Thursday, September 19, 2019

China Hog Companies in an Expansion Race

China's hog-farming companies posted steep year-on-year declines in sales last month--more evidence of China's shrinking pork supply--but they are also in a race to expand production capacity by building huge hog complexes of 500,000 head or more.

Reports issued by China's three biggest publicly-listed hog-farming companies showed their combined sales of 2.17 million head during August 2019 were down 39 percent from August last year. Wens Corp. sales were down 34 percent from a year ago, Muyuan's sales were down 37 percent, and Zhengbang's sales were down 29 percent. Sales for the entire year from January to August were more robust due to large sales in the first half of the year.

Wens and Muyuan both said their plunge in August sales was due partly to holding back sows for breeding and keeping hogs on feed longer to take advantage of high prices. Wens' monthly hog sales were at a record level this year until they plunged in August to the lowest volume in the last 5 years. Wens adjusted its swine sales target for 2019 to 20 million head--down from 22.3 million last year and 20 percent less than the target set at the beginning of the year. Muyuan has not changed its target sales for the year, but it will be hard to achieve at the current rate of monthly sales.

Wens, Muyuan, and Zhengbang are the leaders of the top-20 hog-farming companies that are leading what the Ministry of Agriculture calls a "transformational upgrade" of the hog sector that was long dominated by small family-operated farms. Most are privately-operated, several began as bootstrap ventures raising a few pigs or birds, and most are listed on stock exchanges in China. Only COFCO and Guangxi's state farm company are state-owned. While the top companies are expanding rapidly, their combined sales of 68.5 million head last year accounted for less than 10 percent of the industry's production last year.
Top 21 pig farming  companies, production in 2018

CompanyMillion head
1Wens22.30
2Muyuan11.01
3Zhengbang Sci-tech5.54
4New Hope3.10
5Zhengda2.80
6COFCO2.55
7Chuying2.27
8Hubei Xiangda2.20
9Tianbang2.17
10Yangxiang2.00
11Dabeinong1.60
12Shuangbaotai (Twins)1.45
13Shanghai Guangming1.40
14Jinluo1.30
15Anyou1.19
16Jiahe1.08
17Dekang Nongmu1.00
18Baodi1.00
19Shanxi Daxiang0.94
20Guangxi State Farm Yongxin0.80
20Tieqilishi0.80
Total68.5
National output, 2018693
 Share of national output9.9%
Source: China hog industry summmit forum, February 2019.

Hog-farming companies had generally poor financial results in the first half of 2019. Biosecurity investments, higher spending on feed and personnel, and facilities for manure handling and bioenergy production (presumably methane gas produced from hog waste) are raising costs, but industry analysts think Chinese hog-farming companies returned to profitability in the second quarter of 2019.

With prices soaring, each company's profitability now depends on how many pigs it can produce. This is setting off what pork industry analyst Feng Yonghui calls a new "pig super cycle."

Soaring "pig concept" stock prices are funding aggressive expansion by listed companies. Many have announced intentions to build huge new breeding-farming-slaughter projects. A representative of Zhengbang company said the "severe challenge" of ASF crisis gives "the best opportunity to win for the strong."

During a visit to a Wens Corporation breeding farm director Wen Zhifen pledged to carry out Vice Premier Hu Chunhua's directive to restore pork supplies by producing 70 million hogs to account for 10 percent of the market supply by 2020. Wens announced a 1-billion yuan investment in a million-head hog project in Liaoning Province.

Shuangbaotai (Twins) Co. announced a plan to build a series of 4800-head model sow farms in a Yunnan Province county that potentially could supply 1 million hogs annually.

Last December, Muyuan announced plans to raise 3.5 billion yuan for a 4.75-million-head expansion of hog farming projects this year. In August Muyuan announced a plan to spend 120 million yuan to set up subsidiary companies in six hog-producing counties.

Feed company New Hope--also engaged in poultry--was the only top hog-producing company that had healthy profits in the first half of the year. New Hope identified hog production as its "strategic transformation initiative" and set a target of producing 25 million head by 2025. New Hope has announced ambitious swine investment plans:
  • 3.75 billion yuan in a 2.5 million head project in Lanzhou
  • 980 million yuan in two projects in Hebei Province totaling more than 1.1 million head
  • a 7500-head breeding project in Shandong Province
  • a 2-million-head hog project in Anhui Province
  • 483 million yuan in a 500,000-head breeding-farming project in Henan Province, including a 3000-head grandparent farm and an 18,000-head multiplier farm
  • a 500,000-head breeding-farming-slaughter project is under construction in Guangxi Province's Laibing prefecture, and additional projects totaling 600,000 head are planned in other cities.
Also in Guangxi Province, Zhengbang has 6 farming projects under construction with investment of 3 billion yuan and plans to build 10 additional projects in the province with investment of 5 billion yuan. A Zhengbang spokesman said the company has a 3-million-head expansion plan focused on Guangxi.

Less prominent companies are also getting into the act. Liyuan Grain and Oils Group--headquartered in Guilin--is collaborating with a Danish partner on a planned 3600-head great grandparent and grandparent farm that will be the nucleus of a million-head breeding system in Guangxi.

While it sounds like big companies about to replace small farms, most of these plans still rely on recruiting cash-strapped individual operators to fatten hogs. Muyuan is one of the few companies that actually conducts the entire hog-raising process on company farms. Most of these projects use a "company + farmer" model that supplies piglets from company-operated breeding farms to individual farmers who fatten hogs to slaughter weight in their own barns. (A few companies are experimenting with models that maintain company ownership of hogs raised by contractors, but such arrangements are still not that common in China.) Farmers will still need to invest in biosecure farms and manure treatment facilities. New Hope has experimented with giving farmers financial services but most farmers will struggle to come up with funds for start-up costs as well as working capital.

Not all companies are thriving. The no.-7 company, Chuying--the first hog-farming company to be publicly listed in 2010--had its stock suspended when it fell below 1 yuan per share. In 2018, Chuying ran into severe financial problems, tried to pay off bonds with hams, and reportedly had pigs starve when it couldn't pay for feed.

Monday, September 9, 2019

China's Large Farmers Abandon Land

China's new scaled-up farmers are losing money and abandoning rented land, according to recent reports from Chinese journalists. Liaowang reported that rice farmers in Fujian and Hunan Provinces lost money every year and cut back on leased land or switched to growing turf, tea, bamboo, or nursery crops. Another Liaowang piece reported on the same problem in northern provinces Shandong, Heilongjiang, and Henan. Economic Reference News interviewed farmers and village and provincial officials in Anhui Province and found that many "large grain farmers" (产粮大户) who lost money growing wheat on land leased from village collectives have tried to renegotiate multiyear land rental contracts, cut back on land rentals, or simply ran off and disappeared when they were unable to make ends meet.

