban Eggs
Fis h
Meat
Source: NSSO (2007). Notes: We separate all the surveyed households into 12 income groups. In rural areas, the monthly income range for various groups are as follows: 1st: Rs0–224; 2nd: Rs225–255; 3rd: Rs255–300; 4th: Rs300–340; 5th: Rs340–380; 6th: Rs380–420; 7th: Rs420–470; 8th: Rs470–525; 9th: Rs525–615; 10th: Rs615–775; 11th: Rs775–950; 12th: Rs950 and more. In urban areas, the monthly income range for various groups are as follows: 1st: Rs0–300; 2nd: Rs300–350; 3rd: Rs350–425; 4th: Rs425– 500; 5th: Rs500–575; 6th: Rs575–665; 7th: Rs665–775; 8th: Rs775–915; 9th: Rs915–1120; 10th: Rs1120–1500; 11th: Rs1500–1925; 12th: Rs1925 and more.
translate into a much higher demand for milk and milk products, but only a modest increase in meat, eggs and fish.
III. Drivers of Dietary Change in China and India Many factors are driving dietary change in India and China; of these, rising income is the most important. As observed throughout the world, when income rises, consumers reduce their consumption of foods of plant origin, and switch to more expensive foods, particularly animal products. Our above analysis strongly suggests that, as incomes increase, the demand for animal products in both China and India rises very rapidly and surpasses the demand for other food groups. Urbanization is another important factor because urban residents tend to consume less cereals and more animal products than rural populations. Furthermore, this factor is becoming increasingly significant: China’s urbanization level increased from 20 percent in 1980 to 50 percent in 2010 and, during the same period, India’s urbanization increased from 23 to 30 percent. In 2010, China achieved an urbanization level that the UN projected would ©2012 The Authors China & World Economy ©2012 Institute of World Economics and Politics, Chinese Academy of Social Sciences
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Table 4. Population and Urbanization in India and China (1970–2050) World
Asia Urban
Total population
China U rban
Total population
population
ou t of total (million )
popu lation
population
out o f total (million)
(%)
India Urb an
Total population
population
out of total (million)
(%)
China and India together Urban
O ut of
population
world
Out of Asia
out of total
population
population
Total
(million) (%)
(%)
(%)
831 928
17 17
549 614
20 21
37 38
65 64
26
999
20
689
23
38
64
29
1067
23
771
24
38
63
3181
32
1149
27
860
26
38
63
45
3452
34
1214
31
954
27
38
63
6124
47
3705
37
1270
36
1046
28
38
63
2005
6515
49
3938
40
1313
40
1134
29
38
62
2010
6907
51
4166
42
1352
45
1220
30
37
62
2015
7295
53
4389
45
1389
49
1303
32
37
61
2020
7667
55
4596
48
1421
53
1379
34
37
61
2025
8011
57
4779
51
1446
57
1447
37
36
61
2030
8318
60
4931
54
1458
60
1506
41
36
60
2035
8587
62
5052
57
1458
64
1554
44
35
60
2040
8824
65
5148
60
1448
67
1597
48
35
59
2045
9026
67
5220
63
1431
70
1632
52
34
59
2050
9191
70
5266
66
1409
73
1658
55
33
58
1970 1975
3699 4076
36 37
2139 2394
23 24
1980
4451
39
2636
1985
4855
41
2896
1990
5295
43
1995
5719
2000
(%)
Source: Population Division of the Department of Economic and Social Affa irs of the United Nations Secretariat (2008).
