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Impact of Ownership Structure on the Performance of China's Feed Mill Sector, The

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  • Jacinto F. Fabiosa

Abstract

In the decade of the 1990s, China's feed sector became increasingly privatized, more feed mills opened, and the scale of operation expanded. Capacity utilization remained low and multi-ministerial supervision was still prevalent, but the feed mill sector showed a positive performance overall, posting a growth rate of 11 percent per year. Profit margin over sales was within allowable rates set by the government of China at 3 to 5 percent. Financial efficiency improved, with a 20 percent quicker turnover of working capital. Average technical efficiency was 0.805, as more efficient feed mills increasingly gained production shares. This study finds evidence that the increasing privatization explains the improved performance of the commercial feed mill sector. The drivers that shaped the feed mill sector in the 1990s have changed with China's accession to the World Trade Organization. With the new policy regime in place, the study foresees that, assuming an adequate supply of soy meal and an excess capacity in the feed mill sector, it is likely that China will allow corn imports up to the tariff rate quota (TRQ) of 7.2 mmt since the in-quota rate is very low at 1 percent. However, when the TRQ is exceeded, the import duty jumps to a prohibitive out-quota rate of 65 percent. With an import duty for meat of only 10 to 12 percent, China would have a strong incentive to import meat products directly rather than bringing in expensive corn to produce meat domestically. This would be further reinforced if structural transformation in the swine sector would narrow the cost differential between domestic and imported pork.

Suggested Citation

  • Jacinto F. Fabiosa, 2005. "Impact of Ownership Structure on the Performance of China's Feed Mill Sector, The," Food and Agricultural Policy Research Institute (FAPRI) Publications 05-mrp10, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University.
  • Handle: RePEc:ias:fpaper:05-mrp10
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    References listed on IDEAS

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    1. Richard J. Sexton & Terri A. Sexton, 1987. "Cooperatives as Entrants," RAND Journal of Economics, The RAND Corporation, pages 581-595.
    2. Innes, Robert & Sexton, Richard J., 1993. "Customer coalitions, monopoly price discrimination and generic entry deterrence," European Economic Review, Elsevier, vol. 37(8), pages 1569-1597, December.
    3. Hart, Oliver & Moore, John, 1996. "The Governance of Exchanges: Members' Cooperatives versus Outside Ownership," Oxford Review of Economic Policy, Oxford University Press, pages 53-69.
    4. Federico Etro, 2008. "Stackelberg Competition with Endogenous Entry," Economic Journal, Royal Economic Society, vol. 118(532), pages 1670-1697, October.
    5. Federico Etro, 2006. "Aggressive leaders," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 146-154, March.
    6. Federico Etro, 2014. "The Theory Of Endogenous Market Structures," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 804-830, December.
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    Keywords

    China; feed mill sector; privatization; trade.;

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