Monday, November 30, 2020

Pig Farms Compete for China's Cropland

Plans to build pig farms on cropland to alleviate China's meat shortage highlight mounting conflicts in a resource-poor food system. Earlier this year pig-farming giant Muyuan Group announced aggressive plans to build 84 industrialized pig farms in 13 counties surrounding its headquarters in Nanyang, a city in the hinterland of Henan Province. The plan stirred up controversy because 55 of the pig farms would be built on 1,000 hectares (2,500 acres) of "permanent cropland" designated by the government for producing grain crops. 

In 2019, Muyuan produced over 10 million swine--making it China's largest pig producer. Its sales of hogs, feeder pigs, and breeding stock reached nearly 12 million head in the first nine months of 2020. Only 6 of Muyuan's 90 branch companies are located in Nanyang, according to the company's semi-annual report. This month, Muyuan announced projects in counties of Anhui, Hubei, and Liaoning Provinces.

In late August, state media's "Voice of China" broadcast called attention to Muyuan's plan to build pig barns and manure pits on cropland. Muyuan and local Nanyang officials took advantage of a December 2019 document issued by the Ministry of Natural Resources and the Ministry of Agriculture and Rural Affairs that loosened prohibitions in China's land law on unauthorized construction or changes in use of "permanent cropland." The December document permitted projects where use of such land is "unavoidable," only if "small" amounts are used, and if the lost land is offset by additions of new parcels of permanent farmland created elsewhere. The broadcast noted that there is wiggle room in the law's implementation. Rural land law experts consulted by Voice of China offered differing opinions on whether using "permanent cropland' for pig farms was a reasonable exception to the strictures on converting cropland to a different use. 

Construction of a Muyuan pig farm on "permanent cropland."

Local Nanyang authorities interpreted the "small" requirement by allowing projects to use no more than 30% of the permanent farmland base. Muyuan Group and Nanyang officials launched the pig farm investment project after the December policy adjustment, keeping the planned use of "permanent farmland" under the 30% cap. 

A year ago--with pork prices up more than 100% from the previous year--rural officials were ordered to prioritize construction of pig farms, with a goal of restoring normal pork production capacity by the end of 2020. Most farms are built by private companies, but they need land tightly controlled by township and village officials. Local leaders were ordered to hasten approval of applications to use village "construction land" for pig farms, but there was no mention of whether cropland could be used. In January 2020, the communist party's "Number 1 Document" called for improvements in rural land use policy and repeated the ambitious goal of restoring normal pork production capacity by year-end.

A completed Muyuan farm.

Another article reported opposition from villagers in Nanyang whose land had been requisitioned for Muyuan pig farms. Farmers complained that the rent was too low and that they had no say in the decision to lease their land to Muyuan. A villager named Yang said he refused to sign the agreement that would lease his entire 5.4-mu (less than an acre) land holding to the pig farm project because he would have no source of food grain and the 800-yuan annual rent is less than he makes growing peanuts and wheat on the land. The reporter claimed that 24 of the 64 families in Yang's village refused to sign the agreement to lease 500 mu of land for a pig farm. According to this article, justification for the Muyuan project was based on its addition of pork supplies, creation of 10,000 jobs, stimulation of activity in other sectors, strengthening of Muyuan's brand, and its potential to burnish Nanyang's image as a prosperous and important city. The city's deputy communist party secretary defended the project.

Group photo in front of Muyuan's headquarters in Nanyang.
The site also features what appears to be a replica of the Louvre.

A Peoples Daily opinion piece appearing several days after the "Voice of China" story condemned the use of "permanent" farmland to build pig farms. The author asserted that Chinese people should not have to sacrifice rice to fill their bowls with pork. A number of online videos warned readers that they may have to choose between going without pork or going without rice.

On November 4, 2020, the State Council issued an "Opinion on preventing 'non-grain-ization' of cultivated land to stabilize grain production." The opinion warned that grain production could be destabilized by planting fruit trees and digging fish ponds on permanent cropland or transferring large parcels of cropland to investors planting non-grain crops. The document forbade construction of structures like greenhouses and livestock facilities on cropland in designated "functional grain-producing areas." Policy has traditionally encouraged use of "waste" land on mountains, gullies or swamps, and land designated for forestry to construct pig farms.

Sign in Nanyang's Xinye County explains that 332.73 hectares of permanent cropland in Nanwang village cannot be used for nonagricultural purposes, cannot be converted to forest, fruit trees, or grass, and cannot be used for fish ponds or livestock farming. The village head is responsible for protecting the land. 

