Improving Chinese soybean meal demand estimation by addressing the non-commercial : Commercial feed gap

Purpose – Two effects simultaneously shape the future soybean meal (SBM) demand in China: the income effect on meat consumption and the transition effect due to commercial feed usage in animal production. The income effect has been studied intensively in previous research and results in rapidly growing animal product consumption. The commercial feed transition effect, however, is not well understood. The accurate forecast of SBM demand requires an integration of both effects. This study aims to contribute to the commodity forecast literature: by estimating the non-commercial to commercial feed effect and then comparing to the income effect. Design/methodology/approach – This research addresses the gap in the literature by considering the diffusion path of commercial feeding technology when forecasting China's future SBM demand. The paper addresses the following five objectives to accomplish this goal. Objective 1: estimate income elasticity of demand for meat; Objective 2: estimate the current commercial feeding gap; Objective 3: analyze the reasons for low SBM feeding ratios; Objective 4: estimate future SBM feeding ratios; Objective 5: forecast future soybean demand in China. Findings – China needs 33 years from 2009 to achieve the SBM feeding ratio of 98 percent. The difference in future derived demand for SBM mainly comes from the transition effect of animal production industry in China. The income effect only contributes on average 2.1 percent of the theoretical SBM consumption quantity over the next 20 years. The feeding technology diffusion effect, however, causes an additional 3.6 percent annual compound growth rate on the demand increase for SBM over the same time periods. The livestock industry's transition effect is roughly equivalent to 1.5 times the income effect. Practical implications – Policy makers, industry managers, and analysts will now have not only a more accurate estimate of future SBM demand, but also a better understanding of the structural components of that estimation. In particular, the role of commercial feed adoption is explicitly estimated. Originality/value – This research is the first to estimate the effect of the shift from non-commercial to commercial feeding systems on overall SBM demand. The results show that not accounting for the diffusion of new commercial feeding technology creates under the estimates of future SBM demand.