not be reached until 2015 (see Table 4). In both countries, the urbanization level will continue to rise over the next 40 years, and their populations will also increase; together, they will maintain a significant share of the total Asian and world population. The combination of increased income and urbanization leads to major lifestyle changes, which is another cause of dietary change. For example, eating out, taking holidays and convenience foods are becoming increasingly popular in China; in India, a young and more affluent workforce are going out to restaurants and opting for convenience foods more often. Greater opportunities for cultural exchange are also a factor for change, with Indian and Chinese citizens becoming increasingly influenced by worldwide cultures, stimulating interest in non-traditional foods: beef, for example, in India, or dairy products in China, the consumption of which is increasing in both cases. A final influence to mention is improvements in food production and marketing, such as the introduction of modern cold chain transportation and storage facilities. Such developments are improving food availability throughout these countries. In addition, supermarkets, which are emerging particularly rapidly in China, are also having a key effect. Such factors will continue to impact on the demand for animal foods in both countries. Considering the fact that there is a huge gap between the consumption levels of animal ©2012 The Authors China & World Economy ©2012 Institute of World Economics and Politics, Chinese Academy of Social Sciences
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Rising Consumption of Animal Products in China and India
products by rural and urban residents and by rich and poor consumers, the potential increase in demand for animal products in China and India is enormous. This undoubtedly leads to the question: Will China and India be able to produce sufficient amounts of such products to meet demand? Over the past decade, this question has drawn interest from people of many different walks of life, including traders, government policy-makers, research scholars and newspaper columnists. Yet, so far, there has been limited examination of the rising demand for animal foods in these two countries to address the likely implications for global food and feed demand and supply, although forecasts on their future demand for animal products do exist. Some such forecasts have been carried out by individual researchers or research teams (e.g. Chen, 2004; Ghandi and Zhou, 2010), whereas others by large governmental or international organizations (e.g. FAPRI, 2011; OECD–FAO, 2011; USDA, 2011).
IV. Prospects of Animal Product Demand and Supply in China and India Projecting future food consumption requires good quality data and forecasting approaches. Although there is no shortage of sound forecasting approaches, acceptable data is not easily available. Researchers generally resort to official government publications, plus data obtained from field work and, in some cases, self-generated estimates or assumptions. Not surprisingly, existing studies have produced results in disagreement with each other. Examples are given in Table 5, in which we collate the forecasts of likely consumption, production and the demand–supply gap for major animal products in 2020 as projected by three representative institutions; namely, FAPRI (2011), OECD–FAO (2011) and USDA (2011). Although these forecasts tend to conflict with each other, and sometimes greatly, they do indicate the likely trends in animal product consumption and production. It is interesting to note that all three institutions indicate that there will likely be large demand–supply gaps for most animal products in China by 2020, and that India will, for the most part, be able to produce sufficient animal products for domestic use. That China will experience a shortage in the supply of most animal products by 2020 is widely accepted, although the accuracy of the forecasts is uncertain. However, that India will be self-sufficient in most animal products seems overoptimistic. Possible reasons that could have led to such optimistic forecasts are elaborated below. 1. Their demand forecasts are likely to be based on food availability that is derived based on a “disappearance” concept. Food imports, exports, changes in stocks and all other usages are taken into consideration. However, these institutions probably have ©2012 The Authors China & World Economy ©2012 Institute of World Economics and Politics, Chinese Academy of Social Sciences
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Table 5. Projections of Food Production, Consumption and Gap in China and India by Different Organizations in 2020 (thousand ton) Consumption
USDA Production
Gap
Wheat Milled rice Pork Beef Lamb and mutton
112 650 135 659 61 397 6535 —
114 314 136 304 61 390 6558 —
1664 645 –7 23 —
Poultry
a
FAPRI Consumption Production China 109 026 114 641 — — 66 244 65 781 7364 7077 — —
a
OECD–FAO Production
Gap
Consumption
5615 — –463 –287 —
114 183 125 859 61 202 7184 4876
115 702 125 832 61 482 7180 4798
Gap
a
1518 –27 280 –3 –77
16 334
16 474
140
—
—
—
20 921
20 849
–72
Milk, excluding b butter
—
—
—
47 451
47 290
–160
56 974
59 064
2091
Wheat Milled rice Pork Beef Lamb and mutton Poultry Milk, excluding butter
90 058 103 718 — — —
89 523 108 217 — — —
–535 4499 — — —
India 86 467 — — — —
91 980 — — — —
5513 — — — —
88 686 109 671 451 2396 832
87 917 111 743 453 3079 871
–769 2072 3 683 40
6074 —
6075 —
1 —
— —
— —
4253 134 623
4258 134 623
5 0
— —
Sources: FAPRI (2011), OECD–FAO (2011) and USDA (2011). Notes: a Gap = production – consumption, indicating the likely net exports; bmilk data from FAPRI are liquid milk; —, data are not available.
