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China Livestock and Products Annual 2007

by 5m Editor
12 October 2007, at 12:00am

By USDA, Foreign Agricultural Service - This article provides the pork industry data from the USDA FAS Livestock and Products Annual 2007 report for China. A link to the full report is also provided. The full report includes all the tabular data which we have omitted from this article.

Report Highlights

In August 2007, China agreed to lift its ban on U.S. bone-in beef and bovine offal from cattle under 30 months based on its ban lifting on U.S. boneless beef from cattle under 30 months in June 2007. However, the United States did not accept the offer because it did not follow OIE guidelines supporting trade in all products and ages with a "risk-controlled” country such as the United States. Post estimates that China has lost over 10 million pigs as a result of Porcine Reproductive and Respiratory Syndrome (PRRS) in 2006 and 2007. Despite this, FAS Beijing forecasts China's pork production in 2008 to recover by 2 percent to 48 MMT. High prices for all meat should push 2008 beef production up by 3 percent to 8.1 MMT. However, increased beef and other production in 2008 may not offset decreased pork production in 2007. As a result, tight meat supplies should continue into 2008 and encourage meat imports.

Executive Summary

It is almost four years since China shut off U.S. beef after the first outbreak of BSE in the United States in December 2003 among dairy cattle imported from Canada. In August 2007, China proposed lifting a ban on U.S. bone-in beef and offal from cattle under 30 months of age based on a July 2006 offer to lift its ban on U.S. boneless beef. China became a member of the World Organization for Animal Health (OIE) in May 2007. Despite this, China has not followed OIE guidelines regarding beef trade and BSE. For this reason, the United States did not accept China’s offer because the continued BSE-related restrictions on animal age and other products are not based on science and international standards.

FAS Beijing forecasts that China’s 2008 beef production to increase steadily by three percent to 8.1 MMT because of strong domestic demand. At the same time, reduced outbreaks of foot and mouth disease will likely result in larger calf numbers in 2007 and 2008. Post estimates China’s beef exports in 2008 to increase by two percent to 104,000 MT mainly to traditional markets such as Hong Kong, South Korea, and Japan.

Post forecasts China’s pork production in 2008 to rise by two percent to 48 million MT. This will partially offset an estimated ten percent decrease in 2007 resulting from Porcine Reproductive and Respiratory Syndrome (PRRS), otherwise known as Blue Ear Disease. While part of this recovery is being driven by high prices, it is also a result of the Chinese government support to swine producers. Caution in the sector means that breeding swine imports in 2008 are expected to remain flat because of the fear of further PRRS outbreaks. Domestic shortages in hog and pork supplies is expected to continue into 2008 and will likely drive China’s pork imports up by 15 percent to 150,000 MT in 2008 from estimated 130,000 MT in 2007. The ractopamine residue and China’s zero tolerance on epidemic pathogens for raw meats continue to constrain U.S. pork exports. As of September 25, 2007, 18 U.S. establishments have been delisted -- 11 for ractopamine and 8 for pathogens. China’s swine exports in 2008 are forecast to recover by three percent to 1.7 million head in line with the domestic production recovery. Traditionally, pork is the largest source of meat in the Chinese diet:

China - Total Meat Production, 2001-2006 (1,000 MT)
% Change
2001 2002 2003 2004 2005 2006 2006/05
Total Meat 63,339 65,865 69,329 72,448 77,431 80,514 3.98
Beef 5,488 5,846 6,305 6,759 7,115 7,500 5.41
Pork 41,845 43,266 45,186 47,016 50,106 51,972 3.72
Sheep and goat meat 2,927 3,167 3,572 3,993 4,355 4,697 7.85
Total poultry Meat 12,103 12,498 13,121 13,514 14,643 15,090 3.05
Source: National Statistics Bureau
Note: No data included in this report is official. All official USDA data is available at
http://www.fas.usda.gov/psdonlineonline).


Pork Production Down but to Recover

Post forecasts China’s pork production in 2008 to increase by two percent to 48 MMT despite a lower slaughter rate. PRRS will cut into backyard production but China’s increasingly commercialized production is expected to see increasing carcass weight. FAS Beijing forecasts China’s total beginning swine stocks in 2008 to fall by five percent to 469.8 million head because of PRRS. Additionally, Post forecasts China’s 2008 sow stocks and production to increase by 2 and 3 percent to 47.5 million and 649 million head respectively. This recovery will come as a result of China’s new production and insurance subsidy for sows beginning in August 2007–with positive results likely in the latter half of 2008 -- one and a half years are needed from breeding female piglet recovery to commercial swine slaughter. In 2008, post projects a continued decrease in slaughter to 644.1 million head on top of the estimated five percent decrease in 2007 as a result of depleted beginning stocks.