Both articles said declining grain prices and rising costs and inability to mitigate risks from bad weather make farming unprofitable for large-scale farmers. Most of China's farmers are small-scale producers who cultivate small plots of 1 or 2 acres allocated to them by village collectives using mainly their own labor. Large-scale farmers rent consolidated plots of dozens or hundreds of acres and pay rent to collectives who pay out dividends to villagers. Farms also often hire villagers as laborers and pay them wages. While traditional small-scale farmers have modest cash expenses, the large-scale farmers have rent and wage obligations that must be paid in good years and bad.
An actively cultivated rice field on the left and an idle field on the right.
These land-leasing arrangements are often depicted by officials as a panacea for scaling up farming in a way that benefits both the farm producers and villagers who receive rent and wages. However, Economic Reference News emphasizes the high cost of rents. A farmer in northern Anhui who said he rents 300 mu (about 49 acres) at an exorbitant 1000 yuan/mu ($865 per acre) to grow winter wheat followed by summer corn. The wheat price has fallen from 2400 yuan/metric ton in 2013 to 1600 yuan this year, but the village collective that "owns" the land won't accept a reduction in rent. He wants to give back 160 mu.

Another farmer in Chuzhou prefecture lost money three years in a row growing rice and wheat on 710 mu (117 acres) of rented land and wants to cut back to 530 mu this year.

Rents are very high in many places. An Anhui Province survey in three districts earlier this year found averages of 1,200 yuan/mu in Hefei, 1,000 yuan in Bangbu, and 1,400 yuan in Fengyang.

One farmer reportedly ran off and left rice unharvested on 300 mu, with unpaid bills for rent, fertilizer and pesticide.

A farmer explained that the wheat from 1 mu can be sold for 800 yuan in a "normal" year. Production costs of 500 yuan and rent of 200 yuan ($173 per acre) leaves a net return of 100 yuan per mu--in a normal year. However, last year he was able to sell his wheat for just 500 yuan and this year 600 yuan, so he lost money on every mu of land he planted in each of the last two years.

An official in Anhui's Tianchang district says local policy encourages farmland transfers, and 61.7 percent of the cropland in this district has been transferred to large farmers. He also said that large farmers have lost money since 2016 and acknowledges that problems of land abandonment and disappearing farmers are common.

In Hunan Province, a large-scale rice farmer said he cut back from 1500 mu last year to 1200 mu this year. He claims to belong to a WeChat group of large rice growers--including one with a national reputation--that are all cutting back on their land rentals.

The problems are causing discord in the countryside. A farmer in northern Anhui said villagers gathered to block a wheat combine from harvesting 1000 mu she rented from their collective. The farmer said she hadn't been able to make any money since 2014 and lost her entire crop last year due to heavy rains. She said villagers, fertilizer dealers, and bill collectors all came to the field trying to collect her 2 million yuan in debt and unpaid bills.

[Anhui did have heavy rains at harvest time in 2018 that severely damaged the quality of its wheat; this year a bigger harvest depressed the price.]

Officials in several districts of Anhui said land abandonment by large farmers led to "conflicts", including villagers petitioning for "justice" to collect unpaid land rents. Township and village officials complain that the problem falls into their laps when large farmers run off without paying their rent.

Liaowang worried about degradation of soil fertility when large-scale rice growers shift their land to growing turf, tea, bamboo, and nursery crops. These crops use fertilizer and other chemicals more intensively than grains, tend to cause hardening of the soil, and each crop of turn harvested removes a layer of soil with it and carries it away.

Liaowang claims abandonment of grain land and requisitions of land for development are not captured by grain statistics because local authorities fudge their reports to higher-level authorities and there are no local land management officials to verify the statistics. Some land has been reported separately by agricultural and forestry officials as being planted in both grain and tree crops. Many localities kept their grain land nominally constant by declaring land on mountainsides as new farmland.

It's common for Chinese entrepreneurs to jump from one kind of business to another. Many took up farming after making money in construction, real estate, trucking or other businesses. One official criticized the large-scale "farmers" for plunging into agriculture to take advantage of government "awards" that were not enough to make the business profitable. Without much experience in farming, they moved on after losing money.

The nurture of a new generation of scaled-up farmers is a key component of plans to "modernize" Chinese agriculture. The National Bureau of Statistics recently noted the vitality brought to agriculture by new-type farm operators as an achievement to be celebrated on the country's 70th anniversary. Two years ago, the Ministry of Agriculture and Rural affairs aimed to have a supporting policy system in place by 2020, but this article suggests that the policies are not in place yet.

Very similar reports of difficulties faced by large-scale grain farmers circulated several years ago and also called for more and better subsidies. Three years ago, the Ministry of Agriculture introduced regulations for farmland transfers to prevent practices that "violate farmers' rights" and threaten "harmonious society", such as corrupt backroom land deals and shifting of land from grains to nongrain crops.

The reporters blamed falling rice prices, rising fertilizer prices, lack of irrigation and drainage facilities, lack of farm credit, and restrictions on land use that prevent large farmers from building worker dormitories, grain drying units, and sheds to store machinery. Economic Reference News calls for even more spending on construction of "high standard agricultural fields"--already China's largest agricultural expenditure, more availability of special insurance products like income and production cost insurance, expansion of provincial government loan guarantees, mechanisms to approve changes in land use, and mechanisms to prepay rent that would discourage "large farmers" from running off with bills unpaid.

A commentary on the phenomenon asks how land abandonment can be happening with more and more subsidies for agriculture but nevertheless recommends even more subsidies. However, the commentary concludes by insisting that "relying on subsidies isn't enough" but doesn't offer a clear solution.

Thursday, September 5, 2019

China Pork Customers Disappear as Prices Rise

Ten pork vendors at a food market in China's Jinan city sat idly staring at their phones with no customers in sight during a reporter's visit on September 1. A vendor manning a booth sponsored by the Jinluo meat company explained that customers had largely vanished recently as pork prices had nearly doubled. He quoted prices ranging from 28 to 30 yuan per 500g, over $4 per pound.


Two customers asking about prices walked away shaking their heads when told a price of 26 yuan. A vendor told the reporter that his sales had fallen from 250 kg to 150 kg per day since prices had risen. Smaller vendors had seen steeper drops in sales from 50 kg to 15 kg per day. Another vendor said the profit margin had also shrunk from 0.5 yuan per kg to .15 yuan per kg.