The strictures on construction of greenhouses are surely a response to another abuse of agricultural land use policy two years ago: widespread construction of vacation homes, restaurants and hotels inside greenhouses posing as "vegetable production bases." 

Officials in China have long pretended that the magic of "modernizing" subsistence peasant agriculture could achieve greater production without sacrifices or tradeoffs. In the past, most of China's 700 million pigs were tucked away in small pens and sheds in backyards, courtyards, the ground floor of residences, and strips of unused land on river banks or the edge of fields. Muyuan's industrialized swine farms cannot be tucked away in the nooks and crannies of the countryside.

Another company chopped off the top of a mountain and built a pig farm on top.

National priorities like "food security" and "red lines" on use of farmland inevitably clash with other priorities like alleviating meat shortages. Local interests--like building up the country's biggest pig farming company and promoting the fortunes of a small city--take precedence over dictates from Beijing. Policies crafted in Beijing still need to be negotiated. The hills are still high and the emperor is still pretty far away, illustrating the challenges to imposing "rule by law" in the hinterland.

Sunday, November 22, 2020

Pigs and Poverty Alleviation in China

Muchuan County in Sichuan Province illustrates China's efforts to simultaneously boost the meat supply and fight poverty on the fringes of the Middle Kingdom. A featured prong of China's "precise poverty alleviation" initiative is to recruit companies that boost local specialty industries in the impoverished hinterland. Incorporating poor farmers into modern supply chains that tie "small farmers" into "big markets" is the initiative's core.

A stream of propaganda articles over the years described initiatives to promote swine-farming in a mountainous Leshan region of Sichuan Province as a "precise poverty alleviation" strategy. An article this month recounts construction of giant swine farms in the county by a half-dozen prominent companies and restocking of farms with local government subsidies to achieve the numerical targets for restoring hog production in the counties of Leshan. 

A September article promoted another poverty alleviation strategy by featuring the inspirational story of Wang Yong who was injured in a construction accident, but returned to his village in Muchuan County (a model county for poverty alleviation policies) to escape poverty by taking up pig-raising and growing kiwis and pepper plants. His village communist cadre helped him jump on the poverty alleviation "express train," the propagandists said.

In 2016, the Sichuan feed-producing branch of China's COFCO food conglomerate "married" a pig-farming cooperative in Muchuan County to "precisely eliminate poverty" by supplying farmers with feed and technical advice and giving them a market outlet for their pigs. The core of COFCO's 10-year agreement was to replace the chaotic network of feed traders and retailers with direct supplies of feed through the pig-farming cooperative run by village communist party cadres. The 4-year-old article is still featured on swine industry web sites, presumably under orders to promote the strategy. 

COFCO signs agreement with pig-farming cooperative in 2016.

 Nine years ago, another propaganda blast featured lending by Muchuan County's rural credit cooperatives to support "ecological pig farms." 

In 2018 Muchuan County imposed fines on swill-feeding pig farms to stop the spread of African swine fever, an indication that many pigs were not raised on commercial feed. (The 2000-yuan fine, however, is less than the sale price of a single pig.)

Leshan's leaders set a target of producing 5 million hogs annually within 3-to-5 years. Six privately-owned "dragon head" companies have been recruited to invest 20 billion yuan in 74 projects, including three 10,000-head mega farms, a high-rise pig farming facility, and a network of company-operated breeding farms (COFCO was not mentioned). A network of modest-sized farms are planned for 100-hectare parcels of land designated for forestry use. The projects typically include plans to use pig manure to fertilize fruit trees to justify use of forest land. 

Leshan's Counties refurbished and restocked pig farms that were emptied out last year in a mass-cull of pigs during the ASF epidemic. Restocking efforts included initiatives to build up 1000-head villages composed mostly of small-scale farms.

Stimulative policies in Leshan include 5 million yuan in aid to counties for farm re-stocking, subsidies of up to 200 yuan per head for pigs in several counties, subsidized loans, pig insurance, and unspecified aid for slaughter.

Leshan officials recite statistics showing they have brought in hundreds of thousands of pigs to restock farms. They don't say where these pigs came from. Most of the officially-reported ASF outbreaks this year were reported in shipments of piglets transported to places in southwest China, including two incidents in Leshan.

