Stats Bureau Shows Slow Rebuilding of Swine Herd

China's swine inventory was about 14 percent below its pre-African swine fever epidemic level at the end of Q3 2020--about half last year's deficit. With peak pork consumption season coming up in Q4, it will be hard to continue rebuilding swine inventories in the last three months of 2020. 

China's National Bureau of Statistics released macroeconomic data for the third quarter of 2020 that included a swine inventory of 370 million for the quarter's end, 14 percent less than the pre-ASF inventory of 429 million head in Q3 2018. China's swine inventory bottomed out at 307 million in Q3 2019, about 28 percent less than the pre-ASF level. According to the Bureau, the inventory at the end of Q3 was up 9 percent from Q2.

The Ministry of Agriculture reported that the swine herd had been growing steadily at 4 percent since June, faster than the 3 percent monthly growth implied by the Statistics Bureau's numbers. In August, the Ag Ministry reported that the swine inventory was up 31 percent from a year earlier, but the Statistics Bureau's Q3 inventory is 21 percent higher than a year earlier. 

Note: Quarterly data calculated from National Bureau of Statistics.

The Statistics Bureau said the number of sows at the end of Q3 2020 was 38.2 million. The Q3 sow inventory is 4.7 million below the pre-ASF sow inventory of 42.9 million posted at the end of 2017 (the target of "normal production capacity"). Previous numbers indicate China added 2.5 million sows in Q2 and 2 million in Q3. It is unclear how the Bureau can count sows with any degree of accuracy. In August, the agriculture ministry said that 11,123 new "above scale" farms were built this year and 11,800 farms that were emptied last year have been restocked. How can they get an accurate count with so many new farms and millions of backyard farms having exited?

Note: Monthly inventories 2018-19 calculated using Ministry of Agriculture monthly changes; other inventories are from National Bureau of Statistics. Monthly changes in sow numbers have not been reported since October 2019.

The August Ag Ministry report said 26 million piglets were born in August, up 59.5 percent from their low point in January. Yet the price of piglets also peaked in September, up 44 percent from the beginning of the year and double the previous record in June 2016. 

Weekly wholesale market prices reported by China Ministry of Agriculture and Rural Affairs.

National Bureau of Statistics numbers indicate that 110.8 million hogs were slaughtered and pork output was 8.4 mmt in Q3 2020. Pork output in Q3 was lower than in Q2. Pork output in Q3 2020 was up 18 percent from a year earlier but it was 31 percent below "normal" output in Q3 2018.

The Statistics Bureau reported that cumulative pork output for the first three quarters of 2020 totaled 28.4 mmt, down 3.4 mmt from Q1-Q3 2019, and down 10 mmt from Q1-Q3 2018. According to the Ag Ministry, 2.9 mmt of pork was imported January-August, which appears to fill about a third of the supply shortfall. Pork production will have to rise substantially during Q4 2020 just to meet peak seasonal consumption demand in that quarter. 

The Statistics Bureau said overall meat production for Q1-Q3 2020 was down 4.7 percent from a year earlier. Poultry meat output was up 6.5 percent, but beef output was down 1.7 percent and mutton output was down 1.8 percent. Egg output was up 5.1 percent and milk output was up 8.1 percent. 

The Statistics Bureau's CPI report said that a 14-percent increase in the food component accounted for nearly all of the increase in the consumer price index for the first three quarters of 2020. The increase in food prices, in turn, was led by an 82-percent increase in consumer pork prices. In the first two months of 2020 pork prices were 135 percent above year-earlier levels, the Bureau reported. Rising pork prices pulled along increases in consumer prices of beef (17.9 percent), mutton (10.3 percent), chicken (5.8 percent), and duck (4.5 percent), according to the Bureau's report. Egg prices fell 8.7 percent.

China Pork Industry Recovery in "Key Period"

In one breath, Chinese agricultural officials in Beijing proclaim a robust recovery of the pork sector, and with the next breath they issue urgent orders to their underlings in the provinces to build more pig farms. 

China's agriculture ministry held an October 10, 2020 videoconference where provincial and local officials were admonished not to slack off on implementing hog production support measures as the industry's recovery enters a "key period." Beijing officials explicitly ordered both provincial and local leaders to take seriously their responsibility to expand pork supplies, an indication that engineering a rebound in pork output remains a top "political task" after a year of shrunken pork supplies and record-high prices. 

On October 15, the agriculture ministry's press conference on agricultural markets pronounced that hog production capacity had staged a steady recovery during the third quarter of 2020. Officials praised the smooth operation of the market during the mid-Autumn festival and National Day holidays. Officials predicted a Q4 payoff in expanded pork supply after 11 months of increases in sow inventories with stable and declining pork prices.

National Bureau of Statistics data show that China's average hog price started falling in August 2020. The early October price happened to be about the same as a year earlier, but a year ago prices were climbing rapidly toward a record peak late in October 2019. During October 2020 the hog price is still more than double the level in 2017 and 2018. Last week's agriculture ministry press conference said it is very unlikely pork prices will reach the peak that prevailed in late October last year. 

Similarly, the volume of hogs slaughtered by "above scale" "designated slaughterhouses" reported by the agriculture ministry in September 2020 was about the same as a year ago. Last September the monthly slaughter volume was in free-fall, but the September 2020 volume was an uptick from August. The September 2020 slaughter volume was still 33 percent below the volume in 2018.

