China Swine Numbers: Implausible Sow Productivity

In December 2019 China's Ministry of Agriculture and Rural Affairs issued a circular calling for normal pork production capacity to be restored by the end of 2020 and normal pork supplies by 2021. The statistics issued by China's National Bureau of Statistics (NBS) last week indicate good progress. Trouble is, the increase in productivity implied by the statistics is implausible.

We'll set aside NBS's conservative 29-percent decline in swine inventory between Q3 2018 and Q3 2019 during the peak of the African swine fever (ASF) epidemic. Agriculture Ministry data indicated that the swine population plummeted by more than 40 percent during the epidemic, and the decline in sow numbers was even faster. 

In a report on "sustained recovery of livestock production" issued by NBS with Q1 macroeconomic data touted six straight quarters of swine inventory growth. The report said the pork industry increased the inventory of swine on farms to 416 million head at the end of Q1 2021, up 95 million from a year earlier and very close to the inventory level before the African Swine fever epidemic. The number of hogs slaughtered was 171.4 million in Q1 2021, up 40 million from a year earlier. 

Source: Compilation of China National Bureau of Statistics data.

NBS reported that China had 42.2 million productive sows at the end of Q1 2021, up from 34 million at the end of Q1 2020. The 34 million sows on farms a year ago managed to produce 567 million slaughtered hogs over the last 12 months (according to quarterly reports) and enough offspring to increase the inventory on farms by 95 million head between Q1 2020 and Q1 2021. If we assume that half of the sows have to be culled and replaced during 12 months, an additional 17 million gilts would have had to be produced as replacements. Those numbers imply 689 million hogs and pigs were produced over the last 12 months . That, in turn, suggests that last year's 34 million sows produced an average of 20 offspring in 12 months. At two litters per year, that works out to 10 surviving pigs per litter--pretty good performance...if the numbers are true.

For reference, let's do a similar calculation for 2017--the last full year before ASF hit. That year China started with 45 million sows. They produced 694 million slaughtered hogs over the following 12 months, but the swine inventory was almost unchanged--it declined by 2 million that year. Again, assuming half the sows needed to be replaced, 22 million gilts would have been needed as replacements. Thus, the total production in 2017 was about 716 million head, equal to 16 surviving pigs per sow, or 8 per litter.

So the calculations imply that the average sow produced 20 surviving offspring during the last 12 months of swine herd rebuilding, up from 16 per sow produced during 2017. That is a 25-percent increase in sow productivity. 

This increase in productivity is exactly the opposite of what has been reported about China's swine industry over the past year-plus. All indications are that sow productivity has gone down, not up.

• Breeding farms were decimated by ASF, and many breeding farms stopped reporting performance data to the national genetic improvement program.
• No foundational breeding stock was imported to replenish breeding operations during 2018-19.
• For this reason, farms frequently used female pigs meant for commercial herds as breeding sows. These sows were reported to be less productive and had to be culled earlier than usual. 
• Some of these gilts from the commercial herds brought disease into sow barns. The herd has had trouble with other diseases like classical swine fever and pseudorabies.
• Illegal ASF vaccines and naturally-occurring variants of the virus led to a resurgence of ASF. 
• Extremely cold weather last winter increased mortality and vulnerability to disease.

The productivity and nearly full recovery of swine numbers--including a sow inventory of 43.2 million at the end of Q1 2021--is inconsistent with the sustained high price of piglets. If sows are really turning out piglets at the pace implied by the NBS data, why are piglet prices still so high? In March 2021 Agriculture Ministry data showed that piglet prices averaged 93.37 yuan per kg. That was down from the peak of 108.2 yuan in August 2020, but still more than four-fold higher than the piglet price in early 2019. Swine carcass prices dropped from 53.74 yuan per kg in January to 40.70 yuan in April. Why are piglet prices and slaughtered hog prices moving in opposite directions? Other reports attribute the recent fall in hog prices to a rush of panic slaughter of small pigs below normal slaughter weights prompted by ASF fears. 

If pork supplies are really recovering so well, why have imports risen? China's customs data reports that 1.16 million metric tons of pork were imported in Q1 2021, 22 percent more than a year earlier. This is another piece of data at odds with the reported recovery of pork supplies. 

If pork supplies have been growing since last year, why is the government continuing to dump frozen meat into the market to boost supplies? The commodity reserve management center injected 200,000 metric tons of frozen pork reserves into the market during Q1 2021, slightly less than 250,000 mt of pork reserves sold in Q1 2020 when the pork shortage was at its peak. 

