Increasing domestic demand coupled with continuing decline in its domestic herd is leaving China asking “Where’s the beef?” A report by Rabobank (China Beefing up Imports to Supplement Domestic Production) indicates that to cover the supply gap in coming years, China will need to increase beef imports, which are already expected to increase by 15 to 20 percent each year for the next five years.

According to the report, China’s beef cattle inventory has continually declined since 2004 for a variety of reasons, including lack of government support (until recently); low beef cattle production compared with other major beef-producing countries, making China uncompetitive and allowing imports to take up more of the market share; and few Chinese cattle farmers being willing to invest or expand the herd due to a shortage of labor, longer production cycle and higher capital requirements compared to other livestock species. At the same time, beef prices in China have increased more than fivefold since 2004, the report says. Prices have increased in correlation with GPD growth in the country and the domestic supply shortage.

In September 2013, the Chinese government announced a “Guideline for Beef Industry Development Towards 2020” aimed at supporting beef and lamb production and rebuilding the cattle and sheep herds through financial and technological support. The goal, according to Rabobank, is to increase beef output from the current 6.3 million tons to 7.17 million tons in 2014 and 7.86 million tons in 2020. It will support production in the three important agricultural provinces, including Henen, Hebei and Shandong, the western China region and northeast China, which is an emerging region for beef cattle.

This is the first time the Chinese government has provided support to the beef sector at the national level, according to the report. But compared to subsidies for the pork and poultry sectors, the Central Government’s support for beef cattle production is very small and Rabobank says the “jury is still out on whether the new policy can effectively held build up beef cattle production.”

Even with slight recovery of the domestic supply through increased supply of cows and heifers, China will continue to increase its reliance on imports, according to the report. In 2013, import volumes reached 297,000 tons, which is 3.79 that of 2012, with more imports arriving in the country through “gray channels” the report says. Total beef imports will reach 1.7 million tons by 2018 and will account for 20 percent of supply. The report says this will position China to become an even more important destination for global beef in the coming years.

Despite the United States being designated by the World Organization for Animal Health (OIE) as a country with “negligible risk” for BSE, or the lowest risk category, the U.S. does not have access to the market mainland China due to restrictions related to the 2003 case of BSE in the United States. There have been reports that the Chinese market may open for U.S. beef sometime in 2014.