September 12, 2019

China fights to maintain pork supply through local, overseas channels


A potent combination of African swine fever and a trade war with the United States is tightening up China's pork supply - and with upcoming holidays in the country, the Chinese government is tapping into its frozen pork reserves to slow down rising prices.

China's pig herd, according to Reuters, had declined by a third in July, leading to a drastic spike of 47% for August pork prices based on Chinese food price data as of September 10. Since July, pork prices have doubled to "record highs of 30 yuan (US$4.20) to 33 yuan (US$4.64), surpassing analyst expectations," a South China Morning Post article highlighted.

Pork prices would eventually rise by 70% by the end of this year, based on a projection by China's Ministry of Agriculture and Rural Affairs.

The situation has prompted Chinese authorities to release stocks from national pork reserves, which totaled at around 990,000 tonnes of frozen pork, according to an analyst at China Merchant Securities. As an example, the provincial government of Hainan has been getting frozen pork into the market since August 28 and could release 1.520kg of the meat before September 12.  

But, using Chinese pork reserves to make up for a shortfall (and thus, keeping prices down) could potentially wipe up significant portions of those backups. China would still see a shortfall of around six million tonnes after accounting for the world's pork and its entire frozen reserves to stabilise its supply.

As a result, current complexities further pressure China to alleviate constraints of its pork supply through both local and overseas channels.

Locally, Chinese Premier Li Keqiang had ordered authorities to cease demolishing small pig farms, which have been the most vulnerable sites to an ASF outbreak and helped account for 40% of China's output (around 280 million pigs a year), based on 2016 figures provided by Rabobank. Li also instructed local governments to provide subsidies to large pig farms to increase the number of live hogs.

Those measures could reverse a 2016 policy which kept pig breeding to just big farms in eight southern Chinese provinces, while also shutting down more than 150,000 smaller farms to boost efficiency and environment protection.

Still, the ostensible show of support for small pig farms - the Chinese government now wants restrictions on small-scale rural pig farming to be lifted - may not be enough to convince pig farmers, who have left the business, to return.

At a time when a major pig farm with supposedly stronger biosecurity can be struck by ASF (a case in point: an outbreak at a 73,654-pig facility of Heilongjiang Asia-Europe Animal Husbandry Company reported early this year), prospects look dire for small farms which had struggled with poor profitability, unreliable support from authorities, restrictions on transporting pigs, and the challenges of keeping farms disease-free.  

Worse, reintroducing small farms into the Chinese swine industry could feed into a vicious cycle,  complicating even more China's efforts to keep animal diseases under control.

Without proper and adequate aid from the authorities, small farms without a strong biosecurity protocol are increasingly likely to become another location of an ASF outbreak. Dovetail this development with the rampant underreporting of outbreaks and swine deaths from both farmers and local authorities (the latter fears political backlash for reporting outbreaks), and the Chinese swine industry could retrograde by another couple of years if the current ASF crisis proves to be far more overwhelming.

Should such a scenario materialise, expect a serious delay to a full recovery of China's swine sector as well as the country's aspiration to massively industrialise production within that industry.

China looks to other countries for pork

Meanwhile, the US Meat Export Federation (USMEF) claimed in its recent report that US pork exports to both China and Hong Kong "contributed significantly to the July volume and value records" despite Chinese tariffs.
"Exports to the (China and Hong Kong) were a record 68,657 tonnes in July, more than tripling from a year ago, while value climbed 173% to a record US$152.5 million," the USMEF stated. "For January through July, exports to China/Hong Kong were up 23% in volume (292,666 tonnes) and 3% in value (US$580.3 million)."
However, while the uptrend may indicate China's desperation to maintain its pork supply, the US is hardly the sole factor for a Chinese pork deficit. As eFeedLink previously highlighted, a 125 million head drop in China's hog inventories amounts to the combined numbers of the US, Canada, and Brazil.


Moreover, the country's overall pork imports rose by only 12% year-on-year in the first seven months of 2019, Pan Chenjun, a Rabobank analyst, said.


China's supply woes are also exacerbated by an ongoing suspension of the import of Canadian pork and beef - a move by the Chinese government purportedly to strike back at Canada for the arrest of a top Huawei executive.


The diplomatic deadlock between both nations is costing Canada's pork sector close to $100 million and threatening local jobs, the Canadian Pork Council said. The council warned of a loss of competitive advantage for the sector even after the suspension is lifted, and subtly hinted at political ramifications within Canada. 


"We call on all parties ahead of the upcoming election to articulate how they see this [issue] being resolved. The longer Canadian producers and exporters remain pawns in a political stand-off - the more the threat of job losses will be felt. The red meat sector represents 266,000 jobs from farm to fork," the council added.


But, with Canadian Prime Minister Justin Trudeau's latest criticism of China's detention of two Canadian citizens, a resolution that would lead to the lifting of the import suspension is not likely to come anytime soon.


As of now, China is turning to other countries - which include Denmark and Brazil - for the import of pork. On September 10, the country has approved 25 Brazilian meat plants to a list of exporters, bringing the total to 89. Portuguese pork exports were also approved earlier this year, said Feng Yonghui, chief analyst at pig industry news portal Furthermore, smaller European countries, like Finland and Sweden, may in the future become pork suppliers to China, Feng added.


With the US and Canada's losing competitive advantage in China's pork market, other nations could easily court Chinese interests. However, this does not happen without any consequence; given China's gargantuan appetite for pork, countries that raise exports to the country could induce rising prices at home, Feng noted.


Nevertheless, should China overcome such trade hurdles, it would still be difficult for analysts to produce a positive outlook regarding a resolution of the country's near-perpetual crisis of its pork supply.


Indeed, long-running problems within the Chinese livestock industry - as identified in a July 25 eFeedLink report (/contents/07-25-2019/48e4c3ec-05b7-4e47-b886-4a2cbcba82bb-1003.html) - coupled with potential missteps made by the Chinese government down the road, is making the future of China's pork sector manifestly uncertain.