Chinese consumers love pork. In fact, it’s the No. 1 preferred meat by China’s vast population. On a per capita basis, the Chinese eat more than 80 pounds (carcass weight) of pork annually. The country’s Ministry of Data reported record-high pork prices in June, up 62 percent from last year.  Chinese consumers are increasingly questioning whether they will be able to afford to pay for a high price tag on their favorite meat.

China also is the world’s largest pork producer, producing more than 46.205 million metric tons of pork annually, according to USDA’s Foreign Agricultural Service. A 2010 analysis by the Chinese Academy of Social Science showed that pork made up 10 percent of the country’s Consumer Price Index (CPI), making it the largest single component.  Given pork’s high weight in China’s CPI and recent volatile pork prices, it has been a significant driver in China’s inflation data.

According to Tom Orlik of the Wall Street Journal, Chinese pork prices continue to climb as record high production costs mount there much like what’s occurring in the United States. While the Chinese produce a lot of hogs, they do not produce enough corn and often look to the export market—including the U.S. crop-- for feed supplies.

Wang Zhicai, director of animal husbandry under the Chinese Ministry of Agriculture, blames the high pork prices to the surging cost of raising pigs.  “Feed-stuff and corn prices reached 2.18 yuan per kilo on average in the first half of the year, that’s up 10.7 percent from a year ago” Wang commented in a PigSite article.

Another reason why pork prices have been driven higher is because of the growing numbers of Chinese who are improving their standard of living. China’s households are becoming increasingly wealthier, which translates into greater meat demand and more consumers chasing less pork.

The consumer-side of pork isn’t the only aspect for China’s pork prices. China’s farmers are moving out of the countryside and into cities for higher paying jobs.

Estimates are that up to 90 percent of China’s pork is still raised on small-scale commercial operations and backyard farms. The two most important variables for those pork producers are

  • Output, or the price of pork
  • Input, or the price of corn

A pork-to-corn ratio of 6:1 is enough for Chinese hog farmers to break even. The ratio hovered just above 6 in the summer of 2009, and there was little incentive for farmers to breed more pigs.  As a result, sows were removed from the breeding herd and slaughtered. Eighteen months later, the consequence is a shortage of pork and higher prices.  A weekly government report found the current pork-to corn ratio at 8:5, which is up significantly since the beginning of the Chinese year. 

“Although the ratio is above the level required for farmers to break even, it is most likely not high enough to turn sleeping boars into sty Casanovas,” Orlik wrote in the Wall Street Journal article.

Disease issues sometime surface to reduce production as was the case in 2008 when “blue ear disease” or what’s known in the United States as porcine reproductive and respiratory syndrome reduced hog numbers and consequently pork production. Getting accurate reports out of China on such developments is not always easy.

For Mr. Liu, a meat vender from a Beijing supermarket, it’s all about incentives for farmers. “High prices now makes sense, since last year venders were losing 400 to 500 yuan per pig due to too many being reared,” he told the Wall Street Journal. “Personally, although people say it is a high price, I think they need to maintain it. After all, if the price is lowered, no one will want to rear the pigs anymore.”

The final piece of puzzle comes from the Chinese government’s attempts to control high inflation. Industry experts say China’s slaughterhouses have little cash to buy hogs from farmers due to the China’s central bank tightening its grip on credit. By tightening monetary policy to control inflation, China actually reduces the supply or pork, thereby contributing to higher food prices.

Even if a new litter is already on the ground, the pigs won’t be sent to market until the end of the year.  According to Xinhua News Agency, while China’s live-hog price rally is expected to ease after August, hog prices are expected to remain high overall.

“The room for upside in the live-pig prices is expected to be limited, as higher pork prices will suppress the pork demand and encourage an expansion of supply,” Wang Zhicai, director of the stockbreeding department under the ministry, told in Xinhua News Agency.

The question of interest to U.S. producers is whether China will enter into the export market to fill more of it’s pork needs as it did in 2008. That year, tight supplies and increased demand and price inflation prompted the Chinese government to go shopping for pork to keep its people content. In the end, China purchased a record amount of pork from the United States. China ranks about fifth overall in U.S. pork purchases if you combine muscle and variety meats.

China has made a commitment to becoming more self-sufficient in it’s pork production. Wang is urging local governments to provide assistance in addressing the news for finance and land use from the pig-raising industry. Experts will visit villages to pig-raising training to farmers. He also said his department will focus on monitoring pig output and market changes to prevent pig price fluctuations.

Source: Wall Street Journal, ThePigSite, Xinhua News Agency