A commerce bureau official explained that many farmers had killed off their sows during 2018 when prices fell below the cost of production. The northeast and northern plain regions had the steepest decline in production capacity. A farmer in Shandong Province said that farmers began liquidating their herds in August 2018 when African swine fever began spreading in the province. The peak consumption season during a string of holidays from September through February is putting upward pressure on prices now.
 
Weekly average prices reported by China Ministry of Agriculture and Rural Affairs.



In Shenzhen on Sept. 3-4, retail prices for lean pork were 30 yuan per 500g. At a wholesale market, 25-kg boxes of frozen lean pork sold for 16-17 yuan/500g. Frozen pork bellies were about 15 yuan/500g. The reporter explained that frozen pork being sold now was produced before prices started rising and prices are less sensitive to market conditions than fresh pork prices. In a Shenzhen supermarket, a customer complained to the butcher counter attendant that the pork prices were unaffordable, but she eventually left with a small slice.

The attendant told the reporter that many customers would rather buy beef or chicken if they have to pay these prices, but prices of beef and chicken are also rising.

In Liaocheng, a small city in Shandong Province, retail pork sales during January-July were down 31 percent from a year earlier according to local commerce officials. However, sales of beef, mutton, and poultry doubled in Liaocheng, and overall meat sales were up 20 percent.

In Nanning, capital of Guangxi Province, authorities opened discount-price pork shops in ten food markets around the city. The temporary shops, opened this week, sell lean meat, bacon, hindquarters, and ribs at a price 10-percent below the recent 10-day average. Local residents may purchase up to 1 kg.

According to 21st Century Business News, the number of carcasses arriving daily at Beijing's Xinfadi wholesale market has fallen from 2400-2500 per day to 1700-1800. Some vendors said the volume of pork in their market has fallen by half.

With prices rising rapidly, farmers are holding back their hogs as long as possible before sending them to market. The average weight of a dressed carcass (without offal, head or skin) has risen from 35-45 kg to 45-60 kg.

A slaughterhouse in Shaanxi Province has seen its volume shrink rapidly. Although it has contracts with farmers to supply, say, 500 head, they will only give him 200 or 300.

Some farmers are taking advantage of high prices. One 44-year-old farmer in Henan Province with 18 years of experience raising pigs stocked his farm with 7000 piglets in May that he expected to fatten to 110 kg for slaughter in September. Many farmers, however, are worried about African swine fever and the high costs of biosecurity measures.



Monday, September 2, 2019

Vice Premier: Pork Shortages Must Not Spoil the Party

Chinese officials are worried that a 10-million-ton pork shortage could spoil upcoming communist party celebrations, according to a transcript of a speech ordering local officials to bolster pork supplies. In fact, the speech's instructions to "manage public opinion" and constant shifting of priorities of the communist regime suggest the celebrations may ring hollow anyway.

As the country's year-old African swine fever epidemic began to send pork prices into the stratosphere this summer, the government's rhetoric gradually shifted from admonitions to stop the spread of the disease to pronouncements that the disease is "under control" and commands to restore "normal" production and trade. On August 20-21, Premier Li Keqiang visited food markets and chaired a State Council meeting that adopted "more detailed policies and an attitude of urgency" to cope with the pork supply crisis.

On August 22, Vice Premier Hu Chunhua told communist party officials to prioritize the rebuilding of pork production capacity and preservation of pork supplies as an important "political task." The full transcript posted on a pork industry site warned officials that widespread pork shortages could occur during the upcoming moon festival, National day, New Year, and spring festival holidays if they fail to take measures. Shortages would affect the "happy and peaceful atmosphere" during the upcoming 70th anniversary of the Peoples Republic, the vice premier said. Furthermore, Hu warned that a gaping hole in the pork supply and unaffordable pork for low-income people would impair the image of the communist party in 2020 when the "well-off society" is scheduled to be achieved.

Most Chinese news media posted only the 3-paragraph summary of the Vice Premier's remarks that omits these admonitions. The full transcript--apparently an internal communication addressed to "comrades"--was posted only on social media. The full transcript is a surprisingly candid assessment of problems and shortcomings in the pork sector that are kept hidden in documents for the public.

Vice Premier Hu's remarks included a number of items that rarely appear in government-approved documents for public consumption:
  • The ASF virus is now endemic in China (在我国定植).
  • According to Hu, unannounced investigations found large numbers of dead pigs where no disease had been reported, indicating that the actual number of ASF cases exceeds the number reported.
  • Hu acknowledged that China's pork supply situation will be "extremely severe" during the 4th quarter of this year and first half of 2020
  • The Chinese government estimates that the country will have a 10-million-metric-ton deficit in pork supply this year.
  • Premier Hu said the projected 10-mmt deficit exceeds the amount of pork traded in international markets.
  • Monthly estimates of swine inventories by the Ministry of Agriculture and Rural Affairs are based on monitoring of 4000 pig-raising villages and 13,000 scaled-up farms.
  • With its short production cycle, poultry will be the main substitute relied upon to fill the deficit. China will struggle to increase poultry production by 3 mmt this year, Hu said.
  • After years of prioritizing control of manure pollution by closing or moving farms, local officials are now accused of over-zealous enforcement and are ordered to pare back zones where livestock farms are banned and pay for re-building hog farms. 
  • Hu acknowledged that there hasn't been much progress in cleaning up manure pollution 
  • Local leaders in pork-producing regions have been asking for slaughterhouses to be built in their counties because subsidized pig farms generate no tax revenue and pigs are mostly trucked off to cities for slaughter. This pattern is said to "unsustainable," and trucking pigs around the country is acknowledged as contributing to the spread of disease.
  • Hu acknowledged chronic weakness and under-funding of grassroots veterinary services.
Hu Chunhua recommended numerous policy measures to stabilize production and maintain market supplies of pork. Provincial and local officials are responsible for implementing these policies:
  • Pork farms and companies are to be given short-term aid.
  • Banks must not cut off lending to swine farms and slaughterhouses; subsidized loans should be given to swine farms. Provincial government loan guarantee organizations should prioritize recovery of swine farms.
  • Poultry companies should also be given aid to expand.
  • Each province is charged with maintaining a degree of self-sufficiency in pork. The mayors' market basket system will hold city officials accountable for supplying pork and other nonstaple foods to their citizens. 
  • Pork reserves should be expanded and made more effective.
  • Pork-deficit provinces and cities are to form long-term pork supply agreements with neighboring pork-surplus provinces and counties to establish contiguous regions self-sufficient in pork.
  • Officials should work out arrangements by which wealthy cities pay pork-producing counties to support their farms and infrastructure.
  • Land and credit should be set aside to build slaughter facilities in pork-producing counties.
  • 2 billion yuan in food subsidies for low-income people have been announced.
Previous announcements targeted aid to large-scale farms, but the State Council's August 21 circular extended support to household-operated farms and removed a minimum requirement of 15 mu (1 hectare) of land for a farm to receive support. 

