August 18, 2011

 

China's pork reserves sales unlikely to tame prices
 

 

State pork reserves sales in China may have a psychological impact on consumers but the volumes were too limited to curb surging prices, a state-affiliated researcher said.

 

According to the National Bureau of Statistics, pork prices grew 56.7% on-year in July, and have been a major driver of this year's inflationary high at 6.5%. In response to pork price inflation, many city governments have since July introduced pork reserves into the market.

 

But local government pork reserves are limited and pork prices are still reliant on the relations between market supply and demand, said Lan Haitao, a researcher at the National Development and Reform Commission (NDRC).

 

The current surge in pork prices is fuelled by short supply, rising feed costs and wage inflation, Lan added.

 

In Xiamen, the city government released 4-5 tonnes of pork to the market everyday from August 15, accounting only for 2% of the city's total pork consumption, Lan said, adding that the city governments' move was directed at easing public discontent.

 

Based on historical experience, the pork supply will increase after prices soar and as supply rises, prices will fall back, he said.

 

Currently, family farms account for 30% to 40% of China's pork supply. They will exit the market if pork prices are too low. Lan said the central government should not over-stimulate supply, which could lead to a slump in pork prices that would hit small pig farmers.

 

Pork prices are unlikely to fall within the year, while an abrupt downward turn in prices may take place in March or April 2012, Lan predicted.

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