24 March 2021 - China’s increasingly stringent environmental policies are pushing feed additive production costs and prices higher as the sector struggles to keep up with the new emission targets.
As part of China’s 14th five-year plan announced during the National Congress Meeting (also known as “two sessions”) held in early March, Beijing said the country will reduce energy consumption and carbon dioxide emissions per unit of GDP by 13.5% and 18% respectively in 2021-2025. In addition, the total emissions of main pollutants will also be reduced, but no detail was provided.
“The ‘two sessions’ put forward key developments [in China], which will incline towards healthy developments in the future,” said one Chinese amino acid producer.
China produces the majority of the world’s vitamins and amino acids, and the new emission targets are set to hit production costs and volume.
The Chinese government started to roll out its “green development” or anti-pollution campaign as early as 2015, with many draconian environmental reforms implemented across most of its industrial operations. Beijing said this trend will continue in its plan to achieve clean air and blue skies.
China has routinely restricted industrial operations in winter to combat air pollution, particularly in densely populated provinces, because the country experiences severe smog as coal-fired power plants ramp up to provide heating in the colder season.
Sparsely populated regions such as Inner Mongolia have in the past escaped the intense environmental scrutiny imposed on other more economically developed provinces, but the Chinese government’s latest emission targets have renewed attention on the region.
As part of China’s plan to cut emissions, the Inner Mongolia provincial government announced on 9 February that it would implement policies to cap energy use by all industries, and imposed levies on industries with excess capacity, including steel, aluminium, ferroalloys, cement production, etc. The policy was designed to promote energy-saving and emission cuts in energy-intensive industries.
Feed additives production was not mentioned, but producers said this will still have an impact on their plants as the government restricts energy consumption across all industries.
Under the policy, the Inner Mongolia government will hike power tariffs this year for restricted industries by 30%, while sectors with excess capacities fall into the “elimination category” and will have a 50% increase.
Inner Mongolia has not issued specific targets for amino acid producers and many are evaluating the impact this will have on production.
"To meet these targets, electricity consumption will be limited, and output will definitely be impacted. Our plants are still evaluating the impact. This policy has just been implemented, from top to bottom the various units will pay special attention to it," said a second Chinese amino acid producer in mid-March.
All producers said these emission targets would have an impact on amino acids production in Inner Mongolia, but "it will depend on the local government on what kind of emission standards will be set, it's uncertain," said a third Chinese producer.
Threonine
Threonine is set to be the most severely impacted of the amino acids, as three of the world’s largest threonine producers – Meihua, Fufeng and Eppen – are operating in the region. For more information on operating rates and production volumes, please see Feedinfo’s analytical tool Delphi.
Lysine
Chinese producer Eppen operates lysine production in Chifeng, Inner Mongolia, while East Hope operates in Baotou.
Valine
Meihua, Eppen and Huaheng Biotechnology operate plants in the region.
Rising environmental standards and production costs
Feed additive production costs have been rising over the past few years; one vitamin producer said that environmental, health and safety costs have more than doubled.
Unlike the early days of development after China opened its doors in 1978, the country will no longer sacrifice its environmental standards to achieve economic growth.
Beijing’s draconian implementation of its environmental policy over the past five years has also cleaned up corruption in local government. This has raised environmental standards in the Chinese feed additive sector.
“Environmental protection is very [strictly enforced], and there is coercion from the government; no one will dare take your money ... the government officials are scared of [industrial] incidents,” said a second vitamin producer.
Government officials regularly invite companies that breach environmental rules for “chats”, which is a warning to these companies to comply with the regulations. Many industry participants said “invitations to chats” by government officials are a sign of trouble.
“Invitation to chats a few more times are invitations to jail,” said the vitamin producer.
