EDITOR: | June 9th, 2014 | 4 Comments

Meat is the new coal — and what that means for potash and phosphate

| June 09, 2014 | 4 Comments
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cowLast week, according to the Friday June 6 Commodities Weekly bulletin from Deutsche Bank, all commodity sectors posted negative returns. With one exception: livestock.

Then, on Saturday, The Financial Times printed this sentence” “Meat is the new coal”. They were reporting how China is buying anything connected with pork production (including, last year, the biggest U.S. pork producer Smithfield Foods for $7 billion) and, thanks also to China, Australian beef exports quintupled in 2013. In other words, food supply to China is going to figure as critically as mineral exports.

China’s enormous appetite for food is the subject of a special section in the World Bank’s latest China update, which showed that between 1980 and 2009 fat intake in China nearly tripled from 34 grams per person to 96g. And this was due to greater consumption of livestock products.

But what the World Bank report does not do is examine the implications of this for fertilizer, and potash and phosphate in particular. The report does mention in passing that “production of livestock-based food requires far greater resources”, but, in essence, what is required is that more grain is produced to feed the animals or better grass is grown. That requires fertilizer, and as the years go on even greater amounts of it.

Some sceptics question just how much grain needs to be produced to help animals develop, but the evidence is impressive. In 1997, researchers at Cornell University estimated that if the grain fed to livestock in the U.S. were be consumed directly by people then it could feed 800 million folks. In 2003 the American Journal of Clinical Nutrition published a study showing that 2 billion people had a meat-based diet, and 4 billion did not, mainly because the latter could not afford it or did not have the resources to raise livestock. (And, of course, more of those people relying now on non-meat food, will make the switch as their living standards rise.) The study showed that U.S.livestock consumes seven times the amount of grain than does the country’s human population. And the Washington-based International Food Policy Research Institute says is takes 8kg of grain to produce 1kg of beef, 2kg for 1 kg of poultry meat.

(This is just not about livestock, though. According to the World Bank Chinese vegetable production is projected to grow from 308 million tons in 2012 to 349 million tonnes in 2020; fruit output will rise from 162 million tons to 193 million tons over the same period. Some of those vegetables and fruit lines will require special fertilizer in the form of sulphate of potash.)

From 1978 to the present day total calorie intake in China has gone up almost 50%, a rise faster than the world average. Calorie consumption per capita in China is about the same as in Japan and South Korea, but still lower than in the U.S. and the European Union. Protein intake has also nearly doubled with 75% of that increase ascribed to consumption of meat.

Producing meat costs. The bank shows that China’s cereal consumption expanded three-fold between 1980 and 2009, two-thirds of that attributed to rising meat production.

You can see why imports into China are growing. Self-sufficiency in grain has dropped from 92% in 2010 to 88% in 2012. China has shifted from being a net exporter of corn to a net importer. In 2012, 6.2 million tons of fresh milk in 2012 and 700,000 tons of meat (pork, beef and mutton) were purchased from abroad. “Growing demand for higher value meat, eggs and dairy products present challenges to the domestic supply of animal feed, in particular feed grains, rising demand for which will pressure China’s overall food demand and supply balance,” says the World Bank report. It predicts that domestic production shortfalls will widen further, particularly as they relate to soybean, corn, edible oils, sugar and dairy products.

For both Chinese farmers, and foreign ones who will be filling the shortfalls in Chinese domestic production, this poses a challenge at a time when increasing urbanisation and dwindling arable land means yields are going to need to rise substantially. As we never tire if pointing out on Investor Intel, all roads will lead back to fertilisers. Eventually.


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Comments

  • vacuum

    The irony of that headline. China is able to utilize thermal coal, and now China is eatting more meat. Whereas in the US ala so-called greenhouse gases, no longer able to utilize thermal coal and now outlawing cattle and ranchers. So yes indeed: meat is the new coal.

    Great article. Maybe good time to add to my potash and phosphate shares this week.

    June 9, 2014 - 5:33 AM

  • Veritas Bob

    Don’t forget China’s aggressive oceanic endeavors, contributing to seafood supply, whether farm-raised or wild-caught. There’s plenty of Chinese food at U.S. dollar stores. Not Szechuan chicken, rather canned fish for a buck. So China is exporting at least some food.

    June 9, 2014 - 6:55 AM

  • hiwayman

    Robin,
    When Andrew Forrest [FMG] met with the Chinese PM Li Kegiang
    recently to propose a 100 year AG partnership between China and
    Australia,Mr Forrest said,’the problem with food to China,is there is
    not enough of it at any cost’….
    ***
    Recent independent analysis…

    Nie Zhenbang, Chinese Agronomist and former Director of the State
    Grain Admin,recently announced that 2013 was a record year for their
    grain production.

    ‘Although the number is huge,it still could not satisfy domestic demand.
    In recent years,China’s food imports have been increasing. Ag imports
    are roughly equivalent to the productive capacity of 47M hectares of
    planted area.’ [47M hectares is 181,468 SQ miles]

    To put this number into perspective,if you could cram together all the
    farmland and pasture it takes to grow food just being -imported-by
    China,the total area of this land mass would be larger than the entire
    state of California.

    Consider that China’s 1.4B people consume around 2,970 Calories
    per day; this means that the Chinese population requires a whopping
    2 Quadrillion calories each year.

    With an average 8M calories per year for an average hectare of land
    ]1 hectare = 2.47 acres],this means that China’s population needs
    over 250 M hectares, or nearly 1M square miles,to sustain itself.

    Between drought conditions,soil pollution and a raging dust bowl, the
    Chinese don’t have anywhere near that much quality land available
    to grow crops and raise livestock.They must look abroad.

    Chief Economist of China’s AG Ministry,Qian Keming, estimates that
    in the coming years,Chinese grain demand will increase by 10M tons
    each year.

    Based on Global average yield of 3.11 metric tons of grain per hectare
    China’s growing grain demand will tie up 12,000 additional square miles
    of farmland…per year!

    Bear in mind that 12,000 sq miles is about the size of the Netherlands,
    just to satisfy China’s growing demand for grain. And all we’re really
    talking about is ‘one country,one food product.’

    This say’s nothing about imports of meat,fruit,nuts,etc.Nor does it
    speak of the growing food demand for literally billions of other people across the developing world.

    ****
    The Chinese Premier Li Keqiang said recently that 7% growth is the
    absolute bottom line that he will tolerate. Perhaps that is why ‘there is
    movement at the station for the word had got around’ 🙂 that ten of
    Australia’s largest aboriginal cattle stations are forming a consortium
    with the ASF group to export Kimberly beef to China.

    China has nothing comparable to Australia’s vast grazing lands and
    as more and more members join this Chinese backed merger from
    other states-watch for unlimited funding pour into our beef industry
    that has languished for years.

    However,scrutiny on foreign ownership legislation is on Canberra’s
    agenda and purchases above $15m will be subject to Joe Hockey’s
    approval.

    At the end of the day Aussies must look after their own food security.
    China is experiencing massive food growth right now and this demand
    is just the tip of iceberg.

    June 19, 2014 - 7:05 AM

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