Post revised China’s 2007 sow beginning stocks and pig crop production down by five percent to 46.5 million head and 7 percent down to 630 million head respectively. Post revised China’s 2007 pork production 10 percent down to 47 MMT to reflect an estimated five percent decrease in slaughter to 647 million head. Both the slaughter rate and carcass weight are likely to be lower than normal years because of PRRS. China’s slow response to PRRS has resulted in significant losses to Chinese swine herds and pork production.

Swine and pork production are not expected to recover this year. Although China has developed a vaccine, its effectiveness is difficult to gauge. One problem is that the vaccines are difficult to use. They require refrigerator storage under a constant temperature at 2-8 degrees Celsius. They then must be taken out and kept at room temperature for 2-3 hours before usage. Most farmers do not have this kind of infrastructure in place. To make matters worse, inappropriate usage may cause sow miscarriage or other problems. Some have questioned whether the vaccine causes more problems than it solves – or whether it even works at all.

Recovery will also be slowed because high piglet prices have encouraged farmers to reduce herd size. Market uncertainty makes farmers more willing to place sows to obtain government subsidies, or send fattening swine at 50-60 kg to early too slaughter before the October holidays. Piglet placement may increase in October-November 2007 for slaughter before the calendar New Year in January and the traditional Spring Festival in February 2008.

Although pork’s share in China’s total meat production will gradually decrease, other meats cannot replace pork completely as China’s largest traditional meat. Pork accounted for nearly 65 percent of China’s total meat production in 2006.

High Prices

Short domestic pork supplies have pushed China’s pork prices up strongly from January to July 2007 (please see below). This is the first time that swine and pork production and rising pork prices have attracted nationwide attention from senior officials. The importance of the issue encouraged the Central Government to subsidize RMB 6.5 billion ($859.8 million) in swine production and disease control measures. China also decided to increase pork imports for state reserves in order to constrain high pork prices. This will encourage large pork imports in 2007. Imports in 2008 may continue to rise with an expectation of slow recovery in domestic pork production. The Summer Olympics are also expected to boost high quality pork consumption and imports in China.

The Impact of PRRS

PRRS is an infectious disease characterized by reproductive disorders, premature delivery, miscarriage, and stillbirth -- as well as abnormal breathing in piglets. The series of outbreaks began in May 2006 in Jiangxi Province, one of China’s largest swine producing provinces, and then quickly spread to many other provinces. The Blue Ear Disease was not identified as PRRS until February, 2007. MOA claimed that from January 1 to August 19, 2007, PRRS occurred in 26 out of 31 provinces at 826 locations with 257,000 cases, 68,000 mortalities and 175,000 culling. Once infected, the death rate is 100 and 56 percent respectively for piglets and 80-day fattening swine, while sow miscarriage is about 30 percent. Backyard swine suffered heavily because of low quality feed, weak bio-security measures, poor veterinary support and untrained employees. FAS Beijing believes real losses have been under reported.

PRRS has also changed feed use in 2007. The China Feed Industry Association forecasts China’s total feed production at 47.8 MMT from January to June 2007, up 3.7 percent from the same period in 2006. Compound feed was 35 MMT (up 5.5 percent), concentrated feed was 10.7 MMT (down 1.7 percent), and additive pre-mixed feed was 2.1 MMT (up 3.6 percent) respectively. Swine feed decreased by 14 percent to 15 MMT due to falling swine stocks, while egg layer feed, boiler feed and ruminant feed increased by 5.1 percent to 9.8 MMT, 22.4 percent to 14.8 MMT and 10.4 percent to 2.2 MMT respectively. Swine feed share in China’s total feed production fell from 36 to 31 percent, also pointing to major swine losses. Remaining swine producers are moving to compound feed. One of the major drivers is that the fattening period can be shortened by for 15 days. In addition, compound feed reduces contamination compared to using farmers’ self-made formulations. Since corn accounts for 60-70 percent of swine feed, more use of industry feed could increase corn demand unless it is priced out of the market because of rising ethanol production and other demand.

