An article offering an interesting view of the current hog market in China was posted on a number of industry sites. The author notes that losses in hog farming are more and more serious. Normally, this would lead to farmers quitting the industry, but no one is quitting now. The author asks, "What are they waiting for?"
The author answers his own question: "They're waiting for other people to quit."
He thinks that there have been some fundamental changes in the industry. He suggests that hog farmers have changed their "thinking." The cyclical nature of the industry is now widely understood, so farmers think "happy days" are just around the corner. They just have to wait it out and the industry will recover.
Another change is the entry of large-scale farms. He argues that these farms have sunk a lot of money into their farms and don't want to quit and "lose everything." The big farms, he says, have better access to funds, "better relations" (guanxi), and government subsidies, so they can wait out the losses.
The trouble is, if everybody waits out the losses, there is no way for oversupply to be relieved. The inclination is to see this as "market failure" that needs government intervention, but it may actually be "government failure" from intervention during 2007-08 when there was a shortage--see "government subsidies" and "better relations" and, for that matter, access to funding (favorable access to bank loans).
The author concludes, "It's hard to forecast how this will end up."
"One thing's for sure," he says, "The end will be sorry for many people...debts, bankruptcy, and a lifetime of paying it off."
The author answers his own question: "They're waiting for other people to quit."
He thinks that there have been some fundamental changes in the industry. He suggests that hog farmers have changed their "thinking." The cyclical nature of the industry is now widely understood, so farmers think "happy days" are just around the corner. They just have to wait it out and the industry will recover.
Another change is the entry of large-scale farms. He argues that these farms have sunk a lot of money into their farms and don't want to quit and "lose everything." The big farms, he says, have better access to funds, "better relations" (guanxi), and government subsidies, so they can wait out the losses.
The trouble is, if everybody waits out the losses, there is no way for oversupply to be relieved. The inclination is to see this as "market failure" that needs government intervention, but it may actually be "government failure" from intervention during 2007-08 when there was a shortage--see "government subsidies" and "better relations" and, for that matter, access to funding (favorable access to bank loans).
The author concludes, "It's hard to forecast how this will end up."
"One thing's for sure," he says, "The end will be sorry for many people...debts, bankruptcy, and a lifetime of paying it off."
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