Company pig breeding farm perched on a hillside elsewhere in southwest China.

Wednesday, November 11, 2020

Covid on Imported Meat Scare Could Worsen China's Shortage

Chinese officials are on alert for transmission of covid-19 via imported meat and seafood. With imports filling a meat shortage of epic proportions this year, testing, disinfection and other precautious could keep meat prices at record highs for a little longer.

Chinese officials stepped up surveillance of imported meat when a worker at the port of Tianjin tested positive for covid-19 on November 8, four days after unloading a shipment of imported frozen meat. The worker was hospitalized and 156 of his coworkers and neighbors were tested (results not released yet).

Officials in China have been on guard against transmission of new covid-19 outbreaks through frozen food most of this year, following covid-19 outbreaks at meat processing plants in exporting countries such as Germany, the United States and Brazil. 

On November 6, local officials in Dezhou, a city in northern Shandong Province, tested a shipment of German pork knuckles and found four samples with weak positive covid test results and 1 positive. The provincial disease control center confirmed the positive results the following day. Twenty-three workers who had contact with the pork shipment and 67 of their close contacts all tested negative for covid-19. Nine out of 63 samples from external packaging were positive, but negative results were found for samples from the pork itself, trucks, external environment, clothing and gloves.

On November 7, officials in Taiyuan, Shanxi Province, discovered covid-19 virus on packaging of frozen fish imported from India which also had been delivered from the Tianjin port. 

Officials in Baoding, Hebei Province, learned that a truck had delivered frozen food purchased in the market in Dezhou where the infected German pork packages were discovered. They found the truck stopped in Baoding's Anguo City for 1 hour, 51 minutes on November 6. The truck delivered frozen fish and chicken. No pork knuckles were on the truck and tests conducted at three seafood shops were all negative. 

A China Agricultural University professor hypothesized that transmission of the virus via frozen food is an objective possibility, and warned everyone to be on guard. Another professor from Zhongshan University warned consumers to buy frozen food only from legal markets and supermarkets and to be wary of products sold by e-commerce vendors.

A feed industry information net analysis warned that pork industry analysts are underestimating the importance of imports in maintaining supplies this year, and suggested that new precautions to prevent covid transmission could tighten supplies of meat. China imported a record 7.4 million metric tons of meat in the first three quarters of 2020, worth $23.1 billion. A Chinese Ministry of Commerce official projected that meat imports for all of 2020 will hit 9.5 mmt. By comparison, China's domestic meat output was 76.5 mmt last year. Imports could account for 10-12 percent of China's meat supply this year.

The analysis ascertained that a 2.23-mmt increase in pork imports have filled most of an estimated national pork deficit of 2.67 mmt in January-September 2020. While officials brag that the swine inventory has recovered to 84 percent of "normal", the analyst points out that the recovery has not yet boosted market supply. Low consumption and strong imports are responsible for the recent decline in pork prices, the analyst surmised.

Officials are calling for extensive testing, inspections, and disinfection of imported frozen food packaging, shipping containers, and trucks, as well as careful record-keeping of shipments to track sources and possible destinations of infected shipments. With China still severely short of animal protein, strict implementation of these measures could exacerbate the shortage, keep consumption low, and keep prices high.

Sunday, November 8, 2020

China's Soybean-Buy Agreement: Embrace of the Titans

China's national grain reserve company signed a soybean purchase agreement last week that exemplifies Xi Jinping's approach to creating an "open" economy: create compliant Chinese behemoths big enough to negotiate deals that neutralize the "unfair" advantage of multinationals. 

On November 6, 2020, China's national grain reserve corporation, Sinograin, signed a soybean purchase framework agreement committing to purchase soybeans from Brazil and Argentina. Suppliers signing the agreement included the so-called "ABCD" grain traders--ADM, Bunge, Cargill, Louis Dreyfus--plus China's COFCO International, ECTP (Engelhart Commodities Trading Partners), state-owned chemical giant Sinochem, and Sinochem-owned Swiss seed/chemical manufacturer Syngenta. 

The announcement of the soybean purchase agreement was a piece of political theater to promote Xi's "opening" initiative. The announcement revealed no details of the agreement. The article's main thrust was to link the deal to Xi Jinping's speech two days earlier at the third Shanghai Import Exhibition where he announced China's role in propelling global trade by granting foreign companies access to its huge market. A Sinograin official promised that the company would engage in deep study of Chairman Xi's important directives issued at the import exhibition and push forward the Chinese government's comprehensive opening policy. 

