June 18, 2007

China's high pork prices boost farmers' incomes

Exorbitant pork prices which pushed China's inflation rate in its highest in more than two years will ironically benefit farmers as it will boost incomes and reduce dependence on exports.

Pork prices surged 26.5 percent in May from a year earlier because of a pig shortage due to increased grain prices.

Premier Wen Jiabao has pledged incentives to farmers to boost the supply of pork, a staple food for the nation of 1.3 billion people this year.

Mark Williams, Asia economist at Capital Economics Ltd in London said the increased pork prices is welcome news since clear beneficiaries of the price hike are the Chinese farmers, particularly those growing grain or producing meats that consumers are switching to as an alternative to pork.

An increase in rural incomes may boost consumer spending and cut the size of the country's record trade surplus, easing tensions with the US and Europe. A decreased reliance on exports and investment may lead to more stable growth in the world's fourth-biggest economy.

Pork prices rose in the world's biggest consumer of the meat after the number of live hogs fell 1.8 percent last year to 494 million. The May hog inventory was down 7.1 percent from a year earlier, the government said on Tuesday. Pig farmers had slashed production as higher prices for corn for feed eroded profits. Global grain prices surged last year because of increased demand for making alternative fuels, including ethanol and biodiesel.