Vice Premier Hu wrapped up his address by emphasizing two points that are distinctive features of the communist regime:
  • "We must strengthen the guidance and management of public opinion."
  • "Stabilization of production and maintaining supply are an important political task."
In China's economic model, government officials are the "directors of the play" and "companies are actors on the stage." It follows that officials have privileged access to information so they can pull the strings to organize the play. Hu reflects this duality by goading officials to "apply force on internal matters" and "in external matters do well on propaganda, issuance of information, and managing public opinion" (italics added). In the same vein, Hu advised statistical bureaus to increase the frequency of "confidential" or "secret" surveys so the government can devise timely support measures. In other words, Chinese statistics are internal information for the government's use; statistics are only released to the public after being massaged and molded into a propaganda statement.

The vice premier's remarks reveal a contradiction regarding information gathering. Like an angry schoolmaster, Hu Chunhua chided local officials for not reporting of disease to central authorities and promises they will be punished for doing so. While he is aghast that local officials withhold information from him, the Vice Premier seems to have no problem withholding information from the public. Hu believes information released to the public must be carefully managed to shape their opinion. The public cannot be trusted with information because they might panic and hoard pork or try to corner the market. (And of course, government officials would never do this themselves.)

Management of public opinion is evident from a comparison of Premier Hu's speech with a Peoples Daily propaganda article. While Premier Hu warned officials about an impending shortage of pork and potential market instability, Peoples Daily quoted a Ministry of Agriculture official who declared that "The overall meat supply is assured" and "the pork market is overall stable." Premier Hu told officials they face a long, difficult battle against ASF, but articles intended for the public declare that the disease is under control and normal production and marketing can now resume. 

The elevation of promoting pork production as a "political task" reveals the constantly changing crisis-driven priorities kicked down to local officials. Efforts to control manure pollution are an example of the constant oscillation of "political tasks." Policy pronouncements in the last two months have included vague admonishments not to go beyond legal requirements in designating zones where livestock farms are banned or limited. These refer to a an ongoing tug of war over efforts to clean up pollution from pig manure in a rapidly urbanizing society. The first livestock law in 2005 included a provision that called for each community to designate zones where livestock farms would be banned,  limited or encouraged. Livestock farms would be restricted near residential areas, institutions of higher education, drinking water sources, markets, roads, and scenic areas. This idea was rarely implemented until 2013 when a water pollution prevention action plan issued by the state council called for designating such zones by the end of 2017 and destroying or moving farms from zones where they were banned. 

In 2017, the Ministry of Agriculture issued a document criticizing local officials for being overzealous in designating farm-ban zones--although the examples they gave seem consistent with language describing the zone designation going back to the 2005 livestock law. Two years later, facing a pork shortage, officials now seem to have decided the Ministry of Agriculture is right by ordering local officials to scale back the pig-ban zones and rebuilding pig farms that were demolished. In his teleconference, Premier Hu also seemed to admit that little had been done to promote treatment and utilization of pig manure although it was a feature of the 2016-2020 plan for the swine sector. Environmental control seems to have been pushed aside as a priority now that there's a pork supply crisis. 

Wednesday, August 21, 2019

Why did African swine fever spread so fast in China?

Systemic problems in China may have accelerated the spread of African swine fever, a dangerous pig virus that has no cure or vaccine. According to an investigative piece by Chinese business portal Caixin last month, divergent interests of central and local officials, money worries and "political tasks" created incentives to hide disease reports. Lacking reliable information, farmers panicked and liquidated herds when they heard rumors of disease in their neighborhood. Big regional price differences due to localized pig liquidations and quarantines created strong incentives to truck pigs and pathogens around the country. Traders flouting bans easily evaded authorities--and were often abetted by corrupt veterinary officials who sold fraudulent health certificates and ear tags.

China's first cases of African swine fever (ASF) were reported in August 2018. Within 8 months the virus had spread to all 31 provincial regions, including the remote Himalayan region of Tibet and the island of Hainan. As of July 2019, Chinese officials say the swine herd has shrunk by 32 percent from a year ago. ASF has also spread to all neighboring pork-producing countries, except Thailand. In contrast, the spread has been slower in Europe. Last year Belgium discovered ASF in wild boars, but the disease has not penetrated commercial farms in Western Europe. While ASF cases have been popping up in Eastern Europe, the spread has not been as rapid or devastating as in China.

Why did the virus spread so fast? Caixin reporters point to divergent interests between central and local officials in China's multi-tiered governance system, based on their interviews in several major hog-producing provinces.

Caixin blames an "ostrich policy" of refusing to report disease for creating an atmosphere of uncertainty and misinformation. The reporters found that ASF cases were underreported in many places. They learned from interviews that Shandong Province had its first cases of ASF in Weifang and Linyi prefectures not long after the first officially-reported case in Liaoning Province, but Shandong officials did not report them. Shandong Province has reported only one case in February 2019. Officials suppressed reporting of the disease until April 2019 when they reported that sales by breeding farms in the province were down 41 percent year-on-year. Caixin pointed out that Shandong has clearly more than one case of ASF if sales shrank that much.

Reporting disease became a "game" as local officials worried about budgetary costs of compensating farmers for culling animals and their accountability for keeping the disease under control, Caixin said. All swine within a certain radius have to be killed when ASF is discovered. Compensation of 1200 yuan per head paid to farmers is financed by prescribed shares of central and local funds. However, local officials don't always get funds promised by central and provincial governments, so they worried that they would end up paying for compensation if they declared a disease outbreak.

Another disincentive for local officials was their accountability for allowing the disease to spread. Provinces held "ASF work meetings" where local officials were warned that preventing spread of the disease was their "political task," and they were ordered to ensure "no new occurrences."

A local agricultural official told Caixin that prefecture-level officials refused to accept a report confirming that the ASF virus caused pig deaths. Instead the deaths were attributed to classical swine fever and blue ear disease in reports to provincial authorities. The prefecture-level officials blamed township agricultural officials for failing to vaccinate pigs against these other diseases and forced them to buy a truckload of vaccines that were not needed.