These numbers appear to have some fat baked into them somewhere.

China Grain Reserve Auctions: Loaded for Bear (and Bulls)

China subsidizes production and storage of wheat and rice stockpiles to preserve "food security" for humans, but inedible grain reserves are being auctioned to deflate a bull market for animal feeds.

An article by China Grain Net reported this week that adjustments to opening bids in grain auctions reveal officials' determination to dispose of surplus wheat and rice purchased from 2014 to 2019 under the country's price support program. According to the article, less than 50 million metric tons (mmt) of surplus wheat remains to be sold after a string of auctions held since last year. Over 100 mmt of surplus rice--mostly medium grain--is targeted for disgorgement from bloated reserves. China Grain Net is a grain market news service operated by Sinograin, China's Grain Reserve Corporation.

The article focuses on the "huge effect" of an April 12 circular that raised the opening bid price for the wheat auctions by 60 yuan per metric ton. This move was interpreted by China Grain Net as sending a signal to boost the price for the new wheat crop that will begin harvest next month. 

The first wheat auction held after the adjustment brought a higher average price, but only 10 percent of the wheat offered actually sold. The April 14 wheat auction had an average sale price of 2401 yuan ($369) per metric ton, 52 yuan higher than the previous auction. However, only 410,000 mt of the 4 mmt offered actually sold. The poor auction results are due to the so-so state of the flour-milling business with potential buyers said to be waiting for the new wheat crop to come on the market. 

Officials reduced opening auction prices for medium grain rice because authorities are eager to sell the huge stockpile of medium grain rice. It is hoped that lower auction prices will make it feasible to pay high costs to transport piles of old medium grain out of the northeastern region. The medium-grain opening-bid reduction varied by production year: the opening bid was cut 25 yuan for 2019 rice, 30 yuan for 2018 rice, and 10 yuan for 2017 rice. The opening bid for medium grain ranged from 2540 yuan to 2625 yuan per metric ton. The minimum purchase price for those years was 3000 yuan for 2017 and 2600 yuan for 2018-2020.

China Grain Net said reserves of long grain rice are not as much of a concern. Opening prices for long grain rice were raised for 2017 and 2019 crop years and cut 10 yuan for 2018 long grain. Opening prices for long grain middle-late rice ranged from 2500 to 2560 yuan/mt. In the last auction of long grain rice, less than 32,000 mt of long grain rice sold out of 1.6 million metric tons offered. 

Current market prices for wheat and rice prices in China are above their relatively low level a year ago when China was emerging from its pandemic lockdown. According to the National Bureau of Statistics, the average wheat price jumped to 2565 yuan/mt in mid-January--165 yuan above year-earlier price--when wheat auctions were selling 100% of grain offered. In early April the Bureau's average price was down to 2535 yuan. Wheat prices typically drop during June when the new harvest comes in.

Japonica (medium grain) rice prices have been higher than last year, but prices are still below 2018 and 2019 levels. A surge of rice-hoarding in April of last year caused a surge in medium grain rice prices as China emerged from lockdown. The average price reported by the statistics Bureau in early April 2021 was 4060 yuan ($640) per metric ton. China Grain Net worries that lower auction prices could put pressure on the medium grain price in the currently sluggish market. The price plunged as low as 3834 yuan in 2019. 

China Grain Net says the plan is to diversify the grain market, i.e. wean the grain market off reliance on selling at the minimum price to state reserves. They expect that minimum-price purchases will not be launched until late in the wheat marketing season this year. But they've been saying this since reforms that "opened" the grain market in 2001 and 1993. China Grain Net says grain business operators complain that the minimum price purchase policy distorts the grain market, but they nevertheless like the policy's reduction in price risk.

China Grain Net said the increase in wheat auction prices could affect the corn market by reducing the price advantage of wheat over corn in animal feed rations. 

There was no mention of prospects for corn auctions which typically run from May to August after the corn marketing season is completed. Supposedly, the surplus of "temporary reserve" corn stockpiles was depleted by last year's auctions.

Statistics and Politics Intertwined in China

A simple recipe for statistical flim-flam: pour one cup of random numbers into a bowl, sprinkle with political slogans, fold in statistical algorithms and reams of paper to taste, mix vigorously, and bake until the ingredients are indistinguishable. The final product tastes like cardboard and has no calories or protein, but government officials and bureaucrats will nevertheless grow fat on a steady diet of this concoction.