Officials speaking at the October videoconference urged provincial and local leaders to implement programs to subsidize and facilitate construction of new farms; payout aid funds to farms asap; set aside land for new pig farms; badger banks to accept pigs, barns and manure tanks as collateral for loans; and ease up on environmental impact assessments of new farms. Officials were instructed to "guide" medium and small-scale farms to restore and expand their swine herds. With officials being urged to build new farms, it would seem the recovery still has a ways to go.

Livestock Decree Addresses Festering Problems

China is producing and consuming more meat, eggs and milk than anyone thought possible in the early 20th century, but the industry has festering problems that intermittently blow up: babies poisoned by chemical-laced milk, avian influenza outbreaks, dead pigs floating in rivers, black streams and green lakes, and a year-long bout of sky-high meat prices after African swine fever decimated the pig herd last year.

On September 27, China's State Council released an "Opinion on Promoting Quality Development of the Livestock Industry" to ensure supplies of animal protein while addressing the industry's rising costs, growing reliance on imports, rampant disease, environmental degradation, and food safety threats. The document outlines multiple goals for the nation's livestock industry: filling the citizenry's "market basket" for food, promoting income growth for farmers and herdsmen, and contributing to rural industrialization. The document claims output has grown rapidly, but acknowledges that "quality" has not always been high. 

The Opinion has four main thrusts: 

• develop a modern livestock industry
• upgrade disease prevention and control
  
• develop a modern processing and distribution system
  
• accelerate "green circular development" 

and each thrust contains multiple components. Modern livestock industry encompasses breeding R&D, fodder and feed, mechanization, developing scale businesses, and keeping small and medium-scale farmers engaged in the industry. The "Opinion" puts priority on prevention of livestock diseases as "the first line," echoing the recent ASF epidemic, with a nod to preventing another pandemic in its call to prevent epizootic diseases that spread from animals to humans. Processing and distribution includes developing cold chain facilities and transport, upgrading slaughter and processing and moving the activity into the hinterland, incorporating information technology and record-keeping, improving the meat reserve system, and diversifying sources of meat and dairy imports and types of products imported. "Green" development entails utilizing animal waste as fertilizer for crops, detailed regional planning, and matching livestock farms with crop farms. 

The Opinion lists four sets of measures for implementation:

• Improve the "market basket system" by encouraging urbanized provinces to set up production bases in livestock-producing provinces and by setting up interprovincial compensation systems.
• Give livestock farms access to land, eliminating "irrational barriers" to livestock farms, easing up on restrictions on use of cropland, and encouraging livestock farms to locate on land designated for forests.
• Strengthen subsidies such as transfer payments to livestock counties and funds for model counties, and improve financial services by encouraging banks to accept barns and animals as collateral for loans, and experiment with insurance for livestock.
• Strengthen market intervention by issuing "precise" information to guide producers and improving the meat reserve system. 
• Revise veterinary laws and simplify procedures for importing breeding stock.
  

The Opinion has many objectives that sometimes conflict with one another. The command to eliminate "irrational barriers" to livestock production is a reversal of a big program during 2013-18 that ordered local governments to delineate zones where livestock and poultry farms would be banned or limited in order to clean up pollution. Facing a severe pork shortage in 2019, officials reversed course and accused local officials of shutting down too many livestock farms.

The Opinion seems to contradict itself in some areas. The opinion designates "market guidance" as its first principle and it encourages imports, but it also sets self-sufficiency targets of 95 percent for pork, 85 percent for beef and mutton, 70 percent for dairy, and full self-sufficiency for poultry. The Opinion calls for simplifying procedures for importing breeding stock, but elsewhere it sets a goal of weaning the industry from its reliance on imported breeding stock, and in another place it calls for stricter inspection and quarantine measures at the border. It prioritizes R&D on white-feather chicken breeding, indigenization of lean-type native pig breeds, and accelerating domestic breeding of cattle and sheep. The Opinion also aims to increase self-reliance in animal fodder by boosting production of corn for silage, alfalfa, and oat hay, and it calls for finding substitutes for corn and soybeans in feed. One paragraph endorses large-scale farms and vertically-integrated processing and distribution, while another paragraph calls for engaging small and medium-scale farms.

This Opinion has almost no new ideas; it recycles ideas that were put forward in past decades and largely forgotten. Thirty-four years ago, the 1986 "Number 1 document" admonished officials to "reverse the neglect of organic fertilizer in recent years." The task of creating a "modern livestock farming industry" was part of the 2006-10 five-year plan that first launched livestock subsidies and a program to build scaled-up livestock farms--prompted by a huge avian influenza epidemic. That plan was quickly derailed by a "blue ear disease" epidemic in 2006-07, which prompted a 2007 "Opinion" on the hog industry that introduced a now-abandoned sow subsidy and launched subsidized swine insurance. 

 

This year's Opinion makes a promise to publish market information to help farmers make better decisions. The same pledge was made by a "hog price alert" program kicked off in 2009 that promised to publish about a dozen data items for the same purpose. Only one or two of them are still published. The agriculture ministry stopped issuing monthly changes in hog and sow inventories a year ago. Plans to overhaul chaotic animal slaughter have been launched about once a decade since the "designated slaughterhouse" system was launched in the 1980s.