The culling-subsidy game pitted farmers against local officials. A prominent example was the proprietor of Dawu breeding farm in Hebei Province who announced on social media in February that his farm had lost 20,000 pigs to ASF and 5600 animals still alive would have to be culled. His social media post publicly appealed to local government officials to confirm the disease. Several days later, the Ministry of Agriculture posted a notice on its web site for publicizing disease outbreaks announcing that a farm in Hebei Province had 5600 pigs that had had an outbreak of ASF but it did not list the number of sick pigs or mortalities as most such reports do. That was the only ASF case in Hebei Province ever reported on the Ministry's disease notification web site, but anecdotal reports suggest the province's swine herd was decimated by the disease.
The proprietor of a pig farm in Hebei Province posted photos of dead pigs and this banner on social media. The banner says the farm lost 15,000 dead pigs, and "we think it is African swine fever and ask the government to confirm!" 
The farmer who reported Shandong Province's only officially-acknowledged ASF case told Caixin he was cursed by his neighbors for reporting the disease. The farmer was due large amounts of compensation but he only received 20 percent of the promised funds (in eastern provinces like Shandong, the central government pays 20% and the local and provincial governments pay the rest). He said the central government promptly delivered their share of the funds, but the local government dragged its feet on paying for 4500 culled animals and a demolished barn. The farmer claims to be near bankruptcy, having received debt collection notices he is unable to pay.

Caixin suggests that the uncertainty created by the lack of transparency and compensation prompted farmers to liquidate their herds when they heard rumors of a local disease outbreak. Farmers worried that their herd might become infected if the disease was nearby. More importantly, once disease was officially reported in a district a quarantine would be declared, preventing farmers from selling their animals outside the local area. Pigs of all sizes and sows would then be sent to local slaughterhouses, en masse, driving down the local price.

Panic liquidation of herds and quarantines created big profit opportunities for black market dealers who shipped millions of animals from one province to another to take advantage of huge geographic differences in price. According to Caixin, restrictions on transport of animals were "just pieces of waste paper." Where quarantines were in place, traders evaded them by changing license plates on trucks crossing provincial borders, using counterfeit ear tags on pigs, or taking back roads to evade inspectors. Trucking diseased pigs hundreds or thousands of miles was the primary means of spreading the ASF virus nationwide so quickly.

Some criminal gangs took advantage of the information vacuum by planting dead pigs on farms and spreading rumors that they had died of ASF. When farmers panicked and sold off their herds to avoid the disease, gang members posing as traders bought up pigs at steeply discounted prices to transport to other cities where prices were higher. These schemes reportedly could clear out an entire district's pigs "overnight." In May 2019 a local industry association in Shaoguan, Guangdong Province issued a warning about such "Stir-fry Pig Gangs"(炒猪团伙) in their area, but it took two additional months for the Ministry of Agriculture and Rural Affairs to issue a nationwide warning about the gangs.

The long-distance trucking of pigs had been encouraged by a "raising southern pigs in the north" strategy promoted by the agriculture ministry in recent years to mitigate severe pollution problems around major cities and southern provinces. The plan called for closing pig farms in pollution-prone southern regions and metropolitan areas while increasing hog production in Northeastern provinces. The hogs would be shipped hundreds of miles south for slaughter and consumption. In fact, the northeast was the first region to be infected with ASF, and one of the first cases was found in a truckload of hogs delivered to a slaughterhouse in Zhengzhou, the capital of Henan Province. The hogs had been purchased in the northeastern province of Heilongjiang and trucked about 1300 miles south. There are more recent anecdotal reports of pigs trucked from Guangxi and Sichuan provinces thousands of miles to China's east coast.

Chronic neglect of local veterinary capacity also contributed to spread of the disease. Caixin points out that the vice minister of agriculture overseeing disease control--formerly the nation's chief veterinarian--has warned that under-funded, disorganized local veterinary teams using outdated equipment and infrastructure are a weak link and a vulnerability. The chief veterinarian of a prefecture in Shandong said that services at township veterinary stations often exist only on paper. Underpaid veterinary technicians have used their positions to make money by buying and selling ear tags, and corrupt veterinarians have been implicated in several cases of fraudulent veterinary certificates and insurance fraud during the ASF epidemic. According to Caixin, one veterinary official in Shandong interviewed in an April radio broadcast pledged to form a working group, investigate the disease problem, and carry out remediation measures, but local people complained that they never saw any actions.

Caixin is hopeful that ASF will force the government and industry to address weaknesses. In July, the Ministry of Agriculture and Rural Affairs issued decrees calling for overhauls of veterinary services and inspection at slaughterhouses and transportation, and sent out a team to investigate shoddy or corrupt veterinary practices in ten provinces. However, there have been complaints about these same problems for 20 years or more. A decade ago, there was an earlier push to mandate that counties and provinces include funding for veterinary stations in their budgets, upgrade equipment and vaccine distribution, build labs, and require veterinary technicians to pass qualification exams.

Systemic problems inherent in the Chinese system may also prevent a full recovery from the epidemic. Chinese officials constantly juggling various priorities--and always in a hurry to address the latest crisis--never complete any program before another problem grabs their attention. Thus, no problem is ever completely solved, so the same problems fester and keep popping up intermittently.

A veterinary researcher with China's Academy of Agricultural Sciences told Caixin that the country's hog farming sector is now at a point of "life or death," and that the fight against ASF is a protracted war, not a quick battle. He described ASF as a "warning sign" that showed there is much to be done.

Yet top Chinese officials have now decided that soaring pork prices are the most immediate threat to the all-important priority of maintaining "stability." Thus, top leaders have now declared that the virus is "under control" and ordered news media to report only good news about ASF. With the epidemic still a grave danger, the central leadership is now urging local officials to encourage a rapid rebound in pork production and news media are filled with reports of companies and farms making lots of money and restocking their pig barns. Local officials are now being advised to ease up on environmental restrictions and offer loans and subsidies to boost pork production.

Saturday, August 10, 2019

Chinese farmers say subsidies unfair

"Backyard" livestock farmers in China favor eliminating subsidies that go primarily to large livestock farms, according to a commentary posted on many Chinese web sites earlier this week.

The article appeared on swine industry and social media sites with varying titles such as, "The reason backyard farmers oppose subsidies is shocking!" "Upper levels of government were shocked," and "The truth! Why does poverty increase at the same time the State gives more subsidies?" The author was not identified.

The commentary criticized livestock farm subsidies as unfair because the money goes mainly to big farms or disappears in the bureaucracy while poor farmers who need the money get nothing. Small farmers' resentment is magnified when they see expansions by subsidized large farms depressing prices and forcing the small farms out of business. "Although [the money] is for industry [development] and environmental protection, they are tears for poor people," the article complained.

Distribution of subsidies is not open or transparent, the article said, and there is no way for poor farmers who need them to get subsidies. Subsidies are "heard, not seen" and farmers suspect that the money is collected by "a few fat people." The writer complained that livestock farmers need to achieve a certain scale of operation and have personal connections or favor with the government to collect subsidies. Therefore, subsidies should not function as "a road to riches for those people."