limited knowledge about other usages in India (e.g. seed, feed and other uses and wastages), opening the door to inaccurate estimates. 2. The production figures by these institutions for animal products are relatively rough and appropriate methodology does not appear to be followed. They are likely to have substantial inaccuracies. There is also the problem of unrecorded cross-border import/ export into Bangladesh, Nepal and Pakistan (Gandhi et al. 2004). 3. The forecasting methods by these institutions are perhaps sufficiently sophisticated. Since the mid-1990s, however, India’s income growth has accelerated; income elasticities are high, and there have been changes in food preferences and consumption behavior. Unless their models have been adequately adjusted to accommodate such changes, forecasts will be inaccurate. As for China, significant challenges also exist in forecasting its future food demand and supply. China has also been experiencing rapid income growth and changes in preferences and tastes, as in India. Food output level in China is often affected by the frequent, unexpected and abrupt administrative interventions, making it difficult to forecast China’s future output level. For example, in the early 2000s, no one predicted that China’s demand for soybean would increase so drastically by 2010, and that its soybean production capacity would shrink so much. In their 2001 projections of China’s 2010 soybean imports, ©2012 The Authors China & World Economy ©2012 Institute of World Economics and Politics, Chinese Academy of Social Sciences
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FAPRI’s forecast was 16.3 million ton (FAPRI, 2001); USDA’s was 11.2 million ton (USDA, 2001). No models had the capacity to predict that China would have imported over 50 million ton of soybean in 2010. These international institutions are well resourced and have been able to incorporate many essential components into their modeling. Given the fact that they also suffer from inaccurate longer-term projections, any new attempts to employ sophisticated modeling might not necessarily generate any better results. In this study, we compare the growth rates of consumption and production of animal products instead. Comparing these growth rates will help to reveal the emerging trends. Indicative growth rates of China’s demand for and supply of various animal products are developed and given in Table 6. The per capita annual consumption for 2010 is based on the data obtained from an FAO balance sheet and calculated using estimated income elasticities of demand, as shown in column (4), and real GDP. The income elasticities are estimated through demand equations, where the quantity of demand (in the present study, per capita food utilization based on an FAO food balance sheet) is specified as a function of income and related prices. If China’s demand for and supply of animal products continue to grow at rates as shown in Table 6 for the next 10 years, China will not be able to produce enough beef, mutton and dairy products to satisfy the rising domestic demand. In contrast, the indicative rates in Table 6 imply that China might be able to produce enough pork, eggs, poultry meats and aquatic products for domestic consumption. According to our experience, however, although it might be possible that China can produce sufficient poultry eggs to meet the rising demand, China will have great difficulty in producing enough pork, poultry meat and aquatic products. We elaborate in what follows. Recent growth in consumer income and consumption trends in China, as discussed in Table 6. Indicative Growth Rates of China’s Demand and Supply of Animal Products Total output 2010
Per capita annual
Income elasticities
Demand growth rate
Output growth rate
(1000 ton)
consumption 2010 (kg)
of demand
2000–2010 (%)
2000–2010 (%)
(2)
(3)
(4)
(5)
(6)
Milk
37 480
46.7
1.6536
15.9
15.1
Eggs
27 627
20.3
0.1501
1.7
2.4
Pork
50 712
35.6
0.2366
1.2
2.5
6531
5.6
0.6183
3.3
2.4 4.2
Item (1)
Beef/buffalo meat Goat meat/mutton
3989
3.8
0.9524
6.3
Poultry
18 026
14.5
0.7088
3.5
4.2
Meat total
79 258
59.5
—
2.2
2.8
Aquatic products
53 730
37.1
0.1403
1.1
3.8
Sources: NBS (1982–2011); FAO data that can be found at www.fao.org. Notes: Income elasticity estimates are taken from Zhou et al. (2011); —, data are not available. ©2012 The Authors China & World Economy ©2012 Institute of World Economics and Politics, Chinese Academy of Social Sciences
