July 18, 2011

 

China to release pork reserves to tame prices

Aiming to blunt a sharp rise in pork prices, China's Ministry of Commerce said Friday (Jul 15) that it will release some pork reserves onto the market.

 

It also plans to boost stocks from current levels around 200,000 tonnes at a gradual pace, likely so that releases of pork from its reserves will have a greater impact on price levels in future.

 

At the current level, China's pork reserves, set up four years ago, are equivalent to a tiny fraction - about 0.4% - of annual pork consumption of 50 million tonnes, underscoring the difficulties the government faces in using such stockpiles to manage demand.

The moves come after pork prices reached record levels last month, rising 57% from a year earlier and far outpacing a rise in the country's consumer price index of 6.4%, itself the quickest pace of increase in more than three years.

 

Analysts say they expect the contribution to inflation of rising pork prices to be the major factor in keeping price pressures at levels that will likely prompt the government to retain a hawkish monetary policy stance for the second half of the year.

 

Food accounts for about one third of the consumer price basket, of which meat--dominated by pork--comprises a considerable weighting.

 

Taking aim specifically at boosting pork supply, China's Cabinet said Wednesday that it would resume a RMB2.5-billion (US$385-million) investment programme to support large-scale pig farms, and provide a subsidy of RMB100 (US$15) per sow to encourage farmers to support pig production.

 

But the measures may take four to six months to show results, in line with the amount of time it takes to rear a pig for slaughter, analysts say.

 

Using the pork reserve may be a swifter interim measure.

 

The government will release some stocks held by the central and local governments "in a timely fashion," said Yao Jian, the ministry's spokesman. He did not elaborate on the timing or extent of sales from the reserves.

 

A Chinese Academy of Social Sciences report estimated China's pork reserves last year were around 300,000 tonnes, which suggests the stockpile has already significantly dwindled this year.

 

"The pork reserves do not provide a real cushion," when compared with the far larger volume of annual consumption, an academy researcher said.

 

Surging pork prices have also contributed to higher US pork futures, as exporters anticipate increased demand from across the Pacific.

 

Even with its measures to enhance supply, China's hog population is expected to rise about 2% from 453 million head last year, analysts said.

 

Still, the government's latest directives are expected to relieve market pressures in the short term.

 

"We expect pork prices to rise a bit further in July," with pork inflation gaining about 60% on-year, and start to decline in August on the coming rise of pork supply," experts said.