April 24, 2012

China to buy pork reserves to calm prices

China will begin frozen pork purchases to alleviate the market as dropping pig prices have caused losses for farmers, the National Development and Reform Commission (NDRC) said on Friday (Apr 20).

Zhou Wangjun, deputy chief of the Price Department with the NDRC, said the hog-to-corn price ratio, a major indicator of the sector's profitability, fell to 5.99 to 1 last week due to cyclical fluctuations.

With corn prices an important component of hog feed, a ratio of 6 to 1 represents break-even point for farmers.

The price of pork, the most widely consumed meat in China, has decreased for 11 consecutive weeks, down 13.7% cumulatively since late January, data from the Ministry of Commerce showed last week.

The move comes as part of a plan, which will be soon released by six government departments including the NDRC and the Ministry of Finance, with an aim to ease cyclical fluctuations of hog prices, according to Zhou.

"The plan targets stabilising market expectations and easing the sector's cyclical fluctuations by increasing the capacity of pork reserves," the NDRC deputy chief explained.

It will not only protect the interests of hog farmers, but will also consider the buying ability of low-income people, he added.

The current oversupply on the market may continue for some time, noted Zhou, so farmers should properly adjust production in line with price changes.

Food prices have a one-third weighting in the calculation of China's consumer price index (CPI), the major gauge of inflation, with pork prices being an important component.

The country's volatile hog market has made the government's price control efforts extremely difficult over recent years. Pork prices were the main driver of last year's sky-high CPI figure of 5.4%, well above the government's control target of 4%.