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Section II, strongly suggest that consumers’ demand for animal products will continue to grow in the years to come. There is huge space for increased consumption of animal products should the income of rural and poor consumers continues to increase. China’s arable land has been heavily utilized and the capacity to increase feed production is limited. In the meantime, China’s pastoral land is also limited and has suffered degradation. Hence, China’s potential to increase domestic animal product output is very restricted unless China imports a large amount of feed. As such, it is our judgment that China will not be able to meet the rising demand for beef, mutton and dairy products through domestic production. The amount of beef and mutton imports will be small in the near future (perhaps approximately 0.5 million ton by 2020 for each), but will likely increase over time. As for dairy products, chiefly milk powder and whey, China’s imports might increase a little faster in the years to come, net importing approximately 2 million ton. It is most likely that China will be able to produce sufficient eggs for domestic use. China will also be largely self-sufficient in poultry meat. In terms of aquatic products, the output of both fresh water and seawater fishing has been stagnant in the past 10 years and we do not expect there will be any substantial growth in the future. Increasing output through fresh water and seawater fish farming is possible but not without constraints. The major constraints are the need for extra feed and the competition for land with farming (fresh water fish farming). Aquatic products are among the favorite food items of many Chinese, but generally have higher prices that deter some low-income consumers. Hence, in the foreseeable future, China might be able to manage a balance between the demand for and supply of aquatic products with domestic resources. Pork consumption has a great importance in the life of the Chinese. Pork demand and supply will be the most interesting area to watch in the future. Pork output has been increasing since 2007. Further increase will be possible but difficult. Pork used to be produced in the backyards of individual farmers but some of them have stopped producing pigs (Rae and Zhang, 2009). Intensive pig farming is increasing but significantly depends upon the supply of industrial processed feeds in which corn is the major ingredient. Pork consumption is expected to increase when Chinese people’s incomes further increase, in particular, that of rural and poor people. How China is going to supply more pork to its consumers is yet to be determined. Three major options are available for the Chinese Government: (i) produce more at home; (ii) import live animals; or (iii) import animal products. If China wants to produce more at home, then more corn will have to be imported. To gauge whether India’s own supply will be adequate to meet the growing demand for animal products in the years to come, similar indicative growth rates as in Table 6 are developed for India (see Table 7). The projected demand growth rates are given in columns 7 ©2012 The Authors China & World Economy ©2012 Institute of World Economics and Politics, Chinese Academy of Social Sciences
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Table 7. Indicative Growth Rates of India’s Demand and Supply of Animal Products
Total output Item
2004/2005 (million ton)
(1)
Per capita annual consumption 2004/2005 Quantity
Value
(kg)
(Rs)
Income elasticities of demand
Quantity
Value/expenditure
Projected demand growth
Output
rate (%)
growth rate
Quantity
Value/
1994–2004 (%)
expenditure
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
92.5
50.2
620
1.602
1.672
10.2
10.6
3.7
Milk products
—
—
57
—
2.295
—
14.0
Milk and milk products
—
—
677
—
1.730
—
10.9
46 166
14.3
25
1.136
1.138
7.7
7.7
5.9
Goat meat/mutton
0.71
0.6
63
1.161
1.240
7.9
8.3
0.8
Beef/buffalo meat
2.97
0.4
19
0.437
0.642
4.0
5.1
1.0
Chicken
1.52
0.7
45
1.225
1.151
8.2
7.8
11.8
Meat total
3.1
Milk
Eggs (m no. or no.)a
6.03
1.9
132
1.066
1.162
7.4
7.9
Egg, fish and meat
—
—
253
—
1.072
—
7.4
Animal products: all
—
—
930
—
1.510
—
9.8
Total food
—
—
4116
—
0.791
—
5.9
Source: Authors’ estimates based on NSSO data. Notes: The per capita consumption and income elasticities of demand are the weighted averages of rural and urban estimates with population as weights. The projected demand growth rates assume a national population growth rate of 1.6 percent and income growth rate of 7.0 percent based on recent past estimates. —, data are not available. aIn India, eggs are not counted in weight but in number (i.e. 5 eggs, 16 million eggs etc.).