Sinograin's web site includes one article about the Shanghai import exhibition that printed Xi's speech verbatim in large letters, promised to study and implement the plan, and concluded with a single sentence about the soybean purchase agreement.

Xi's speech at the Shanghai exhibition emphasized that China has entered a new era where its big import market will be the driver of new growth in international trade. The Xi approach to globalization is one of carefully managed trade conducted by a few controllable giant companies beholden to State sponsors making carefully orchestrated deals. It is not the classical liberal approach to free trade where governments set well-defined rules, allow chaotic laissez-faire competition to run amok, and wait to see who comes out on top. 

The soybean deal shows that the players in Xi's vision of open trade are huge multinational companies and state-owned Chinese companies conducting business in conference rooms. A giant Chinese state-owned company--Sinograin--pledged to buy soybeans from four giant multinational grain traders (the ABCDs), and essentially two other giant State-owned Chinese companies--COFCO, Sinochem and Sinochem-owned Syngenta. In the announcement, officials of both Sinograin and Cargill referenced Xi's speech directly and recited buzzwords from the speech about "deepening all-round cooperation," "innovation in foreign trade," "mutual aid," and "common development." A Sinochem official promised that his company and Syngenta would work to maintain China's national food security.

The scene for Xi's new era in grain trade was set by injecting hundreds of billions of dollars into Chinese behemoths to bloat them into a size that puts them on equal footing with multinationals. Sinograin has received unlimited bank loans for years to buy massive amounts of grain that rots in warehouses or bursts into flames when auditors arrive; COFCO was bankrolled to buy up a pair of foreign trading companies so they could source grain in the Black Sea and South America; and Sinochem blew a wad on its purchase of Syngenta, becoming an instant leader in seed and farm chemical R&D. 

Xi's "opening" initiative purportedly promises to treat big foreign companies as friends in making "win-win" deals. But behind the scenes the multinationals are feared and loathed as unfair monopolists who threaten China's interests. A recent example in May 2020 complained that four ABCDs--three of them "American" companies--unfairly control 80 percent of the world's grain trade and warned that the companies threatened China's grain industry. A July 2019 article warned that the ABCDs set grain prices and threaten China's food security. An August article celebrated COFCO's appearance alongside formidable "ABCD" competitors in the Fortune 500 (it appeared in the same publication where the Sinograin soybean purchase agreement was announced). 

Finally, it is surely no accident that the Sinograin soybean purchase agreement did not mention the United States. Xi's speech did not mention the United States by name either, but he took implied swipes at the Americans. Xi insisted that China is willing to work with any country, and he called for countries to show "trust instead of suspicion," "join hands instead of punching," and to "negotiate rather than insult."

Sunday, November 1, 2020

Subsidies Keep Xinjiang Cotton Farms Afloat

China's Xinjiang "Autonomous" Region is the world's biggest cotton-producing region, but its cotton farms depend on billions of dollars in subsidies to keep them viable in what is also one of the world's most remote regions. Depressed cotton prices this year are inflating the subsidy bill, but officials grudgingly pay the tab to support this "pillar" industry, maintain stability on the fringes of the empire, and avoid relying on cotton imports from unfriendly countries.

Rising wages generally spell trouble for production of cotton, one of the most labor-intensive field crops. China's farmers were eager to grow cotton when they were poor in the 1990s, but they have been quick to abandon the crop as wages grew. Cotton production fell in eastern and central regions, and increasingly concentrated in the Xinjiang region bordering central Asian countries where yields are higher, there are fewer alternative crops, and where the government was willing to spend on subsidies to pacify a region vulnerable to unrest.

Cotton production in China's "inland" (内地) regions fell from a peak of 5 million metric tons (mmt) in 2006 to under 1 mmt in 2019. Xinjiang's production grew from 3 mmt to 5 mmt over the same years. By 2019, Xinjiang accounted for 85 percent of China's cotton output, according to the country's National Bureau of Statistics. With China accounting for 22 percent of global output, a little arithmetic shows that Xinjiang produces 19 percent of the world's cotton, yet farmers say the crop is unviable in Xinjiang without generous subsidies. 
Source: Calculations using China National Bureau of Statistics data.
Xinjiang accounted for 85 percent of China's cotton output in 2019.

