China acts to curb pork price rises as African swine fever continues to hit supplies

Frank Tang

The Chinese government has stepped in to support pig farmers and consumers in an effort to curb rising prices and supply shortages caused by African swine fever.

The move also ties in with broader efforts to stabilise market sentiment and help consumers who are vulnerable to price and income changes as the trade war with the United States escalates.

Around 29 provinces have already initiated a variety of measures, and have paid out more than 2 billion yuan (US$281 million) in consumer subsidies since April, when prices started to rise as the disease swept across the country.

But these subsidies are not available in all parts of the country, and in many areas they are still relatively low.

The continued rise in pork prices, which hit new highs in recent weeks, has now forced the State Council, the country’s cabinet, to act.

On Friday, the wholesale price of pork, a key consumer product, had increased by 26 per cent from a month earlier, reaching 30.79 yuan per kilogram, according to the data from the agriculture ministry.

In response the State Council decided to validate the pork price subsidy linkage mechanism, which allows local authorities to increase the subsidies on offer in line with rising consumer price inflation.

The central government also said it would do more to increase supply, by taking more effective steps to curb the disease and remove local restrictions on pig farming and transport.

Swine fever is deadly to pigs. Photo: AP

These include measures to boost large-scale production and remove a cap on the size of farms, increase the stockpiling of supplies, allow farms to relocate and accelerate the payment of compensation subsidies.

Analysts generally attribute the price rise to falling domestic production triggered by the outbreak of African swine fever, which was first discovered in August 2018.

The disease is not harmful to human but is deadly for pigs and there is no vaccine.

Transport restrictions and mass culls have been implemented in affected areas as the disease spread across China and to neighbouring countries, with more than a million animals being slaughtered since the start of the outbreak.

China is the world’s largest consumer and producer of pork. In 2017, it consumed 54 million tonnes, about half of the world’s total, and imported about 1.2 million tonnes to meet domestic demand.

Domestic pork production fell by 5.5 per cent year-on-year to 24.7 million tonnes in the first six months of the year, while imports rose by 26.3 per cent to 818,703 tonnes.

With pork supply still collapsing, headline consumer price inflation looks set to climb further in the coming months

Julian Evans-Pritchard

These trends are likely to continue after the domestic stock of pigs fell last month by just under a third compared with the previous year, according to agriculture ministry data.

The outbreak has helped drive up inflation with the consumer price index reaching a 17-month high of 2.8 per cent in July – close to the annual control target of 3 per cent

Pork prices play a major role in calculating the index, contributing 0.59 per cent of last month’s increase.

Julian Evans-Pritchard, a senior China economist at Capital Economics, warned that inflation would be a major headwind for the Chinese economy in the second half of this year.

“With pork supply still collapsing, headline consumer price inflation looks set to climb further in the coming months,” he wrote in a research note.

Beijing regards stabilising pork prices as a vital way of cutting living expenses and curbing social dissatisfaction, especially in the face of the escalating trade war with the United States.

Hours after China announced tariffs on US$75 billion worth American goods on Friday, US President Donald Trump announced further measures targeting Chinese goods worth US$550 billion in total.

The US is a major supplier of soybeans, a key ingredient for the pig farming industry. It exported 31 million metric tonne to China, about one third of the total in 2017, but the number plunged by about half to 16.6 million tonnes last year.

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