Sunday, December 14, 2008

More Hogs, Bigger Farms

In 2007 China’s hog supply was in a severe shortage situation and pork prices soared by about 50%. One of the key policies the government introduced was financial support for breeding sows. Apparently, the policy worked. According to an article from the China Animal Husbandry and Veterinary net, NBS data say the third quarter 2008 inventory of breeding sows was up 12.4% year-on-year. The inventory of all hogs was up 6.6% and hog slaughter was up 5.8%.

There has also been an increase in the scale of hog farms. Traditionally, hog production has taken place on a very small scale in a “hog in every home” pattern. This year it is estimated that farms slaughtering 50 or more head account for over 70% of production. In past years, the share was reversed—about 70% came from “backyard” farms. The number of farms slaughtering 50 or more hogs is targeted to reach 50% of the total production nationally by the end of the year.

The government at the central and local level is implementing all kinds of policies to encourage commercial standardized hog production on a larger scale using unified standards, and “ecological” approaches that collect the waste and turn it into methane gas, fertilizer, and fish food. There is a nationwide campaign to create “animal husbandry zones” in villages where farmers centralize their livestock in concentrated feeding operations. The target is to establish 70,000 of these zones by the end of 2008.

An article focusing on Jiangxi Province, one of the poorer areas of south-central China, suggests that the current downturn in the hog sector may expedite the shift toward larger-scale farms. The article notes that hog prices peaked at 19.4 yuan/kg earlier this year and are now down to 14 yuan. Feeder pig prices have fallen by nearly half, from 800 yuan for a 10-kg piglet to 440 yuan now.

Jiangxi’s Dongxian county has 22 large scale hog farms with 10,000 or more hogs. The county veterinarian says 20 big farms have expansion plans, despite the downturn in the hog sector. The large farms have learned through experience how to deal with the constant cycles in the hog industry. Since 2000, the article says there have been two deep declines in hog prices: in 2000 and 2006. The 2006 crash led many farmers to slaughter their sows and led to the soaring prices in 2007. The reporter asserts that, while past downturns have left a bad taste, large “specialized household” farms have not dropped out in the current downturn. On the contrary, they have “caught fire.” Commercial-size farms (50 or more hogs) account for 85% of production in this county and hog inventories are up 36% year-on-year; slaughter is up 42.7%.

One farmer claims that these commercial farms have learned how to “strengthen internal management” to control costs in the downturn. For example, they culled low-producing sows and breeding farms fattened piglets on their own farms when they had difficulty selling them. The adjusted feed formulations to slow weight gain when the market slowed down. The article says the profit per head is 200 yuan, much lower than earlier in the year, but still not bad for a big farm. Farms producing on a large scale can accept a low margin per unit. This is one of the key facts of the modern economy--and one of the key problems facing Chinese agriculture where most of the farms are on a tiny scale. The modern economy--especially in farming--is based on thin per-unit margins. Big scale is the key to making a decent living.

Last year, many articles reported that small farmers were dropping out of hog production due to lack of labor, market risk, disease risk, and a general “it’s not worth the trouble.” The hog sector seems to have gone commercial. However, the return of unemployed migrants to their villages reverses the scarce labor situation that drove “backyard” hog production out. Will backyard production pick up again as labor becomes more plentiful in the villages?

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