The article wondered if the subsidies were a method for squeezing small farmers. Subsidies function as "training for landlords" rather than poverty alleviation, the writer complained. "Since we [small, poor] farmers don't get them, let's eliminate the subsidies for all farmers," the anonymous writer suggested.

The article focuses mainly on subsidies for swine farms that differ from crop subsidies which are usually annual payments based on the land-holding. Most of the livestock subsidies are one-time grants or loans to build farms or acquire animals and equipment. Subsidies for livestock are often proportionate to the size of the operation. They include:
  • A one-time grant for construction of large-scale livestock farms of 500 head or more, ranging from 200,000 yuan ($29,000) for 500-999 head to 800,000 yuan ($115,000) for 3000 head or more.
  • An annual transfer payment  of no less than 1 million yuan ($143,000) to major pork-surplus counties which the author says is "mostly paid to large farms." Regulations say these funds should be used for support of the local pork industry, including subsidized loans for farms and slaughterhouses, breeding and veterinary support.
  • Breeding animal acquisition and subsidies of 30 yuan per head for farms that maintain stocks of native-breed animals
  • Subsidies for automated feeding and water-conserving equipment
  • Subsidized immunizations and insurance for sows and finishing hogs
  • Compensation for culling animals during an epidemic and for safe disposal of carcasses
  • A subsidy for new types of feed (which appears to be for microbial feed additives) that is only available in a few places.
China appears to have kept these subsidies mostly hidden in its notifications of farm subsidies to the World Trade Organization. In its latest notification for 2016 submitted early this year, China listed only 73 million yuan ($1.3 million) in pig-specific subsidies and an additional 179 million yuan for cattle and sheep. These were a tiny fraction of its 1.3 trillion yuan ($186 billion) in total support for its agricultural sector declared in its WTO notification. No one really knows where this money goes or who gets it.



Monday, July 29, 2019

Province Issues Pork Production Recovery Directives

China's Guangdong Province issued a set of pork supply directives calling on city and county officials to ensure pork supplies and stabilize prices:
  • make land available for farms and slaughterhouses; include farms, slaughterhouses, and diseased carcass disposal facilities in annual land use plans
  • ease up on over-zealous enforcement of environmental restrictions on where farms can be built
  • ensure bank loans support farms and slaughterhouses and subsidize loans when feasible 
  • expand insurance for sows and hogs, pay out indemnities promptly, increase payouts, and experiment with "target price" insurance for hogs
  • give aid to clean up and consolidate slaughterhouses using funds from an 80-million-yuan agricultural development fund
  • stop feeding restaurant waste to pigs; develop plans for collecting, transporting and treating food waste; set up demonstration projects by the end of the year
  • expand city frozen pork reserves and use them to adjust supplies and stabilize pork prices
  • cities must form stable supplier relationships with hog-producing districts to fill their pork supply deficits
  • farms designated to supply hogs to Hong Kong and Macao must establish transport corridors with biosecurity supervision to ensure smooth operation and safety of hogs supplied to those cities.
The document requires each city to meet production targets set in a provincial 2018-2020 plan for pork supply. The provincial target was set at 35 million head in 2018, 34 million in 2019 and 33 million in 2020. Shenzhen is the only city with no production target, and Dongguan's target is only 1000 hogs/year. Guangzhou's target is 400,000 head per year, while the largest target is for Maoming at 5.13 million in 2019. Officials have city slaughter targets set in a "Mayor's Market Basket" evaluation system. Cities unable to meet the targets are ordered to set up supply bases to fill their pork deficit. 

The targets seem unrealistic in view of the decimation of the province's production capacity this year. According to another market analysis published last week the spread of the African swine fever virus has stabilized in Guangdong, but the disease is estimated to have wiped out 70 percent of the province's swine production capacity.


Tuesday, July 23, 2019

Chinese Pork Supply Tightens, Officials Encourage Production

Tightness in China's pork supply is becoming evident in July 2019 as shrinkage of the sow herd since last fall reduces supplies of finished hogs. Statisticians from different departments reported widely varying statistics, but all point to substantial shrinkage in supplies. Agricultural officials nervous about rising pork prices have effectively declared a premature victory over the African swine fever epidemic and ordered local officials to subsidize a re-stocking of pig farms to bolster supplies.

The Ministry of Agriculture and Rural Affairs June report on hog and sow numbers in 400 counties showed a 25.8-percent year-on-year decline in the inventory of hogs and a 26.7-percent decline in the inventory of productive sows. The inventory of hogs and sows both fell 5 percent in June. Seven years ago the Ag Ministry stopped reporting their estimate of the actual number of swine so it would not conflict with the number reported by the National Bureau of Statistics--China's official data source--but now the percentage changes clash too.

A "semi-annual report" by the director of the National Bureau of Statistics rural office announced that the swine inventory at the end of June was down 15 percent from a year earlier (see table below for all livestock statistics reported). The Bureau estimated there were 348 million swine at the end of June 2019, down 61.4 million year-on-year.

The Ministry of Agriculture and Rural Affairs also tracks the number of hogs slaughtered monthly at "above scale designated slaughterhouses." The June report shows a 10.2 percent decline from a year earlier. However, adding up the slaughter totals from January-June reports shows a total of 111 million hogs slaughtered in the first six months of 2019, almost the same as last year's total for those months.

The Statistics Bureau reported that 313 million hogs were slaughtered in January-June 2019, down 6.2 percent from the same period in 2018. The Statistics Bureau's slaughter number does not count the number of animals actually arriving at slaughter facilities and is consistently threefold larger than the Ministry of Ag's number.

The Ag Ministry's July 17 news conference explained that a 4.7-percent rise in wholesale pork price during June reflects steadily-growing tightness in pork supply that has become apparent in June and July. The Ministry's chief official in charge of market information said the recent tightness reflects the 10-month biological lag after the first contractions in sow numbers began last October. He expects supplies to get tighter and upward pressure on pork prices to build in the second half of the year.

Another Ministry official claimed that African swine fever is now "under control" and that "orderly" production and sales of hogs can now return to normal. This official said the next step is to give temporary aid, subsidized loans and insurance, and access to land to breeding farms and "above-scale" hog farms in order to restore production capacity. The official also called for enforcing the "mayors' market basket responsibility" program by evaluating local officials on their ability to ensure supplies of meat, fish, vegetables, and fruit.

The Ag Ministry officials reassured the public that meat supplies would be adequate because production of other meats and eggs is increasing, the consumption structure will change rapidly, and imports of pork will increase.