In August, a Ministry of Commerce researcher wrote in China's Yicai business newspaper that cotton production must be preserved because cotton is a pillar industry in Xinjiang and plays a critical role in preserving social and economic stability. Excessive reliance on cotton imports, the researcher said, would leave China vulnerable to disruptions of import supplies from the United States and India (the two largest exporters). This year, in particular, the researcher said, China's cotton is under pressure from the covid pandemic, summer flooding in southeastern provinces, and U.S. sanctions.

Back in 2011, Chinese authorities tried to stanch the loss of cotton production by launching a "temporary reserve" price floor for cotton, but this proved disastrous. The government ended up buying most of the domestic harvest at the sky-high floor price while allowing textile manufacturers to import cheaper foreign cotton. After three years of piling up expensive cotton reserves, Chinese authorities ditched the floor-price and launched a 3-year trial "target price" subsidy for cotton in 2014. After a second 3-year trial authorities promised a new policy for 2020, but in March the National Development and Reform Commission announced that the target price policy will continue this year with minor tweaks.

The target price program allows the market price to be set by supply and demand. The government gives farmers a deficiency payment when the market price is less than a "target" price calculated to cover production costs plus a "reasonable" profit. The payment is based on the difference between the target and the average market price, thus the subsidy grows bigger as the market price falls. The target price subsidy was limited to farmers in Xinjiang. The payment is distributed to farmers in two tranches--one based on the area of land they plant and the second on the amount of cotton they sell. Xinhua news reported earlier this year that farmers and processors in Xinjiang clamored for continuation of the target price subsidy this year, and farmers insisted they could not cover their costs without it. 

The target price subsidies were fat during the first two years of the program. The market price for cotton plummeted to about 25 percent below the target during the 2014 marketing season, and 33 percent below the target for 2015. Prices rebounded in 2016, but they were still about 15 percent below the target price. China does not reveal much about its cotton subsidies, but information in China's reports on farm subsidies filed with the WTO show the target price subsidies totaled: 
  • 2014: 28.7 billion yuan ($4.65 billion), equal to 22 percent of the crop's value that year. 
  • 2015: 28.0 billion yuan (27 percent of the crop's value--somehow they said the value of the crop went down 30 percent!) 
  • 2016: 15.4 billion yuan ($2.32 billion and 19 percent of crop value) when the market price rebounded. 
These numbers indicate that China spends $2-to-5 billion per year and between one-5th and one-4th of the value of the crop annually on the target price subsidy to maintain cotton production in Xinjiang. China has not reported any agricultural subsidies to the WTO for years since 2016. Prices during 2017-18 indicate subsidies may have been in the $2-to-3 billion range during those years. The drop in market prices during 2019 and 2020 to about 30 percent below the target implies another ballooning of subsidy costs for Chinese cotton to the $4-to-5 billion range.
Source: China Ministry of Agriculture.

The Xinjiang Production and Construction Corps--an archipelago of army-run industrial and farming complexes strung across the region--surely benefits from access to credit from State-run banks, subsidies for machinery, R&D, and land reclamation. The Corps produced over 2 million metric tons of cotton in 2019, 41 percent of the Xinjiang total. The Corps' farms mechanization rate reportedly rose from 69 percent to 82 percent between 2015 and 2019.

Cotton farmers in nine "inland" central and eastern provinces also receive subsidies, but cotton output in those provinces nevertheless fell precipitously. An article in March this year criticized "inland" cotton subsidies for being announced and paid long after the crop was planted, and thus having weaker production incentives than those in Xinjiang. According to the article, the "inland" subsidy began at 2000 yuan per mt and in subsequent years was 60 percent of the Xinjiang subsidy. The article called for inland province subsidies comparable to those given in Xinjiang.

The geographic separation between cotton production into Xinjiang and textile manufacturing in provinces 2,000 miles to the east led to another layer of subsidies for cotton transportation. The subsidy began at 400 yuan per metric ton during 2011-14 and was raised to 500 yuan per metric ton in 2015. In 2016, the Xinjiang cotton transport subsidy was raised to 560-800 yuan, depending on staple length and region. China reported combined totals for transportation and seed subsidies in its WTO filings that indicate the transport subsidies are in the 1-to-2 billion yuan range annually. Adding in these subsidies brought China's total cotton subsidy burden to 24 percent of cotton output value in 2014, 29 percent in 2015, and 21 percent in 2016.  

A 2019 post discussed a third layer of subsidies to support development of textile industry in Xinjiang. A plan in 2014 aimed to create 1 million textile industry jobs in Xinjiang by 2020. 

