Pork Subsidy King China Investigates EU Pork Subsidies

China is launching an anti-subsidy investigation against European pork--a brazenly cynical move since China itself probably has more pork subsidies and government intervention than any other country.

An industry source estimated earlier this month that 22 Chinese hog-producing companies received a total of 4.7 billion yuan (about $650 million) in subsidies during 2023. According to the industry source, the objective of the government aid is to build up big companies with prominent brands on the premise that they will "pull along" farmers and cooperatives. Muyuan, the largest hog producer in the world, got 2.877 billion yuan in aid. Others got smaller amounts: 257 million yuan to New Hope Group, 242 million yuan to COFCO, 232 million yuan to Wens Group, and 202 million yuan to DBN. The industry source estimated that 29% of aid given to Wens was for production activities, 23% for R&D, 15% for buildings and equipment, and 8% for environmental protection (no mention of where the other 25% goes).

China's pork subsidies first began in 2006-07 when authorities were anxious to rebuild the industry after a "blue ear disease" epidemic killed off pigs and drove prices to record highs. A decade later subsidies were ramped up again and when China's pork industry was in the midst of an even bigger epidemic--African swine fever (ASF). 

Hundreds of major pork-surplus counties get an annual transfer payment of at least 1 million yuan ($143,000) based on their production and sales of pork. 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.

The central government  allocates about a billion dollars a year to provinces for support of mandatory livestock vaccinations and proper disposal of diseased pig carcasses. 

Communist party leaders issue pork production targets to provincial leaders. Each province and locality could have a different mix of policies. Most policy measures cannot be identified by outsiders because there is no legislation or regulation that establishes the policies such as:

• Grants 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.
• 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

During the 2019 African swine fever-induced pork shortage Chinese officials prodded lower-level officials to boost pork production. Premier Li Keqiang ordered up "comprehensive measures to restore hog production" and "more urgent attitudes." A September 2019 directive by China's State Council set a 95-percent self-sufficiency target for pork and called for recovery of pork production capacity asap. The Agriculture Ministry's 3-year plan to restore pork production capacity cited Xi Jinping's "important directives" and the Premier's "clear requirements," and held consultations to urge local leaders to carry out the plan. The news media was enlisted to write glowing articles about the pig support policies. 

In 2020 the communist party's No. 1 Document ordered officials to speed up the expansion of pork production and decreed that normal production capacity should be restored by the end of the year. Pork companies were ordered to build slaughterhouses and procure pigs from farmers in poverty-stricken counties as part of the national poverty alleviation initiative.

The agriculture ministry's 3-year plan included many specific tasks to expedite an expansion of pork production capacity during 2019-20, mainly by constructing some of the biggest pig farms in the world:

1. Start building farm projects before the end of the year using this year's subsidy funds and use 2020 funds to build projects and rush them into production as soon as possible. 
2. Order local officials to subsidize purchases of automated feeding equipment, and equipment for environmental control, disease prevention and control, and waste treatment using the agricultural machinery and equipment subsidy program.
3. Loosen bans on using farmland to build pig farms, waive the approval process for using village "construction land" for pig farms, and otherwise simplify land approvals.
4. Use hog county transfer payments to fund industry development, veterinary services, and marketing infrastructure. 
5. Expand a collateral loan pilot, issue subsidized working capital and construction loans for breeding farms and large-scale farms. Expand insurance for sows and finishing hogs. 
6. Create 120 replicable high quality demonstration farms to upgrade production. 
7. Choose 1 or 2 localities for pork-based poverty alleviation projects in provinces of Hunan, Hubei, Guangdong, Guangxi, Chongqing, Sichuan, Guizhou, Yunnan, and Shaanxi. Companies will collaborate with small and medium-scale farmers to expand pork output.
8. Urge local officials to ease up on local environmental bans on livestock farms by the end of the year and order local officials to stop declaring "pig-free" cities and counties.
9. Carry out environmental impact assessment of pig farms. Utilize an automated system and let farms of 5000 head or more start construction without having to wait for the final approval. 

Chinese pig farms have very lax environmental regulations compared to European counterparts, and animal welfare measures are voluntary and rare. During the 2019 pork shortage local officials were ordered to expedite environmental assessments of new pig farm projects.

Local officials are allowed to approve construction of pig farms on land designated for grain production--an exception to China's strict "food security" regulations. 

The result of China's breakneck expansion policy was that pork prices plummeted in 2021 as fast as they had risen in 2019. In 2021 a document on promoting a "stable, healthy swine industry" celebrated the policy responses by provincial leaders to restore pork capacity and called for continuing the support measures. The document focused on eliminating gyrations in production by dictating sow numbers and intervening aggressively by buying and selling pork reserves. 

With a rebound in supply and weak consumer demand during and after covid lockdowns Chinese pork prices have been stuck at levels at or below cost of production over the past 3 years. Chinese production costs are high due to the high prices of grain, rampant disease and relatively low productivity in China's pork industry. Therefore, when Chinese hog prices are at loss-making levels they are still higher than prices in major pork-producing countries of the Americas and Europe.  

Parts of the animal such as organs, snouts, feet, etc. have minimal value in Europe and North America, but they are in demand in China. These parts of the hog can be sold to China at prices that far exceed the prices they can fetch as pet food or fertilizer ingredients in exporting countries. Chinese authorities claim this constitutes "dumping" and are now constructing a string of non sequiturs to link "unfair" prices of exported pork offal to some European policy.