(based on quantity) and 8 (based on expenditure). They were derived by assuming a national population growth rate of 1.6 percent and income growth rate of 7.0 percent based on recent past estimates. The output growth rates are given in column 9. They are based on the actual growth rates during 1994–2004, which are likely optimistic estimates because resources available for animal product production in the future might become more limited due to the priority needs for foodgrain production. According to Table 7, in future, when consumer income increases, the demand for animal products in India might increase faster. There will be a rapidly rising demand for animal products, with expenditure growing by approximately 10 percent per year. Milk demand could grow at about 10.6 percent per year, egg demand at 7.4 percent and meat demand at 8.4 percent. However, production might grow at a much slower pace. Milk production is growing at 3.7 percent, egg production at 5.9 percent and meat production at 3.1 percent per year. Except for the growth rate in chicken production, which somewhat exceeds demand growth, without further boosts of animal industries, large gaps are likely to emerge for many meats as well as for eggs and dairy products as economic development proceeds and demand for animal products continues to increase. Economic growth and increasing per capita income will lead to rising food consumption in India in the coming years, as described in the earlier sections, particularly rapid increase ©2012 The Authors China & World Economy ©2012 Institute of World Economics and Politics, Chinese Academy of Social Sciences
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in demand for animal products. Income elasticities of demand for animal products are high in both rural and urban areas, particularly in urban areas. Cultivable land is a significant constraint in India and, although in the wake of the green revolution, grain yields grew rapidly in the 1970s and 1980s, there was a substantial slowdown in yields and production growth in the 2000s. This is restricting the growth of feed and feed grain availability, which is required to raise animal production to meet the rising animal food demand. Feed competes with food in production and consumption. As indicated above, the biggest component of animal product consumption in India is dairy products, particularly milk. The demand for milk has been projected to grow rapidly in India. The dairy industry in India is relatively well organized and dairy production is largely rural and highly integrated with crop agriculture. Hence, the industry is readily able to use cheap by-products, output and labor in the rural areas for production. Between 1994 and 2004, milk output grew at 3.7 percent per annum (Table 7). These observations indicate that India might be largely able to meet the rising demand for dairy products through domestic production in the near future, as also indicated by the OECD–FAO projections in Table 5. However, rising prices of dairy products since the mid-2000s tend to suggest that the increase in demand is faster than the increase in supply. Meat, however, presents a different picture. With growing incomes and urbanization, the consumption of meat has been growing rapidly. Between 2004/2005 and 2009/2010, meat consumption, even though very small in quantity terms, grew by 59 percent in rural areas and 49 percent in urban areas. Meat production is not very organized and not well integrated with agriculture in the rural areas and, hence, unable to adequately respond to any major increase in meat consumption. Meat production grew at only 3.1 percent per annum between 1994 and 2004 (Table 7). Hence, India might face significant difficulty in meeting the growing demand for meat. Between 2004/2005 and 2009/2010, egg consumption also showed a huge rise of 72 percent in rural areas and 56 percent in urban areas, which was much higher than recent production growth rates. Hence, egg demand might also become difficult to meet through domestic production. The demand for aquatic products has also grown, but less rapidly, at 33 percent in rural and 16 percent in urban areas between 2004/2005 and 2009/2010. In production of aquatic products, India is blessed with a long coast line and numerous rivers and water bodies. Both marine fisheries and inland fisheries have developed quite well and, therefore, India might be able to balance the demand and supply of aquatic products, and perhaps even contribute to exports. Chicken demand is showing a sharp increasing trend. It grew by 250 percent in rural and 216 percent in urban areas during 2004/2005 to 2009/2010. Although the production of chicken has been largely unorganized, there has been a growing trend towards scientific commercial production and better supply chain management, resulting in a growth of ©2012 The Authors China & World Economy ©2012 Institute of World Economics and Politics, Chinese Academy of Social Sciences
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approximately 12 percent per year from 1994 to 2004 (Table 7). However, this does not appear to be adequate, and the competitiveness of this sector depends substantially on feed costs, which have been rising substantially in the past 15 years due to growing overall food demand. The demand for goat meat/mutton and pork has also grown rapidly, especially in urban areas (31 and 67 percent) during 2004/2005 to 2009/2010, and the production is even less organized. India would face the option of either importing feed or importing these animal products in the near future. It is believed that given the relatively low labor costs in India, the first option would be to import feed. The option of importing meats will depend on the supply and price of meats in the international markets. Based on the above analyses, it seems that in the next 10 to 20 years, there will be a need for animal product imports from China and India. The total imports of meat are unlikely to be enormous for China in the near future, but are likely to increase in the medium and longer term. India could experience a major gap in meat demand and supply, particularly for chicken and mutton. Interestingly, the import of dairy products is potentially large for China in the medium term, and in the long run for India, an area worth particular attention.