The Statistics Bureau reported a decline in pork output of 1.4 million metric tons (-5.5 percent) in the first half of 2019. Output of poultry meat and eggs were up a combined 1 mmt, while beef output was up a tepid 70,000 mt year-on-year.

First Half 2019 livestock statistics reported
China National Bureau of Statistics
   
H1 2019
Change
yoy%
Meat production MMT 39.1
na
-2.1
Pork MMT 24.7 -1.43 -5.5
Beef MMT 2.9 0.07 2.4
Poultry meat MMT 9.5 0.50 5.6
Milk  MMT 13.3 0.22 1.7
Egg output MMT 15.2 0.53 3.6
Hog slaughter Million 313.0 -20.75 -6.2
Beef cattle slaughter Million 19.2 0.39 2.1
Sheep/goat slaughter Million 618.5 30.50 5.2
Swine inventory Million 348.0 -61.43 -15.0
Poultry inventory Million 5872.0 223.00 4.0
Cattle inventory Million 92.5 1.12 1.2

Tuesday, July 9, 2019

Livestock Disease Shadows, Imported Genetics are Bottlenecks

A Chinese academic noted the growing importance of livestock to China's agricultural economy, but also warned of the sector's weaknesses: whack-a-mole epidemics, reliance on imports for core inputs, low productivity and high costs.

The comments by agricultural economics Professor Wang Mingli of the Chinese Academy of Agricultural Sciences were reported by No. 1 Business News on the release of his institute's report on challenges and countermeasures for supply-side structural reform in the agricultural sector.

According to Prof. Wang, livestock accounts for 28 percent of the value of China's agricultural output, and perhaps as much as 40 percent (presumably taking into account feeds, fodder crops, and related activities). There is much room for growth, he said, because China's per capita availability of meat, dairy, and egg products is still much less than in developed countries. Prof. Wang said the growing share of China's agricultural sector is irreversible.

In the spirit of the report, Prof. Wang acknowledged barriers facing the sector's development, including rising pork prices that are the "shadow" of disease epidemics such as African swine fever.

Professor Wang recited a chronology of major livestock disease outbreaks in China:
  • 2004--Highly-pathogenic avian influenza ravaged China's poultry flocks, causing large losses for farmers.
  • 2005--Streptococcus Sui broke out in Sichuan Province's swine herd
  • 2006--highly-pathogenic Porcine Reproductive and Respiratory Syndrome ("blue ear disease") first broke out in several southern provinces and spread nationwide, impeding healthy development of the hog industry, pushing China's CPI upward, and attracting the attention of national leaders. 
  • 2011--Porcine epidemic diarrhea virus killed off large numbers of piglets nationwide.
  • Fall 2012--an outbreak of H7N9 caused estimated losses of RMB 23 billion for the country's poultry industry by April 2013
  • 2014--another H7N9 outbreak caused estimated losses of RMB 40 billion for the poultry industry.
  • 2014--an epidemic of a sheep disease, Pestes de Petits, caused a drop in mutton prices and huge losses for sheep farmers. 
  • 2018--African swine fever was first officially reported in China, spreading to every province in less than a year.
Professor Wang claims that the epidemics are "fairly stable" with the improvement of disease prevention and control, but the potential for zoonotics that spread to both animals and humans in some region must not be underestimated. Prof. Wang estimated this year's reduction in pork output at 10 percent, cited farmers' hesitance to restock farms, big financial losses despite expectations of good prices, and stressed the importance of building the veterinary system and ramping up production of alternative meats to fill the shortfall in pork supplies. Prof. Wang warned that disease impacts on livestock markets do not dissipate easily and can last 3-to-5 years or even a decade or more.

Professor Wang also stressed China's reliance on imported resources and lack of international competitiveness in livestock production. 
  • “Three foreign lines” [Duroc-Landrace-Yorkshire] account for 80% or more of the domestic pig-breeding market. Domestic breeds account for less than 20%.
  • White-feathered breeding chicken [genetics] are entirely imported.
  • A “Cherry Valley Duck” breed has over 80% of the duck meat market.
  • About 50% of laying hen [genetics] are supplied from abroad.
  • High quality beef cattle breeds--Simenthal, Limousin, Charlelois, Wagyu, Angus--are from abroad.
  • Holstein and Jersey dairy cattle breeds are brought in from overseas.
  • Four sheep breeds are from abroad
  • In 2017 China's imports of seed for alfalfa were 1,237 mt (up 340% from 2010), clover 2,932 mt (up 150%), fescue 15,202 mt (up 120%), ryegrass 31,279 mt (up 210%).
  • Much of the machinery and equipment for livestock farms is imported. Despite improvements, Chinese equipment is behind that of foreign countries.
With low productivity, China's international competitiveness is weak. Chinese sows produce 16 marketed hogs annually, Prof. Wang said, behind the 20 or more produced in Europe and North America. China's lag in technology, management, and concepts reduces productivity and raises unit costs of China's livestock products, he said. 

China trails behind developed countries, but the potential is great, Prof. Wang insists. He recommends utilizing the strategies of "two kinds of resources, two markets" and "going out" to invest abroad to meet the growing demands of Chinese consumers. 

How High Can Chinese Pork Prices Go?

"How high can pig prices go in the second half of 2019?" asked an article posted on Chinese pork industry site zhue.com.cn this week. Pig prices have actually gone up surprisingly little over the past year in view of the huge declines in swine numbers reported in China. Prices dipped in February and hog prices really just began to show clear upward momentum in June 2019 in most parts of China. Prices are still falling in southwestern provinces where another panic slaughter phenomenon has been underway.
Chart from zhue.com.cn showing Chinese hog prices from January 1 to July 2, 2019. Orange line represents northeastern provinces; blue represents national average; gray line represents Sichuan Province.
Nevertheless, rising Chinese hog and pork prices in the second half of the year are an "indisputable fact," zhue.com.cn said. China's Ministry of Agriculture and Rural Affairs (MARA) reported an average live hog price of RMB 16.72/kg in the last week of June, up 3.8 percent from the previous week. The average hog price in the last week of June was 11.7-percent higher than in the last week of May, and the pork price was up 6.7 percent from a month earlier. Hog prices have been rising fastest in northeastern provinces that were the first and the hardest-hit by ASF a year ago. Prices are also rising in Guangdong-Guangxi provinces where extensive outbreaks occurred in recent months.

