June 17, 2011

China's Ministry of Agriculture (MOA) announced Wednesday (June 15) that it will take measures to stabilise hog production as hog prices have climbed to the highest level since 2008 due to short supply.

Those measures include promoting standardised large-scale hog-raising, boosting technical support for hog farmers and improving hog-disease prevention.

During the second week of June, prices for pork and live hogs increased by 63.6% and 79.1% respectively from the corresponding period of last year, according to the MOA statistics. The national statistics authority's data also shows that hog prices rose 40.4% on-year in May, contributing to 20% of CPI inflation.

With hog price soaring, hog production provinces such as Hubei, Shandong and Jilin have reportedly been swarmed by purchasers coming from other parts of the country. The shortage has been mostly cyclical, as many smaller hog farmers were forced out of the market in mid-2010 after five months of sector-wide losses.

This was further complicated by outbreak of diseases that have prevented a significant rebound in supply despite margins improving in the second half of last year.

The surge in pork price has been a main reason for the acceleration in food price inflation in China last month, and for the next couple of months pork could continue to be the main force driving up food price inflation given that the supply-side constraints are likely to still remain.

Historically, there is quite strong correlation between pork price upswings and consumer price inflation, and, as such, the uptick in pork prices is something that needs to be watched, analysts said.

Nonetheless, it has to be noted that demand-side pressure for inflation has been easing continuously and the base effect will become increasingly favourable, which will help stabilise price levels for the rest of the year, although supply-side shocks could prolong the inflation cycle to a certain extent, analysts added.