August 16, 2023

 

China's pork consumption rests on unpredictable economy

 

Last April, pork consumption in China recovered steadily.

 

However, due to the availability of finishing pigs and weak demand, pork prices fell by 3.8% from March 2023, contributing to a low consumer price index (CPI).

 

Based on data compiled by the Ministry of Agriculture and Rural Affairs, the average weekly pork demand in April was 9,311.50 tonnes, a 6.78% increase from last March's 8,769.25 tonnes.

 

Still, consumption exceeded the figures from the weekly data during the 2020-2022 period. This means, despite the low CPI and pork experiencing a 3.8% on-month dip in prices in April, pork consumption actually increased.

 

Nevertheless, should China's economy sees further decline, the consumption of agricultural and livestock products could dwindle in the long run. Shrinking investments, sluggish manufacturing and declining exports will lead to falling employment and lower wages. Consequentially, consumption in the food and beverage market will drop.

 

An economic downturn will also lead to falling farming costs, including the price of feed ingredients. The price of soybean is sensitive to international supply and demand, whereas those of wheat and corn are affected by the domestic market. If feed prices and pig farming costs drop sharply, lower pork prices could stimulate the demand for pork.

 

Following an African swine fever outbreak in 2019, Chinese pig prices plunged rapidly before rallying ferociously thereafter.

 

According to data jointly released by five government departments last February, there were 43.43 million fertile sows, a 0.6% drop from the previous month but a year-on-year increase of 1.7% — equivalent to 105.9% of the normal stock levels. Although 105.9% seems modest, the increase is multiplied when considering the rapid market consolidation during the pandemic. During the period, small and medium farms closed and the market share of integrators and large farms grew. This has raised the production efficiency of the Chinese pig industry. Hence, pork production is higher than expected and cannot be easily projected in an accurate manner. This has resulted in fluctuating pig and pork prices.

 

Excessive volatility of pig and pork prices caused by supply issues has been the most important factor affecting pork consumption in recent years. Pork prices fall sharply as consumption increases; this results in rallying pork prices and consumption beginning to drop.

 

Indeed, if China enters an economic recession, the negative impact on pork consumption will be significant.

 

- David Lin, eFeedLink