Last month, China's food and commodity reserves bureau announced a plan to buy 500,000 metric tons of cotton for national reserves from December 1 to March 31 in an apparent move to bolster cotton prices and restock reserves. The purchase price will be adjusted weekly based on market prices, and reserve purchases will be suspended if the domestic price rises 800 yuan/mt above the international price. Futures prices and cash prices for Xinjiang farmers shot up around the National Day holiday due to vigorous demand. Supplies are tight outside Xinjiang due to continued decline in planted area and severe flooding in several cotton provinces. One cotton industry commentary thought the reserve purchase announcement would add to a rally in cotton prices. However, a good crop in Xinjiang due to good weather and a surge of late-harvested cotton helped dissipate the upward momentum in cotton prices. As of September the January 2021 futures contract price was 31 percent below the target price, but the October rally narrowed it to 21 percent. This year's subsidy payout may be reduced by $1-to-2 billion if the price rally can be sustained through the marketing season.
Source: Zhengzhou commodity exchange.

Lack of labor for cotton-picking is a longstanding problem for Xinjiang's cotton farms. According to the Commerce Ministry researcher writing in Yicai, each year 100,000 migrant workers are brought from other Chinese provinces to pick Xinjiang's cotton in September. Mechanization has reduced the need for these migrants (the machinery is also heavily subsidized), but last year a Xinhua article reported that every train arriving in Xinjiang's Aksu--the largest cotton-producing area--during September carried 4000-5000 workers from other parts of China arriving to pick cotton for two months. The prospect of bringing in a massive cotton-picking labor force became a concern when Xinjiang had a surge of covid cases during July and August. 

A recent cotton industry analyst's survey of the Xinjiang harvest observed a noticeable acceleration in adoption of mechanical cotton harvesters motivated by the decline in migrant workers arriving this year--due to the pandemic--and the cost advantage of mechanical pickers. There was no mention of subsidies for the machines, but they surely were a factor. State-run news media were full of articles and videos about cotton-picking machines as harvest season arrived. (A video showing fields in Kashgar dotted with mechanically harvested bales last week available here; demonstration of equipment for Chinese farmers on State TV here does not show automated balers.) Industry data reported that 72 percent of the cotton had been picked as of October 23, five percentage points more than the same time a year earlier, so the pandemic has not slowed the cotton harvest. 

Last week, 138 asymptomatic covid-19 cases were discovered in a single village factory on the outskirts of Kashgar in the western corner of Xinjiang. A lockdown has been put in place, air travel has been suspended, and extensive testing in the surrounding region is underway. Kashgar is one of the top three cotton-producing areas in Xinjiang. There is no indication whether these infections are linked to cotton-picking, but many warehouses in the Kashgar area suspended cotton purchases last week. Outsiders in Kashgar are not required to quarantine nor present nucleic acid test reports. 

Tuesday, October 20, 2020

Stats Bureau Shows Slow Rebuilding of Swine Herd

China's swine inventory was about 14 percent below its pre-African swine fever epidemic level at the end of Q3 2020--about half last year's deficit. With peak pork consumption season coming up in Q4, it will be hard to continue rebuilding swine inventories in the last three months of 2020. 

China's National Bureau of Statistics released macroeconomic data for the third quarter of 2020 that included a swine inventory of 370 million for the quarter's end, 14 percent less than the pre-ASF inventory of 429 million head in Q3 2018. China's swine inventory bottomed out at 307 million in Q3 2019, about 28 percent less than the pre-ASF level. According to the Bureau, the inventory at the end of Q3 was up 9 percent from Q2.

The Ministry of Agriculture reported that the swine herd had been growing steadily at 4 percent since June, faster than the 3 percent monthly growth implied by the Statistics Bureau's numbers. In August, the Ag Ministry reported that the swine inventory was up 31 percent from a year earlier, but the Statistics Bureau's Q3 inventory is 21 percent higher than a year earlier. 
Note: Quarterly data calculated from National Bureau of Statistics.