V. Conclusions and Implications Economic growth and rising incomes are leading to rapid growth in the demand for animal products in China and India. Out of all animal products, pork remains the most important item consumed by the Chinese. However, evidence from the present study shows that when incomes increase in China, consumers will demand more dairy and aquatic products. As for the demand for beef and lamb (mutton), the demand is very low on a per capita basis and the pace of increase seems to be very slow as well. Milk is the most important item consumed by the Indians out of all animal products, given the largely vegetarian food habits. When incomes increase, milk consumption will further increase; so will consumption of various milk products. Currently, meat, eggs and fish consumption is relatively low. However, future income growth is likely to translate into large increases in the consumption of meat and eggs; the appetite for meat by consumers in India has been expanding over the past deacde. It is possible that as consumer income continues to increase in the future, more Indians will seek to join the meat eaters. Our analyses show that as income rises, the consumer expenditure on animal products will rise rapidly and will surpass that on other food groups in both China and India. However, in both China and India, those on low incomes consume significantly less animal products than high income earners. Similarly, rural residents consume significantly less than their urban counterparts. These results imply that when the incomes of the poor and rural ©2012 The Authors China & World Economy ©2012 Institute of World Economics and Politics, Chinese Academy of Social Sciences
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residents increase, and greater urbanization takes place, the increase in demand for animal products will be enormous in both India and China. It is important for both the Indian and Chinese Governments to pay close attention to the trends in demand for animal products and to devise strategies for different demand scenarios (such as low, medium and high growth). This is important due to the sheer size of their populations and the huge amounts required should there be major increases in demand. Both countries are constrained in expanding their animal product output by limited agricultural resources that have many competing uses. A major competing use is the production of grain for direct food consumption, for which priority has always been given by both governments. To meet the possible high growth in demand for animal products, China’s and India’s domestic grain supply would be under great pressure and production performance has to be greatly improved. Otherwise, imports have to be resorted to. At present, both countries are largely self-sufficient in animal products and large amounts of imports are not required. Indeed, both countries export a small amount of animal products. In the future, both countries would need to consider whether it is prudent to export animal products due to the resource constraints and increased domestic demand. It appears almost certain that they will need to have substantially increased supply of animal products to meet the increasing demand should their economies continue to do well. The options available to China and India to increase the supply of animal products are: increasing domestic production using domestic resources, increasing domestic production using imported feeds or increasing supply by importing animal products. If either or both of the first two options are used, then how much extra animal product can be produced and the likely impacts of such efforts on the environment deserve close attention. China’s and India’s rising demand for animal products also has implications for the broad international community. In the immediate future, say, the next 5 years, their rising demand for animal products (except milk and dairy products) is unlikely to cause any major shocks to the international market as their domestic production will largely meet the demand. For dairy products, chiefly milk powder, China’s imports might increase soon. However, in the longer term, possible implications of China and India’s rising demand for animal products for the broad international community deserve urgent attention. For example, if they cannot produce sufficient animal products to meet domestic needs, what is the likely shortage? How much and what will they need to import from the international market? If they do import animal products or animal feeds, what will be the impact on the world prices of animal products and on the world prices of feedstuff? If their economies both continue to grow well into the future and, therefore, their consumer incomes further improve, and they both require large amounts of imports of animal products or feedstuff or both at the same time, how will their import needs be met? All these and other related issues warrant close and ©2012 The Authors China & World Economy ©2012 Institute of World Economics and Politics, Chinese Academy of Social Sciences
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urgent attention from the international community.
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(Edited by Jing Qiu)
©2012 The Authors China & World Economy ©2012 Institute of World Economics and Politics, Chinese Academy of Social Sciences
