Qiao begins by asking, "Who uses the 180 million metric tons of corn? All of it is used by livestock." [not quite, only about 60% of it.] He then takes pigs as representative of livestock in China and launches into a discussion of high hog prices, cyclical patterns, and problems facing the industry.
Qiao observes that China's July CPI was up 6.5% and recalls that the CPI increased by the same amount in 2007, when pork prices were up over 80%. He says the CPI has become a "hog indicator."
He notes the transformation of the hog industry from small-scale to large-scale farms and the importance of environmental protection. He asks rhetorically, with the ratio of hog to grain prices now at a high level of 8:1, where is the crisis? He then goes on to identify three crises:
1. A land utilization crisis. The policy is now t0 encourage large-scale hog farms instead of scattered backyard hog-raising. But these big farms need land. With cities expanding, where will these farms be built? He observes there are no hogs within Beijing's sixth ring road and Changchun--formerly a relatively small city--is now sprawling and pushing farms further out. Big cities have to bring pork in from distant locations.
2. Disease crisis. Qiao recalls that diseases led to a shortage of hogs in 2006 and prices fell to low levels. In 2009, disease appeared again with the world wide H1N1 outbreak and other diseases showed up. He says there are many new diseases and strains appearing. There used to be just one kind of foot and mouth disease; now there are many kinds.
3. A high cost crisis. Qiao says high feed costs have been a matter of discussion for some time, but now this is a real problem.
Qiao says he hears of many people talking about raising pigs. But last year prices were low and small farmers quit in large numbers. "Who will come to raise pigs?" He asks.
He says there is a supply problem. When prices were low, he says the inventory of sows was reduced by 2 million. If you consider that each sow produces as many as 13 piglets, that represents a lot of pigs.
Qiao says the cyclical repetition of ups and downs in prices is a problem that has to be solved. He calls for industry chains in accord with Chinese characteristics like the attempts by COFCO to form complete chains. He praises Wan Long, the founder of the Shuanghui Group. Qiao complains that farms have no fixed relations with slaughterhouses--they rely on traders and seldom participate in cooperatives.
He complains that it's hard for hog farms to get loans. Hogs can't be used as collateral and the farms don't own their land--they must rent it. So it's crucial for companies to go out on the market to raise capital so they can operate.
Qiao points to the regional imbalance between pork production and consumption. Cities like Shanghai, Beijing, and Guangzhou can only produce a small fraction of the pork they consume. City officials want nothing to do with hog farms. The farms are exempt from tax, so they produce no revenue and they require environmental clean-up. The 12th five-year plan calls for concentrating hog production on small farms in western provinces and large farms in coastal areas.
Qiao points to this year's "lean meat powder" incident as a big systemic problem for the industry. He then comments on the general problem of additives in pig feed, including excessive antibiotics. He says the average Chinese person consumes the equivalent of 183 grams of antibiotics in meat--like taking 8 bottles of pills a year.
He asks why China has been importing so much meat and soybeans. He cites rising grain prices worldwide. "Why do we have to import?" He asks. "Is there enough corn?"
"Will hog prices go down next year?" Qiao doesn't think so. He seems to think prices are permanently higher. He wonders whether the high prices will stimulate investment in the industry.
Regarding the government's propaganda about 8 straight increases in grain production, Qiao wonders whether there will be enough corn. Qiao says he speaks for the biggest users of grain--hog farms.
Qiao is not the most incisive analyst--his thoughts seem scattered and his facts are often incorrect. But in contrast to most government officials in China who have canned speeches, Qiao speaks his mind openly and asks lots of questions...a refreshing speech in this respect.
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