Wednesday, June 12, 2019

Differing ASF Impacts in Guangdong and Sichuan

Teams of Chinese futures analysts found that Guangdong Province has suffered much more severe declines in swine numbers than has Sichuan Province. While the latest national estimates say China's May 2019 swine inventory is down 23 percent from a year earlier, the surveys find African swine fever (ASF) is moving at a different pace in various regions. Family-based pig farms are being closed down, some farms are switching to poultry production, big companies with good biosecurity are maneuvering to expand swine output later in the year, cheap soybean meal is crowding out other proteins, and use of domestic wheat bran and rapeseed in feed has shrunk.

Teams of Chinese futures market analysts visited farming, feed, and meat companies in Guangdong and Sichuan Provinces during May 2019. These are key pork-producing and consuming provinces. Official statistics say Sichuan slaughtered 65.8 million hogs in 2017 and Guangdong slaughtered 37.1 million. Guangdong is the second-largest feed-producing province.

According to the Guangdong survey report, serious outbreaks of ASF began in Guangdong during the February 2019 spring festival and prompted panic slaughter. According to the report, the severity of the epidemic there peaked in March and remained severe during April and May. Guangdong's decline in March swine inventory is estimated at 40 percent from a year earlier, double the national decline. The reduction was most prominent in Guangdong's western districts of Maoming, Yangxiang, and Zhenjiang. Shaoguan--in northern Guangdong--had a decline of only 10 percent.

The Sichuan survey reported that ASF had less impact there, attributed to Sichuan's relatively remote location, mountainous terrain, and small scattered farms. The report says that environmental regulations have pushed pig farms out of the Sichuan river basins into mountainous areas. There were serious outbreaks reported in Yibin and Zigong prefectures, but they did not spread widely. When an ASF outbreak occurs in Sichuan's hills and hollows, the radius of culling to contain the disease encompasses fewer farms than in plains and heavily-traveled regions further east, the report said. The report also credited strict biosecurity measures taken by large companies in Sichuan. The year-on-year decline in Sichuan's swine inventory is estimated at 10 percent, half the national rate.

The survey reports indicate that both Sichuan and Guangdong have large numbers of small, family-operated pig farms. The reports say large companies hope to take advantage of the ASF crisis to expand. The Sichuan report notes that the province's officially-reported outbreaks were among small-scale farms and no large-scale farms reported ASF problems. In Sichuan, backyard farmers reportedly had a 30-percent decline in swine inventories while large farms had little change.

In contrast, small farmers in Guangdong are concentrated in the western districts of the province. In Maoming, the decline in pig inventories was reported to be 50%, and sales of pig feed were said to be down 70% there. In western Guangdong, villages are overwhelmed once the disease hits one farm. The report emphasized that losses were especially heavy in Yangchun district, known as Guangdong's main supplier of piglets. Sows are said to be especially vulnerable to ASF, and their numbers may have declined by as much as 60 percent in Yangchun, where carcasses reportedly lined the roadside. Heavy rain in April may have contributed to spread of the virus.

In Guangdong, many of the family farms have started raising chickens and ducks after clearing out their pigs. Aquaculture production in Guangdong can ramp up quickly, but its expansion this summer depends on weather conditions and prices. In Sichuan, small farms are also reported to have taken up poultry production. The increase in poultry feed sales is offsetting declines in pig feed to some extent.

The two provinces show how China is gradually becoming a pork-deficit nation. Guangdong is one of the clear pork-deficit regions. Its Pearl River Delta is highly urbanized and is now set to become part of an advanced "Greater Bay" metropolis extending into Hong Kong--dirty pig farms will not be welcome there. (Dongguan City was the first locality to limit pig farms a decade ago.) A separate article last month estimated that Guangdong produces only about 60 percent of the 55 million hogs needed to support annual consumption. Worried about dual impacts of ASF and farm demolitions (to comply with environmental plans), Guangdong officials say they set up 133 pork production bases that are ordered to prioritize supplies for Guangzhou to avert shortages.

Sichuan is the second-largest hog producer, but it is also the top consumer of pork. One large feed company in Chengdu estimated that Sichuan produces 45-to-55 million hogs annually (official statistics say 65.8 million). "Legal" imports of 9 million hogs and "illegal" imports estimated at 12-15 million fill the deficit. Sichuan has some of the highest hog prices in China, but the report claims that an influx of hogs from other provinces has prevented prices from rising higher. There is some concern that hogs from Yunnan and Guizhou Provinces could bring more ASF into Sichuan.

The Guangdong report said the widespread sell-off of pigs is the reason why prices have not risen. The Guangdong report says panic slaughter of hogs has filled pork storage facilities to capacity. The Sichuan report says pork inventories are not as large there. A Sichuan slaughterhouse is holding 600-to-700 metric tons of pork in inventory, but it has 12,000 tons of storage capacity. The company says it will consider stocking up on frozen pork if the price falls below 12 yuan per kg. Its main customers for frozen pork are food processing plants. Five thousand tons of its storage capacity is for holding state reserves. There is concern that frozen pork inventories could contain the ASF virus. A Sichuan manager said testing of pork inventories ordered by the government has not started yet. Some people say 90 percent of the pork held in inventory is infected, but the slaughterhouse manager doubts it is that prevalent. Infected pork will have to be destroyed, the manager said, since there is nothing else to do with it.

The Sichuan report contains a mix of pessimistic expectations about future ASF outbreaks and maneuvering by large companies to expand output. Sichuan is described as a "battleground" for several national companies and a handful of local companies fighting for market share. At a meeting of 12 companies accounting for 11 percent of the province's output, they set a goal of expanding their share to 15 percent this year (collusion among companies is not considered an antitrust problem in China). A feed company in Meishan said small farmers are adding sows. Expansion of frozen semen companies has promoted artificial insemination and raised productivity in Sichuan.

No comments: