Wednesday, January 20, 2010

Ambitious Pork Sector Reconfiguration Plan

On January 11, China's Commerce Ministry released a document outlining its ambitious vision for reengineering the hog slaughter and processing industry.

The pork industry is plagued by excess capacity and food safety concerns. The plan calls for eliminating 50% of "backward" hog slaughter capacity by 2015. The plan features a multilevel system consisting of small slaughter facilities that serve local markets and relatively few large mechanized facilities that produce frozen cuts of pork and processed, branded products and ship them around the country and overseas. Large cities of over 5 million people are to have 3 or less large slaughter facilities, and smaller county cities have 1 or none.

Part of the plan is to change Chinese consumers' pork consumption habits. The traditional mode is to send an entire fresh pig carcass the same day it is slaughtered to the market where a butcher cuts off slices for the shopper. The new plan wants to get consumers to start consuming frozen pork that was sliced up at a processing plant and distributed in shrink-wrapped packages. The goal is for frozen pork to account for 30% of the market by 2015 and packaged products to account for 10%.

Instead of relying on local slaughter houses in the city suburbs, the plan calls for nurturing a set of million-head slaughter-processing operations in big hog-production counties that may be hundreds of miles from cities where it is consumed. Companies should develop brands for their products, produce more processed products, utilize by-products, hold to strict standards and inspection, and treat waste.

Interregional marketing chains are to include integrated slaughter-processing-distribution centers-pork wholesale markets-chain stores and special pork shops linked with cold chain facilities. Companies are to procure more pork under contract or operate their own hog farms.

The plan hopes to promote China's pork exports. It calls for more international cooperation, adoption of international standards and animal welfare concepts, overseas acquisitions and mergers, and surmounting of foreign trade barriers.

Pork imports are not mentioned in the plan, but IF this reconfiguration of the domestic industry were to succeed, it might improve the competitiveness of of imported pork. IF Chinese consumers become receptive to frozen, packaged pork from distant factories, and IF China's own trade barriers were lowered, it's conceivable that pork from factories in the Midwestern U.S. could be as competitive in Shanghai or Guangzhou as frozen pork from Chengdu. Could China specialize in niche-market local-style pork alongside cheap imported factory-style frozen pork?

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