September 17, 2019

China's efforts to contain swine fever outbreak are ineffective, analyst says


China's efforts to combat African swine fever within the country have been described as "ineffective," and could even lead to its inflation rising beyond its target for the first time in close to a decade next year, according to research firm Capital Economics.

In fact, measures by the government to control the fallout from outbreaks will only have a "marginal impact," the company's senior China economist Julian Evans-Pritchard wrote.

"Intervention by China's government to halt the spread of African swine fever (ASF) and mitigate its impact on pork prices is proving ineffective," Evans-Pritchard said. "Inflation will next year rise above the government's target for the first time in nearly a decade as a result."

According to Evans-Pritchard, prices could spike by over 80% by early 2020, compared to the same period in 2018. This development will affect the Chinese consumer price index, and inflation could average 3.5% and peak over 4% next year, he estimated. That's over the 3.0% annual average inflation target set by China's central bank.

In March, China's consumer prices rose 2.3% in August due to rising food prices - a six-month high. In 2018, full-year inflation increased 2.1% - below Beijing's target of 3.0%.

In the meantime, China announced that it would provide subsidies of up to  ¥5 million (US$700,000) that would be used to build large pig farms, thus boosting pork production. Authorities also said they would support large farms that have to be relocated due to environmental concerns, and improve and expand waste treatment facilities.

While, in the short run, China's efforts to control ASF outbreaks will not help much, they could boost production capacity in the medium term, Capital Economics noted. Evans-Pritchard specifically felt that the increased subsidies to consumers and farmers are still "too small" to result in a desirable outcome.

"The strategic pork reserve could be deployed more aggressively but would quickly be depleted as it contains just three to four days' worth of supply," he wrote. "And since China produces and consumes over half the world's pork, it can't rely on overseas supply, at least not without pushing up prices everywhere."