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October 27, 2015

China’s Growing Hunger for Meat

It’s a basic fact throughout human history: As societies become richer, their diets change.
More specifically, the consumption of protein soars – and China is the latest example of this phenomenon.
In 1980, daily calorie consumption in China stood at 2,163. But by 2009, the figure had shot to 3,036, according to World Bank statistics. Over the same period, protein intake per capita nearly doubled.
But it gets even more striking when you look at China’s meat consumption.
Graphic Source: Seeking Alpha
China’s Growing Hunger for Meat
According to a report from PricewaterhouseCoopers, China’s meat intake per capita has quadrupled since 1971. And since 2003 alone, it’s risen by another 25% to 57 kilograms per person annually.
But there’s still room for more growth. This figure would have to grow by another 30% just to reach the same level as Taiwan.
And that growth is well underway. PwC estimates that Chinese meat consumption will rise to 74 kilograms per capita over the next decade.
Most of the meat eaten in China today – about 75% – is pork. The country is the world’s largest pork producer and half the planet’s domestic pig population lives there.
Another roughly 20% of Chinese meat consumption is poultry. But what happens when the Chinese develop a taste for beef?
The PwC study gives an inkling.

An Imminent Scramble for Agricultural Land

In short, an additional 37 million to 50 million acres of agricultural land will be needed. That’s roughly equivalent to the size of Great Britain!
As you might expect, China is already on the hunt for agricultural land overseas to satisfy its growing meat demand.
For example, Australian beef is highly prized, so Chinese buyers are hungrily eyeing up areas of land in Australia that’s for sale by family-owned S. Kidman & Co. The total available is equal to about three-quarters the size of England and has nearly 200,000 cattle grazing on it.
But the Chinese certainly aren’t the only ones that want Aussie beef. A crippling U.S. drought has pushed our domestic herd to 60-year lows, meaning U.S. imports of Australian beef soared by 74% last year and another 55% year-to-date.
It’s not just meat that will benefit from China’s changing diet.

Grains Also to Benefit

Grains are another obvious beneficiary. PwC says China now is highly dependent on imports of both soybeans and corn for its livestock. After all, animals need to eat.
China imports more than 70% of the world’s soybeans and its traditional surplus in corn is disappearing.
As report author Richard Ferguson stated, China’s shifting diet will “have significant ramifications on international trade in agriculture.”
Indeed, if Chinese meat consumption suddenly jumps to Taiwanese levels, the entire corn output of agricultural powerhouses Brazil and Argentina would be required as feed.
There are a number of ways that investors can play this shift in China’s eating habits.

Agricultural Investments

One option is to buy ETFs devoted to grains. There are a number of these from Teucrium that trade on stock exchanges just like a stock.
But my favorite play is from the beaten-up Brazilian market – JBS S.A. (JBSAY).
JBS is the world’s largest meat producer (and therefore protein producer) and beef exporter with operations in 24 countries on five continents. In other words, it has what China wants.
The company is already beginning to benefit from China’s lifting of an embargo on beef imports from Brazil in May, too.
And thanks to Brazil’s troubles, it’s dirt cheap. JBS sells at a forward P/E of only 8.4 and its price-to-sales ratio is only 0.2. That makes it a value play and an interesting way to play China’s growing appetite for meat.
Courtesy of Tim Maverick, Sr. Correspondent at Wall Street Daily (More from Wall Street Daily Here)

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