Growth of low-cost imports accelerates drop in China’s pork prices

By Zhang Ye Source:Global Times Published: 2016/12/4 20:18:39

Shrinking trough


Pork prices have been rising since April 2015 and reached an historic peak in late June, which agricultural experts claim indicates the existence of a "pork cycle," adding that domestic farmers should boost their supplies. However, domestic stocks have dropped as many farmers have either already given up or plan to stop raising pigs, as they see it as increasingly "risky" as their sector is impacted by increasing imports. Experts have warned of the effect of cheap imports, calling for greater consolidation in the industry.

A man feeds pigs at Ankang, Northwest China's Shaanxi Province in January. Photo: CFP

A man feeds pigs at Ankang, Northwest China's Shaanxi Province in January. Photo: CFP

Rearing pigs in pork-loving China can leave one living high on the hog.

Over the past two years, Li Yunlong has earned around 6 million yuan ($871,700) annually from his stock of 10,000 pigs in his hometown in Longyao, a county in North China's Hebei Province.

Li predicts this year will be another good year for pig farmers as well, thanks to several historically high pork price hikes. He told the Global Times on Wednesday that he will make more than 5 million yuan in 2016.

However such good earnings have not left him with an optimistic vision of the future.

After devoting himself to pork for 12 years, Li senses "bigger-than-ever uncertainties" in China's pig farming industry.

"I am setting out to seek other ventures," Li said.

A few days ago, Cao Zhibo gave up pig rearing for good in Xinle, a county near Shijiazhuang, capital of Hebei.

Cao described raising pigs as "too risky," citing this year's drastic fluctuations in pork prices and growing competition from low-cost imports.

An unusual pork cycle

Pork prices in China have long been volatile.

A review of fluctuating pork prices reveals that there have been several pork cycles over the last 15 years that can be tracked.

Farmers respond to high prices by boosting supplies, and then the expanded numbers of livestock will drag down the prices. Each cycle of price rises and falls usually lasts between two to three years, said experts.

"Now China is undergoing a pork cycle, with the price starting to rise in April 2015. But this time the cycle will end earlier than previous ones," Ma Wenfeng, an analyst with Beijing Orient Agribusiness Consultants, told the Global Times on Thursday.

Domestic spot pork prices have been trending downward since reaching a historical peak of 21.2 yuan per kilogram in late June, according to data from the National Bureau of Statistics (NBS). The figure stood at 16.99 yuan per kilogram on Saturday, down 19.9 percent from the June peak but 0.03 yuan higher from Friday, according to statistics from domestic industry information provider aweb.com.cn.

Both Ma and Li predict that prices will stay at a low level and may reach a nadir in the middle of 2017, indicating that the pork cycle this time will likely last less than two years.

However the current drop is not caused by growth in domestic supply, unlike in previous cycles, noted Ma. 

According to data from the NBS, in the first three quarters of 2016 the number of pigs raised on domestic farms fell 3.4 percent year-on-year to 431.6 million. Meanwhile, both the numbers of pigs and quantity of pork sold were down respectively 3.7 percent and 3.6 percent over the same period in the previous year.

Skyrocketing imports

Li blamed the growth of low-cost pork imports coming into the Chinese market for the new phenomena in the country's pork cycle. 

General Administration of Customs data show that in the first 10 months of 2016, 1.39 million tons of pork were imported to China, an increase of 132.8 percent on the previous year.

"Domestic food processing firms love imported pork, especially that from the US, due to the rather low cost there," Li said.

After completing its takeover of Smithfield - the biggest US hog producer - in  2013, the Hong Kong-listed WH Group announced its acquisition of Clougherty - California's largest pork processor - on November 22, which will enable the Chinese pork giant to further tap into the US' low-cost pork resources.

According to Li's estimates, the cost of raising pigs in China is about 12 yuan per kilogram on average, nearly three times that in the US.

A Zhejiang-based pork importer in East China, surnamed Zhang also attributed the surge in imports to low pork prices abroad. "Another thing boosting the imports is China's strong demand for pork amid the shrinking of domestic supplies," Zhang told the Global Times on Thursday.

The shortage of domestic supplies began when local governments across the country launched campaigns to shut down pig farms, especially small and medium-sized ones during the 2014-15 drive to clamp down on environmental pollution, Zhang said.

China's new Environmental Protection Law, effective from January 2015, called for closing or moving away from residential areas livestock and poultry farms that pollute the environment.

But Zhang pointed out that imports are just a supplement to domestic supply, accounting for a single-digit-percentage of the overall pork market in China.

Industry upgrading needed

If the growth of low-cost pork imports maintains the fast speed recorded this year, it will have a negative impact on the development of China's own pork industry, both Li and Ma said.

"Small and medium-sized domestic pig farms, which account for 60 percent of the market, will be squeezed out before they can grow larger to compete with their low-cost peers from overseas," said Li.

The US Department of Agriculture forecast in October that China, already the world's largest pork producer and consumer, will account for more than a quarter of the global trade in 2017.

In order to avoid over-dependence on pork imports as well as to protect the environment, the central government has pinned its hopes on creating more large-scale operations.

By 2020, China will achieve self-sufficiency in pork production and largely rely on large farms, according to a scheme issued by the Ministry of Agriculture in May.

Large-scale operations are likely to prove to be a cost-efficient method.

"It is a major reason for the low costs of raising pigs in developed countries and regions," said Chen Dacheng, a farmer who has been raising pigs for more than a decade in Xushui, a Hebei county less than a two-hour drive away from Beijing.

"One person can run a whole farm in the US thanks to advanced machinery while in China he has to hire at least three men to cover the same workload," Chen told the Global Times on Saturday.

He noted that a sow raised on US or EU farms can produce 24 piglets a time, while only 16-17 piglets can be reared in China.

Ma predicted that China will not ban pork imports for the sake of protecting the domestic industry.

"As the domestic pig raising industry is not self-reliant, such a ban is of no use and may cause a negative effect, boosting the quantity of non-standard pork smuggled from nearby countries and regions," he said.

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