Zhue.com.cn asked 85 Chinese pork companies how high they expected hog prices to go in the second half of 2019. More than half expected a price of RMB 22/kg--a RMB5 increase from the June average--while 16 percent expected the price to go up to RMB 24, another 20 percent expected a price of RMB 25, and 7 percent expected a near-doubling of the price to RMB 30/kg this year.
Survey of 85 companies by Zhue.com.cn
China's hog and pork prices are still not near record highs, but China could see a string of monthly pork price increases extending into 2020 or 2021 if past pork price spikes are replicated. The chart for hog prices below shows three past episodes of Chinese hog price increases and possible future paths if those historical runs of price increases are replicated in 2019 and beyond. The 2006-08 price spike occurred during China's biggest previous hog disease crisis--PRRS aka "blue ear disease." The next peak in September 2011 followed a PEDv epidemic. A June 2016 peak occurred after a kill-off of sows driven by poor market conditions and environmental regulations that closed thousands of pig farms. In each instance, there were extended runs of monthly increases followed by rapid decline.

If prices followed a string of monthly percentage increases identical to the 21-month episode in 2006-08, Chinese hog prices would soar from their current RMB 17/kg to a peak of RMB 45/kg in February 2021. If they followed the 2010-11 path, prices would peak at RMB 33/kg in September 2020. If prices followed the more moderate pace of 2015-16, the peak would be RMB 23.5/kg, also in September 2020. At the end of 2019 the price would hit RMB 22/kg on both the 2006-08 and 2010-11 paths--the same price 57 percent of the zhue.com.cn survey respondents expected--and the price would only hit RMB 19-20/kg at the end of 2019 on the slower 2015-16 path.
Future price increases beyond June 2019 replicate monthly increases from 
past price cycles in 2006-08 (red), 2010-11 (green), and 2015-16 (dark blue).
There is no guarantee that the coming pig price cycle will replicate past cycles, but there are several common features of past cycles that are likely to recur:
  • past price increases extended over 15 to 20 months 
  • strings of rapid monthly increases averaging 4-to-5 percent were interspersed with periods of decline
  • each cycle had a sharp peak in price followed by rapid decline in price 
  • peaks and valleys of each cycle were at least a high as those of the previous cycles
The severity of the production decline due to ASF appears to favor a scenario of rapid growth in prices over an extended period like the 2006-08 rise in prices. Indications are that ASF has resulted in China's most severe contraction in pork supplies since the Great Leap Forward disaster in the early 1960s. MARA's report of a 23.9-percent year-on-year decline in the May 2019 sow inventory portends significant declines in pork production that should take hold this year and become more severe in 2021. Frozen pork inventories and shipments from panic-slaughter hot spots have bolstered supplies in the short run, but those will be depleted in the second half of the year. A 10-percent, 20-percent or even more severe reduction in China's pork output phased in over the next two years is possible. Shrinkage of the pork supply suggests an unprecedented rise in prices.

In 2007, China had a 7-percent reduction in pork output that led to a cumulative 150-percent increase in hog and pork prices. Flat production in 2011 led to an 89-percent increase, and a 4-percent decrease in pork output during 2016 led to a 46-percent increase in pork price. Thus, past experience makes it plausible that a 20-percent shrinkage in pork output could send prices upward by more than 150 percent.

A rebound in pork production in response to rising prices could mitigate the size and length of the price surge. In past episodes Chinese pork supply readily bounced back as high prices attracted expansion by farmers: high prices and profit margins prompt farmers to raise a new cohort of sows that produce new litters of piglets to raise to slaughter weight, driving prices back down as fast as they rose. The long run of price increases reflects biological lags in raising a new cohort of sows, gestation and fattening of market hogs. As this cycle begins, big companies with strong biosecurity and access to capital are already maneuvering to expand in this manner, and government officials have promised financial support targeted to large pig farms.

However, it's not clear that big farms alone can expand output as fast as small- and mid-size farms did in past cycles. In past cycles individually-operated farms could expand rapidly via their access to land, minimal overhead costs, and lack of regulation. While many of the big companies aim to expand in the current cycle by incorporating moderate-sized farms using a "company + farmer" strategy, individually-operated farms are still hesitant to expand due to fears of ASF, high feeder pig costs, and lack of cash. A recent MARA survey found that half of farmers were not interested in adding hogs right now. In the face of a pork shortfall, will Chinese officials at the local level maintain their vigilance enforcing environmental curbs on pork farms and bans on swill-feeding? Maybe not, but cascading requirements for biosecurity, manure treatment, bans on swill, and decontamination of feed ratchet the cost structure upward and are bullish on pork price increases.

Pork imports and substitution of other proteins put the brakes on the rise in pork prices. China's pork imports have surged during each of the past three pork price spikes. USDA says China's pork imports hit a record 2.2 million metric tons during the 2016 price spike, and imports are sure to break through this record this year or next. Imports are already on a brisk pace this year, despite very high tariffs on U.S. pork. It doesn't help that China just banned pork imports from Canada, one of its top suppliers of imports.

Of course, pork prices can't be viewed in isolation from other prices. Historically, pork prices don't stray too far from the price of chicken--an important substitute. Beef and mutton are other substitutes but troubles raising cattle and sheep sent Chinese beef and mutton prices soaring far above pork prices a decade ago. As pork prices rise, consumers, restaurants, cafeterias, and processors will substitute other meats for pork if substitutes are cheaper. Trouble is, China's capacity to supply more poultry, beef, sheep, fish/shellfish, and eggs may not fill the deficit. Rising pork prices may drag chicken and beef prices upward with them. A pork price of RMB 50/kg could pull the chicken price up to RMB 30-40/kg. Beef/mutton prices could go higher too. These other meats are also prone to crises. When will the next avian influenza outbreak occur? Will TV reporters discover more chickens soaked in antibiotics or beef made from rat meat?
On the other hand, China's relatively weak economy and general downward pressure on commodity prices could restrain growth in pork prices this time around. The rapid pace of price rises set during the 2006-08 cycle was probably accelerated by global commodity price inflation during those years that leaked into the Chinese economy. The 2010-11 cycle also occurred during a time of high commodity prices, but the more moderate 2015-16 price rise occurred after the commodity price inflation bubble had been pricked. China's CPI rose about 5 percent during the 2006-08 and 2010-11 cycles, but just 2 percent during 2015-16. Prices remain mostly soft in China now--except for commodities facing supply disruptions from disease, weather or army worms--suggesting a moderating influence on this round of pork price increases. China's CPI was 2.7 percent in May 2019--about half the inflation rate in the 2006-08 and 2010-11 cycles.

In summary, the severity of the supply disruption suggests a record surge in pork prices, but the lack of inflationary oomph and resistance to crazy-high prices might prevent a 150-percent price-increase scenario. The RMB22 expectation of hog prices by the end of the year guessed by most pork companies is surprisingly consistent with the historic price paths, but the companies weren't asked whether prices would keep rising next year.