China’s pork prices to hit record level in 2019 due to African swine fever, even as imports surge, report says

Elaine Chan

China’s pork prices will reach a record level by the fourth quarter of 2019 due to the impact of African swine fever on domestic production, even as imports continue to surge, according to a Rabobank report.

Pork prices rose by nearly 30 per cent in June compared with a year earlier, according to the Ministry of Agriculture and Rural Affairs, with the spread of African swine fever showing no sign of abating, causing domestic production to plunge.

“China’s pork and hog prices are likely to break the previous record high in 2016 by the fourth quarter,” said Pan Chenjun, the report’s author and a senior analyst for animal protein at Rabobank.

Prices for other meats, including chicken, are also expected to rise substantially, putting further pressure on the discretionary spending of Chinese consumers.

China’s pork and hog prices are likely to break the previous record high in 2016 by the fourth quarter

Pan Chenjun

Pan forecasts that the wholesale price for pork will reach 30 yuan (US$4.36) per kilogram, while hogs will reach 22 yuan. Wholesale prices for pork in June stood at 21.59 yuan a kilogram.

Pork prices hit record levels three years ago after farmers held back pigs from slaughter to rebuild herds after widespread culling in 2014 when prices were low.

Rabobank projected that China’s 2019 output will slump by 25 per cent, with an additional 10 to 15 per cent decline in both the nation’s herd and its pork production in 2020.

The Dutch bank, in its third-quarter report on pork, said that there will be “more shipments expected in the second half of 2019”, which will add to China’s already surging pork imports in the first half of the year in an attempt to fill the gap created by the falling domestic production.

Pan said that Chinese pork imports were likely to exceed 3 million tonnes in 2019, more than triple the 1.19 million tonnes last year, according to data from the General Administration of Customs. In June, imports soared 62.8 per cent to 160,467 tonnes, bringing the total for the first half of the year to 818,703 tonnes, according to customs data.

Given that China is the world’s largest pork producer and consumer, the devastating impact of African swine fever on pig herds has taken a toll on global markets for pork and related commodities. Its smaller pig population will mean that China will need to import less soybeans for pig feed, compounding the uncertainties surrounding the commodity already created by the US-China trade war.

Rabobank said many pig producers in exporting countries also remain cautious about expanding their production despite a rising global trade, increasing pressure on supply and prices globally in 2020.

To meet its growing protein supply deficit, China has also bought more chicken meat from abroad, albeit under its own strict import restrictions. Imports of frozen chicken meat soared 107.8 per cent to 71,921 tonnes in June compared with a year ago. Increasing demand is expected to push up chicken prices, where a 50 per cent gain in 2019 “would not be surprising”, said Pan.

China began to import more pork in March when domestic wholesale prices started to rise. Imports of US pork – which fell 75 per cent to 1,609 tonnes between July and December 2018 after China retaliated with tariffs in response to US duties on Chinese goods – have rebounded. Since January, imports from the US have more than tripled from 5,788 tonnes to 17,603 tonnes in May.

Since the first African swine fever outbreak in Liaoning province in August 2018, the disease has affected animals across the country, forcing China to cull more than 1.1 million pigs from an estimated herd of 350 million. Photo: AP

US pork imports to China face a 62 per cent tariff, but Bloomberg has cited unnamed sources saying that Beijing has approved duty waivers for some Chinese companies.

Global markets have adjusted to expectations that an agreement to end the trade war is unlikely in the short-term. However, Rabobank thinks the resumption of negotiations between the world’s two largest economies in Shanghai on Tuesday and Wednesday could result in China reviewing its tariffs on US pork imports.

Diseases like African swine fever will continue to negatively affect global animal protein output, according to the Rabobank report. Chinese domestic pork production will take more than five years to recover from the outbreak, due to the challenges of restocking that include a lack of solutions to prevent disease and the need for additional investment to restock herds, it said.

The decline comes at a time when demand for pork and meat from the growing middle class populations in China, India and other emerging economies in Southeast Asia is rising.

Dirk Pfeiffer, a professor of veterinary medicine and life science at City University of Hong Kong, said pig producers eager to capitalise on rising demand for meat and pork by China’s middle class, a result of the “economic success of mainland China”, did not invest properly in infrastructure to protect against disease.

“And how are you going to roll that back now? Pork prices have now gone up, that means many of the people will buy chicken instead. So farmers may increase chicken production, then we may have more bird flu,” Pfeiffer said.

Pork prices have now gone up, that means many of the people will buy chicken instead. So farmers may increase chicken production, then we may have more bird flu

Dirk Pfeiffer

African swine fever will also put downward pressure on middle-class consumer spending, which Beijing is counting on to help boost growth in an economy that is expanding at its slowest pace in nearly three decades. China’s middle class accounts for around 400 million people, or 28.6 per cent of the 1.4 billion population.

Economists at Capital Economics warned that Chinese consumption growth will be weighed down in the near term by consumer price inflation which is set to reach an eight-year high, due in large part to rising pork prices resulting from African swine fever.

“This will drag down real income growth and likely lead to a further deterioration in consumer sentiment,” they said in a report this month.

China’s consumer price index rose 2.7 per cent in June compared to a year-earlier, driven by higher food prices in pork and fruits, according to the National Bureau of Statistics.

Since the first African swine fever outbreak in Liaoning province in August 2018, the disease has affected animals across the country, forcing China to cull more than 1.1 million pigs from an estimated herd of 350 million.

Rabobank pointed out that Chinese data showed that sow, or mother pig, inventory had dropped 26.7 per cent and the number of hogs had fallen 25.8 per cent at the end of June compared with a year ago. But it believes that the herd losses in specific regions are much worse, down by 40 to 60 per cent since last August. For 2019, the bank expects the total herd loss to exceed 50 per cent.

“No one in the world knows what to do exactly, because what we have [in China] is 50 per cent of the [world’s] pig population … and it’s on less than half the space of the country,” added Pfeiffer. “That is such an amount of biomass that there is just no quick fix.”

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