Hog Policy Problems

In 2007, Chinese officials began sprinkling around subsidies for hogs and rolled out a series of schemes to engineer a recovery of the hog sector. A subsidy for sows was doubled to 100 yuan per head, a subsidy for sow insurance premiums was introduced, subsidy payments were made to counties that are big suppliers of pork, the corporate income tax was waived for enterprises in the hog business, big plans to build "livestock production zones" and massive integrated hog production complexes were rolled out. Thousands of breeding pigs were flown in from the United States.

By the end of 2008, hog inventories and pork production were up more than 5%. The increase in pork production amounted to about 4.4 extra pounds for each person in China.

The results of the policies are mixed. Officials are pleased that pork supplies have rebounded so fast, but supply has grown faster than demand. Prices have been in free fall most of this year, erasing profits. The Ministry of Agriculture's average wholesale price has fallen each week since January, a cumulative decrease of nearly 30%.

Discussion at a meeting in Guangdong Province this month revealed some reservations about the hog policies. Farm managers and officials observed that profit is the main driver of investment in livestock production. When prices were high in 2007, profits were also high, attracting a lot of new investors. There were highly-publicized investments by real estate companies, an information technology tycoon, investment banks, feed companies, and COFCO.

One farm manager says the subsidies are incidental to the profits that drive investment. His farm received 500,000 yuan in subsidies last year, but they spent over 10 million yuan for purchases of breeding stock. He argues that government support should go to downstream sectors that stabilize pork demand and improve marketing; they shouldn't distort production.

Others complain that a large portion of the subsidies allocated by higher levels of government never reaches farmers. In Guangdong, environmental concerns are rising and many communities have banned hog farms to control pollution. Some officials complain that the central government pressures them to boost the hog industry, going against these environmental concerns. Officials also worry that they would be held responsible for any disease outbreaks coming from a larger hog population in their county. One guy describes the subsidies as a banquet thrown by the central government for farmers in which local governments have to pay the bill.