The Statistics Bureau said the number of sows at the end of Q3 2020 was 38.2 million. The Q3 sow inventory is 4.7 million below the pre-ASF sow inventory of 42.9 million posted at the end of 2017 (the target of "normal production capacity"). Previous numbers indicate China added 2.5 million sows in Q2 and 2 million in Q3. It is unclear how the Bureau can count sows with any degree of accuracy. In August, the agriculture ministry said that 11,123 new "above scale" farms were built this year and 11,800 farms that were emptied last year have been restocked. How can they get an accurate count with so many new farms and millions of backyard farms having exited?
Note: Monthly inventories 2018-19 calculated using Ministry of Agriculture monthly changes; other inventories are from National Bureau of Statistics. Monthly changes in sow numbers have not been reported since October 2019.

The August Ag Ministry report said 26 million piglets were born in August, up 59.5 percent from their low point in January. Yet the price of piglets also peaked in September, up 44 percent from the beginning of the year and double the previous record in June 2016. 
Weekly wholesale market prices reported by China Ministry of Agriculture and Rural Affairs.

National Bureau of Statistics numbers indicate that 110.8 million hogs were slaughtered and pork output was 8.4 mmt in Q3 2020. Pork output in Q3 was lower than in Q2. Pork output in Q3 2020 was up 18 percent from a year earlier but it was 31 percent below "normal" output in Q3 2018.

The Statistics Bureau reported that cumulative pork output for the first three quarters of 2020 totaled 28.4 mmt, down 3.4 mmt from Q1-Q3 2019, and down 10 mmt from Q1-Q3 2018. According to the Ag Ministry, 2.9 mmt of pork was imported January-August, which appears to fill about a third of the supply shortfall. Pork production will have to rise substantially during Q4 2020 just to meet peak seasonal consumption demand in that quarter. 

The Statistics Bureau said overall meat production for Q1-Q3 2020 was down 4.7 percent from a year earlier. Poultry meat output was up 6.5 percent, but beef output was down 1.7 percent and mutton output was down 1.8 percent. Egg output was up 5.1 percent and milk output was up 8.1 percent. 

The Statistics Bureau's CPI report said that a 14-percent increase in the food component accounted for nearly all of the increase in the consumer price index for the first three quarters of 2020. The increase in food prices, in turn, was led by an 82-percent increase in consumer pork prices. In the first two months of 2020 pork prices were 135 percent above year-earlier levels, the Bureau reported. Rising pork prices pulled along increases in consumer prices of beef (17.9 percent), mutton (10.3 percent), chicken (5.8 percent), and duck (4.5 percent), according to the Bureau's report. Egg prices fell 8.7 percent.

Sunday, October 18, 2020

China Pork Industry Recovery in "Key Period"

In one breath, Chinese agricultural officials in Beijing proclaim a robust recovery of the pork sector, and with the next breath they issue urgent orders to their underlings in the provinces to build more pig farms. 

China's agriculture ministry held an October 10, 2020 videoconference where provincial and local officials were admonished not to slack off on implementing hog production support measures as the industry's recovery enters a "key period." Beijing officials explicitly ordered both provincial and local leaders to take seriously their responsibility to expand pork supplies, an indication that engineering a rebound in pork output remains a top "political task" after a year of shrunken pork supplies and record-high prices. 

On October 15, the agriculture ministry's press conference on agricultural markets pronounced that hog production capacity had staged a steady recovery during the third quarter of 2020. Officials praised the smooth operation of the market during the mid-Autumn festival and National Day holidays. Officials predicted a Q4 payoff in expanded pork supply after 11 months of increases in sow inventories with stable and declining pork prices.

National Bureau of Statistics data show that China's average hog price started falling in August 2020. The early October price happened to be about the same as a year earlier, but a year ago prices were climbing rapidly toward a record peak late in October 2019. During October 2020 the hog price is still more than double the level in 2017 and 2018. Last week's agriculture ministry press conference said it is very unlikely pork prices will reach the peak that prevailed in late October last year. 

Similarly, the volume of hogs slaughtered by "above scale" "designated slaughterhouses" reported by the agriculture ministry in September 2020 was about the same as a year ago. Last September the monthly slaughter volume was in free-fall, but the September 2020 volume was an uptick from August. The September 2020 slaughter volume was still 33 percent below the volume in 2018.
Officials speaking at the October videoconference urged provincial and local leaders to implement programs to subsidize and facilitate construction of new farms; payout aid funds to farms asap; set aside land for new pig farms; badger banks to accept pigs, barns and manure tanks as collateral for loans; and ease up on environmental impact assessments of new farms. Officials were instructed to "guide" medium and small-scale farms to restore and expand their swine herds. With officials being urged to build new farms, it would seem the recovery still has a ways to go.