Last month China's statistics bureau presented itself to the United Nations as a technocratic government organization while at home celebrating its role as an inherently political organization. 

On March 1 and 5, a delegation from China's National Bureau of Statistics (NBS) participated in a videoconference with the UN statistics committee where the Bureau pledged to participate in statistical monitoring of 2030 sustainable development goals, international big data, improvements of national accounts, environmental accounting, geographic information systems, and household surveys. 

On March 16, the Bureau hosted a signing ceremony for an agreement between China and the UN on the Trust Fund for Statistical Capacity Building, a project funded by the World Bank since 1999 to improve collection and reporting of statistics in the developing world. NBS Director Ning Jizhe thanked the UN officials--including a UN undersecretary who is a retired official from China's Foreign Ministry--for their support. Ning endorsed the Trust Fund's function of spreading internationally-accepted statistical methods and practices. Ning bragged about China's own achievements in statistical capacity-building in developing countries. 

On March 17-19, Ning took up his role as secretary of the statistics bureau's communist party organization as he visited statisticians in Shandong Province to encourage them to study communist party history. In his visits to the Rizhao City Fortune Center, port, companies, and an e-commerce industrial park, Ning urged businessmen to grasp opportunities in technical areas like big data, cloud computing, industrial internet, and digital technology. Here, he seemed to be carrying out his other job as deputy director of the National Development and Reform Commission (running the National Bureau of Statistics for the second-largest economy in the world is apparently only a part-time job).

On March 29-30, Ning was in full political mode as he led a delegation to study communist party history in an Anhui Province "revolutionary base" where he stressed the importance of implementing Xi Jinping's important discourses on statistical work. Ning participated in a communist party celebration in Jinzhai County's Dabieshan, one of the places that launched China's communist rebellion. Ning placed flowers at a monument to revolutionary martyrs, recited his oath to the communist party, and visited the county revolutionary museum. 

Statistics Bureau Director Ning Jizhe and comrades renewed their vows to the communist party.

At Jinzhai County, Ning proclaimed that studying communist party history is a major affair in political life. Ning urged statisticians to inherit the "red genes" of Dabieshan's revolutionary spirit, draw wisdom and strength from the revolutionary course of hard struggle, continue to strengthen statistical investigation capacity, and strive to modernize statistics. 

Ning sent a subtle message to local statisticians to shape up by making a "special trip" to visit a small town statistical station and the county survey team in Jinzhai. Ning thanked the local statisticians for their work and observed that grass roots statisticians who collect and report basic data are the foundation of the statistical system. Ning then exhorted local statisticians to upgrade the quality of their work, urging them to focus on scientific standardization and to improve the truthfulness and accuracy of their source data. 

In plain language, Ning's implied message might be stated like this: "Our data sucks because you local people at the bottom of the pyramid are inflating your numbers and making careless mistakes; we're helpless up here in Beijing until you guys clean up your act." 

But maybe it's the system's fault for incentivizing statisticians to turn out statistical flim-flam. Ning himself--simultaneously serving as statistics boss, communist party leader, and top official in the country's planning agency--embodies the intertwining of politics and statistics in China that guarantees bogus data. From top to bottom, statistics are a tool, not an objective measure of the world. In Beijing, statistics must demonstrate the success of the party's policies. At the bottom of the pyramid, statistics pad the resumes of local leaders, generate bonuses and lead to promotions. The promotion is usually to another place, so the promoted leader couldn't care less about the true state of affairs in his/her current location. 

Statisticians don't dare report data that fail to show success. Producing data that reveals problems or demonstrates the impotence of policies is not a good career move. Successful bosses may move on to a more powerful position or desirable city and take a few statisticians along. There is no reward for accuracy or rigor. Officials, journalists and academics who also are beholden to the party will quote the numbers without asking questions. It's illegal for any other organizations to collect their own data, so there is no worry that someone might point out errors or fraud. The system incentivizes fraud, sloppiness, and tourism disguised as training and political education. 

Now we're going to make international policy on climate change and try to judge prospective food supply and demand based on numbers generated by this system. Moreover, China plans to provide technical assistance in statistics to the developing world. Uh oh.

Statistics are always and everywhere at risk of becoming meaningless numbers. The production of meaningful data depends as much on separating statisticians from political influence and exposing their data to independent scrutiny as it does on sophisticated algorithms and powerful computers. You can count on that.