Tuesday, June 1, 2010

Beware of American Pork!

An article from China Industry Economic News carried on dozens of Chinese web sites this week warns that opening the Chinese market to U.S. pork imports could devastate the industry.

The article entitled, "Alert! American Pork's 'soybean appetite,'" warns that the resumption of U.S. pork sales to China announced last month, a year after the H1N1-related ban was put in place, is a dangerous prospect that could "eat up" the Chinese hog industry.

An analyst with Beijing Orient advisory services Co. in Beijing warned readers to "be careful of the trap set by Americans." The analyst says it's wrong to think that U.S. imports of as much as 100,000 metric tons will have little impact on a market where demand totals a massive 50 million metric tons annually. He said, "If U.S. pork imports are not limited, [the pork industry] is likely to repeat the mistakes of the soybean industry with disastrous consequences."

The article explains that, "In the past, our country’s hogs basically supplied all our needs. The fatherland’s pork price was lower than overseas prices, so domestic import of pork was small, mostly pork by-products."

But the situation changed in 2008. To ease upward pressure on prices, the Ministry of Finance reduced the tariff on frozen pork imports from 12% to 6% for several months. "This invited a lot of imports."

A farmer in Hebei explains: “Actually, in 2007 meat prices went up a lot, and the government imported some pork from the United States. It was said the U.S. built a lot of pig farms and some companies came to China to operate farms."

The reporter visited a village in the Tongzhou district of Beijing where he found an elderly lady named Ms. Chen who has plenty to complain about. She frets that "Other people [presumably Americans] have lower production costs than us, and their formula lets their hogs grow faster, so we don't have a competitive advantage." She thinks imports would reduce their price.

Ms. Chen told the reporter, “The recent decline in pork prices already gripped us; when we heard the market was opening to U.S pork imports, this dampened our incentive to raise pork."

The concept is that Chinese farming is "in its early stages" and small scale farmers can't compete with large-scale farmers from overseas. The article calls for the government to "form a policy to protect hog production," and it quotes several analysts and farmers calling for more direct subsidies to farmers, control of production costs, and guaranteed profit. One calls for utilizing the WTO's trade relief measures to prevent a large influx of pork imports.

Sounds like the "infant industry" argument used to justify protection of industries in the 20th century. None of the infant industries ever grew up behind their wall of protection.

Some points the article fails to get:
1. The government has been giving out subsidies and trying to put a floor under prices for several years. THis encouraged more domestic investment in hog farming, and this is the main reason prices have been pushed down below the breakeven point this year.
2. The government has been pursuing a policy of supporting and subsidizing grain production to guarantee farmers can cover costs. This has helped raise feed costs for pork producers, erasing their profits.
3. The pork industry is one of the chief beneficiaries of the cheap soybean imports reviled in the article. The influx of soymeal protein (that China could not produce herself) lowers feed costs and has sped up hog growth in China.

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