For the purposes of discussion, three categories of cattle producers can be identified; unspecialised households (small cow-calf households); specialised households (mainly fattening); and feedlots.

Unspecialised households raise cattle on a small scale and are diversified across a range of agricultural and off-farm activities.⁵ In 2013, there were 11.8 million households that turned off 1-9 head per year in China that still dominate the cattle production sector in terms the number of producers and proportion of cattle turned off.

Unspecialised households in agricultural areas commonly hold one to several cows, fed on crop by-products in cut and carry systems or grazed on collective areas and roadsides and supplemented with a few handfuls of grain. Calves are held and raised for variable periods. In the past they have been kept for long periods for draught or fattening (in “mixed systems”, but the turnoff age is becoming increasingly short, as farmers no longer need cattle for draught, and do not have the technical efficiencies or incentives to fatten cattle efficiently or profitably. Calves are therefore sold off to more specialised fattening (sometime intermediate / backgrounding) households, in a process of household specialisation.
A comprehensive economic analysis of unspecialised cow-calf production systems in China is provided in Longworth et al. (2001, Chapter 5) and Waldron (2009, Chapter 9). The farm budgeting done in 1998 indicates that unspecialised cow–calf production decreased net returns because revenues (from calf sales, culled cows, draught and manure) were lower than costs (especially feed and labour). With changes to the production system in the 2000s (e.g. three cows, higher calving and growth rates and sale of calves at 12 months old), the efficiency of the system improved substantially. However, households in most parts of the Central Plains have increased access to off-farm work and if opportunity costs of labour are included in budgets, then net returns are even lower than in 1998. Monitoring by the Chinese Academy of Agricultural Sciences of 750 farmers in 9 provinces found that costs of small-scale cattle production increased 7% in 2010-2011, and 15% in 2011-12.

Specialised households. There were 440,000 in China that turn off between 10 and 100 cattle per year, making up a significant and increasing percentage of China’s cattle production. The vast majority of cattle producers in this category are fattening households in cropping areas, but include a proportion of cow-calf producers in more extensive grazing (pastoral and semi-pastoral areas) areas.

Many hundreds of thousands of households leave the unspecialised cattle production sector every year, but tens of thousands have mobilised to become specialised fattening operations in agricultural areas. Specialised household fattening can sometimes be a step toward moving into cattle trading in flexible, speculative, entrepreneurial operations. There are also many cases where cattle fattening households moved off-farm into cattle slaughter and beef trading operations in family and group networks. Household specialisation is also nearly a pre-requisite to participation in group production (cooperative, association) and marketing systems (including contracts).

Budgeting of household fattening systems in Longworth et al. (2001, Chapter 5) and Waldron (2009, Chapter 9) showed several trends and sensitivities. First, with household specialisation in the Central Plains, the age at which feeders entered feeding households reduced substantially over the 2000s (i.e. from 12 to 24 months in some areas). As could be expected, higher growth rates on feed (with better breeding, feeds and management) have a large impact on profitability. Feed prices obviously impacted on profitability, but not as much as the relative prices between inputs (feeder cattle) and outputs (finished cattle). Entrepreneurial households skilled at trading and speculative (rather fixed regime) feeding tend to be most successful in the business, and play an important role in integrating cattle markets. Fixed supply arrangements with abattoirs that offer price premiums for cattle produced to specification are, on paper, attractive to specialised household.

Feedlots. Cattle feedlots are common throughout China, and account for a minor proportion of cattle turnoff, but feedlot numbers have increased substantially in recent years. Feedlots in China with a turnoff of more than 1,000 head (so on a 120 day feed regime could have a capacity as low as 250 head) increased from 200 in 2010 to 1,085 in 2013; feedlot numbers in the in the next category down (500–999 head) increased from 1,000 in 2010 to 3,500 in 2013; and feedlots in the next category (100–499 head) increased from 10,000 in 2010 to 27,100 in 2013 (china Livestock Yearbook, 2014). While these feedlots together turned off only 7% of China’s cattle in 2010, this number is likely to have trebled by 2013 (although data on turnoff numbers has been discontinued).

Like specialised households, the profitability of feedlots is sensitive to technical levels and feeder/finished cattle price alignments. Feedlots have higher scale and technical efficiencies and lower transaction costs, but can have higher input costs (feed, labour), capital costs and overheads. Feedlots have high incentives to buy good value feeder cattle, which means that large numbers of cattle are transported long distances, and that regional cattle markets are closely integrated, although large feedlots routinely struggle to source sufficient cattle at viable prices. An improving alignment between beef and feed prices in recent years (see Figure 9 for corn) has also favoured expansion of the feedlot sector.

Cow-calf production. There are several types of cow-calf producers in China.

• In cropping areas, the scale category of 1-9 head refers mainly – but certainly not exclusively – to cow-calf households. However, as discussed above, this sector is contracting and producers have diminishing incentives to engage in small-scale cattle production, which could be expected to continue with generational change.
• In more extensive grazing systems (e.g. North and South Western China) farmers hold larger herds of cows and may fall in to the 10-100 head range. However, cattle are not well adapted or widely grazed in temperate grasslands (more suited to sheep and goats) or high altitude pastures (yak and dzo). In any event, China’s grasslands are already degraded and over-stocked, and cannot sustain significant increases in numbers (although policy-makers are promoting pen-feeding in grassland areas).
• Some state farms hold sizeable breeding herds, especially for genetic improvement and dissemination. However, the vast majority of state (and PCC) farms have been liberalised so that households on the farms make their own enterprise choices.
• Another source of feeders are males and culled cows from dairy cattle systems. China has 14 million dairy cattle, and produced 2 million male dairy cattle in 2012. There are reports that some many feedlots and some abattoirs rely heavily on dairy steers for inputs (including in Shandong and Beijing). Dairy culls decreased as dairies rebuilt up herds after the melamine incident of 2008, but increased with low milk prices in 2014/15.

Thus, there are only a limited number of categories of cow-calf producers, and all of these face limits in their capacity to expand. That is, China appears to have few under-utilised resources that could sustain or expand the cow-calf sector, and few sources of comparative advantage on an international level. There are concerns in China about the contraction of the cow-calf sector in central China, raising the question of who will produce China’s cows and calves into the future.

Rationalisation and commercialisation. Shandong Province in the Central Plains zone provides a clear illustration of industry commercialisation in an intensive cattle production area. With once the biggest cattle herd in China, it has declined to sixth, although the bovine herd has stabilised at around 5 million head and the province remains the second biggest beef producer (after neighbouring Henan). Once a major cow-calf production area, the province is increasingly importing feeder cattle from other provinces for feeding and slaughter to service provincial and nearby (e.g. Beijing) markets, as reflected in a turnoff rate of 89% and relatively heavy average carcass weights of 153kgs.

Scale of production data (China Livestock Yearbook, various years) reports the proportion of beef cattle turned off through farms or feedlots that fall into different scale categories. Extrapolation of data suggests that in Shandong, households that turn off 1-9 head per year was only 34% in 2013, a large reduction from 72% in 2005 (Figure 7). As discussed above, growth has occurred in larger feeding households and feedlots.

Figure 7. Scale of cattle production in Shandong Province, 2005-2013

Source: China Livestock Yearbook various years

⁵ The Ministry of Agriculture formally defines specialised households as those that devote 60% of their resources toward a particular activity, but in although in practice output volumes (in the case of cattle, in stock or turnoff) is used.