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| Factors Affecting China's Veterinary Medicine Industry in 2008 |
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A few years ago, some experts predicted that there would be less than 600 veterinary medicine manufacturers that could pass GMP (Good Manufacturing Practice) certification in China. The reality is, by August 2007, there were about 1380 vet medicine manufacturers that had passed GMP certification in China, and another 200 manufacturers are currently being established. There have been about 1805 GMP certifications grants so far, with Shandong, Hebei, Jiangsu, Henan and Sichuan being the top five provinces in terms of number of GMP certifications.
However, most of the manufacturing plants were established or re-constructed in the last three years, and their planned capacities are far exceeding market demand. As a result, many manufacturers are operating below full capacity, or even in a semi-production halt.
The Chinese vet medicine market currently exhibits the following characteristics:
· Product homogenization, lack of R & D capabilities;
· Marketing homogenization, low innovative capability;
· Unregulated markets, disorderly competition
· An industry in a transitory state, frequent introduction of new policies
· Overheated and uncontrolled development of distributors
The macro economic factors
While China's GDP growth is expected to slow down to 9-10% in 2008, overall economic performance should remain benign. The government is contemplating salary increases for public servants and state-owned enterprise employees, so this could potentially stimulate more consumption growth, including consumption of meat, eggs and dairy products.
Impact from new legislations on the industry
China began to implement its new Employment Contract Law since January 2008. This legislation aims to improve the protection of employees, so this may increase the compliance costs of some vet medicine manufacturers. On the other hand, the new income tax rules, which also came into effect this year, explicitly grant income tax exemption to most livestock and poultry companies. In addition, the newly introduced Animal Epidemic Prevention Law will also affect the animal husbandry industry in China.
Industry segment trends
The overall trend of the animal husbandry industry in 2008 is predicted to be steadily upwards, with a mixed outlook for individual segments. |
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The pork industry in China should improve in 2008, due to three major reasons. The first reason is the current pork supply shortage. The second is the sows-breeding subsidy introduced in 2007. The third factor is that pork price is now at a historical high level in China, with a record live hog to corn price ratio of 1:8. All these factors could stimulate the development of the pork industry.
Despite small volatility in the chicken market, the poultry industry as a whole is expected to be steady in 2008. While the egg-producing poultry market can be expected to remain stable, poultrys for food purpose would be harder to predict, due to their shorter growing cycle and quicker response to market changes.
Grazer livestock breeding activities will see some recovery, but not a lot. Although people's demand for milk and lamb is increasing year by year, it will need some years for the supply side to respond significantly.
Niche animals breeding, such as fax, rabbits and snails, will remain at the bottom. Historically, demand for niche animals were driven by fad and fashion, instead of sustainable demands. Only when real demands increase, niche animals breeding can then be genuinely viable.
Regulatory monitoring
Regulatory monitoring on the livestock industry will be tougher in 2008. It has become a trend in recent years that the government measures placed on the human medicine industry will eventually be extended to the vet medicine industry. In 2007, the regulator issued updated requirements on medicine names, labelling and product database for the human medicine industry. So it shouldn't be surprising to see similar requirements being placed on vet medicines in 2008.
Another possibility is that the number of GMP certified vet manufacturers may already have exceeded the authority's expectation. So it is possible that industry access threshold may become higher for new industry participants in 2008.
Other factors
Corn is a major ingredient used in stockfeed products, and corn prices have been on the rise in recent years. Judging from corn futures prices, there is little chance for corn prices to go down significantly, which means that the direction for the already-high corn prices will be anywhere but down.
Also in recent years, animal epidemics, such as bird flu and pig blue-ear disease, have caused significant damage to the while livestock industry in China. It has been widely accepted that the large number of animal epidemics and control difficulties have pushed up operating costs in the livestock industry.
Therefore in 2008, stockfeed prices are unlikely to go down, so are animal diseases.
Source: www.21food.cn
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