August 4, 2010

Floods cut China's pork output; lift prices

China's worst flooding in more than a decade may cut production of pork in the country, boosting prices and hampering government efforts to keep inflation under 3%, analysts said.

China produces about half of its pork. An output decline may support global prices, experts said.

Grains, meat and other food commodities in China increased an average of 6.9% to 7.1% from a year earlier, which may contribute an additional 2.38 percentage points to the Consumer Price Index, according to industry reports.

Pork prices jumped 7.1% on average in July compared with the previous month, and prices will keep rising through the Mid-Autumn Festival at the end of September, the National Development and Reform Commission said.

The gains were partly the result of flooding in southern China in the first half. Prices may climb by a further 10% from September with consumption stepping into peak season between September and February, experts added.

Meanwhile, the country is not going to be short of grains as the government keeps plenty of stockpiles to counter shortages and price spikes, said Ma Wenfeng, analyst at Beijing Orient Agribusiness Consultant Ltd.

"The government can increase volumes of weekly auctions from its stockpiles or make them more frequent, or curb speculation by limiting the buyers to only processing companies," Ma added. "Prices may gain a bit, but it won't be out of control."

The country consumes about 500 million tonnes of grain a year and the government keeps stockpiles equivalent to about 40% of demand to safeguard supply, according to the China Grain Reserves Corp, which stockpiles agriculture products on behalf of the government.