May 21, 2020


Twin threats of African swine fever and COVID-19 unsettle China's pork market



Even as China slowly reopens its economy following draconian lockdowns to keep the COVID-19 pandemic in check, the persisting threat of the SARS-CoV-2 coronavirus continues to leave its citizenry unease.


Several countries have attempted to resume economic activities in recent days. However, fresh COVID-19 cases that occurred as public life restarted dash any wishful thinking that a pre-pandemic normalcy could return.


For the Chinese pig industry, COVID-19 is a rude shock.


In the weeks after early cases were officially confirmed in Wuhan, China, cities were placed under lockdowns, leading to the closure of restaurants. Since people tend to consume more meat at these places, demand fell as a result, according to Gira, a strategic consultancy and market research firm. China's traditional pork value chain is also affected as wet markets that sell fresh 'hot' pork were shut down.


These developments exacerbate the challenges the pig industry has already been coping with for close to two years after African swine fever (ASF) struck Chinese pig farms in the second half of 2018.


It's the other outbreak that Chinese authorities have yet to halt completely at home - that, together with COVID-19, would rattle China's swine and pork markets in the months to come.


High pork prices and economic woes


Based on government figures, China has lost up to 100 million pigs due to ASF. Up to 60% of its pig population was decimated, with the losses tightening up supply and causing pork prices to rise sharply.


Chinese pork prices stayed high within the consumer price index, a March 10 South China Morning Post (SCMP) article reported. The prices spiked drastically by 135.2% from a year earlier, up from 116% in January.


Additionally, Hong Kong witnessed wholesale pork prices increasing by more than HK$1,000 (US$129) per picul (a traditional Asian unit of weight, defined as "as much as a man can carry on a shoulder-pole") to about HK$4,600 (US$594) as the number of pigs from the Chinese mainland fell by about 20%, SCMP reported on April 13. Industry representatives blamed cumbersome clearance procedures imposed following the ASF outbreak -- and not COVID-19 related measures -- for the shortage.   


High pork prices prove to be a financial benefit for major Chinese producers Muyuan Foodstuff and New Hope Liuhe. Muyuan's pork prices rose 139% to ¥31.38 (US$4.42) per kilogramme in March while New Hope saw profits soared 676% in the January-to-February period. Such uptrends would drive "major investments in large, modern (Chinese) farms", helping to create a pig industry with stronger biosecurity and in which the number of smaller farms dwindles, Richard A. Brown, director of Gira, explained.


How the future would pan out for the fortunes of those companies is another question. Chinese consumers have to bear with the higher cost of pork as both the ASF and COVID-19 outbreaks hamper supply. With China's four decades of uninterrupted economic growth ended at the start of 2020, the country could see an increase in unemployment of youths, including educated individuals expected to expand the Chinese middle-class, according to SCMP. This is likely to impact local pork consumptions with the meat potentially becoming more unaffordable.


In that situation, China would continue to import more pork from overseas (National Hog Farmer reported China's meat -- including nearly 1.2 million tonnes of pork and pork variety meat -- and poultry imports at a volume of 2.18 million tonnes in the first quarter, an 85% increase from last year) as it seeks to stabilise supply and price. But even that lifeline faces serious disruption as more workers at overseas meat plants, particularly in the United States, are infected with the coronavirus, prompting plant shutdowns. Hence, China will see the "toughest time" yet for its pork supply in the second quarter of 2020, said Yang Zhenhai, the head of the Chinese agriculture ministry's animal husbandry bureau.


Beyond the gloomy developments of 2020, is there a silver lining for the Chinese pig industry under siege by the twin threats of ASF and COVID-19?


According to Yang, pork prices may eventually peak in September. Gira believes China could experience a strong recovery in the second half of the year as it appears to be bouncing back from the pandemic.


A positive outcome for the industry would most likely be in the longer term after 2020 when major pork producers consolidate operations within the sector and strengthen its resilience.


For now, as the world begins to learn more about the novel coronavirus, more bumps could lie in wait for China's pork industry before it is out of the woods.