Long-Term Factors & Production

FAS Beijing believes PRRS will have a short-term impact on China’s swine and pork production. Once it is under control, the production can probably recover quickly. However, the long-term future of the sector is more problematic. Many farmers are giving up raising swine because of increasing costs. Although there is still cheap labor in countryside that helps small-scale production with low cash outlays, higher wage jobs are available in large metropolitan areas. Disease is also a persistent problem. Outbreaks of swine streptococosis, high swine fever, and PRRS in 2005-2007 have hit backyard or small-scale farms frequently. In addition to these costs, producers face other issues such as high energy costs, limited water supplies, and stricter environmental requirements. Although the swine and grain conversion ratio has been above the profit and loss critical point (1:5.5) during the last eight months, profit margins are shrinking. As a result of these changes, the remaining smallscale swine producers are becoming consolidated into commercial entities.

New Policies & Production

State Pork Reserves: On August 13, 2007, the Ministry of Commerce (MOFCOM) and the Ministry of Finance (MOF) jointly announced the Measure on State Meat Reserve Management (Memo #9) effective on September 15, 2007. This is the first time China has regulated state meat reserves so actively in recent years. In the future, they will be used to curb abnormally high meat prices, natural disasters, accidents, sudden public health crises or other major events. Most reserves are counted in units of live animals converted to weight. For example, 20 head of swine, six head of cattle, and 60 head sheep and goats are counted as one MT of pork, beef and sheep and goat meat respectively. Live reserves require each swine over 60 kg, cattle over 400 kg, and sheep and goats over 20 kg. Both live swine and frozen pork reserves are replenished every 4 months, while frozen beef, and sheep and goat meat reserves are replenished every 8 months. Actually, state reserves started in 1979 mainly for frozen pork. As living standards rise, consumers prefer fresh meats. Frozen reserves have been gradually replaced by live animal reserves. In the past, central frozen reserves were about 150,000 MT a year. The quantity has been reduced to 60,000 MT per year since 2004. Provincial meat reserves will be established according to local conditions. This will no doubt help constrain meat prices in the future. Large pork imports are expected to continue in 2007 and 2008 due to insufficient domestic substitutes, but for the long run China is not expected to import large quantities for state reserves.

Animal Disease Quarantine Law: On August 30, 2007, China announced its new “Animal Quarantine Law” effective on January 1, 2008. The new law stresses animal disease monitoring, risk assessment, and reporting. It requires the government to pay for any losses due to compulsory vaccines, culling or destroying of animals or animal products for disease control. This will make farmers more willing to destroy sick animals instead of selling them quickly to avoid economic losses, thus encouraging animal disease control.

Cash Subsidy and Insurance Subsidies for Sows: This policy was announced by the MOF in June 2007. The total subsidy in 2007 is RMB6.5 billion ($886.7 million) from the central and local governments with the central government investing RMB 38 million ($506.7 million). Farmers will get RMB50 ($6.7) cash subsidy for each producing sow per year. The insurance fee for each producing sow’s is RMB 60 ($6.7) for an insurance value at RMB 1,000 ($133). Farmers only pay RMB12 ($1.6) and the government pays the remainder. The policy will likely see positive results in 2008 and beyond. However, most farmers think a $6.70 cash subsidy is not enough for one producing sow per year. Also, the insurance procedure is very complicated while piglets and fattening swine are excluded.

The MOF announced on September 17, 2007 that the Central Government will allocate RMB 1.5 billion ($200 million) this year to award 253 large counties selling fattened pigs to other places in China. The award will be allocated 50 percent to selling, 25 percent to slaughter, and 25 percent to inventory sectors respectively. It is too early to say how this policy will work because $200 million is small for 253 counties, and it is not clear whether farmers can sell swine in other markets.

High Pork Prices & Inflation

A significant change from Post’s last semi-annual livestock report (CH7014) is the sharp pork price increases resulting from PRRS. The average pork price increased by 48 percent from January to August 2007 over the same period in 2006, while prices in July and August increased by 86 and 87 percent respectively from the months in 2006. Short pork supplies also came from a decreased swine inventory created by low prices in 2005-6. From Oct 2005-Sep 2006, average wholesale hog prices fell by 23 percent because of oversupply while the average wholesale corn price rose by 22 percent. As a result, many farmers slaughtered sows to minimize losses. With herds cut already, the sudden PRRS outbreaks further reduced hog production, thus pushing pork prices steeply higher.

China Wholesale Pork Prices, 2002-2007
(Source: Ministry of Agriculture)

High pork prices have pushed up overall inflation. NSB data shows the Chinese consumer price index (CPI) was up by 3.2 percent on average from January to June 2007 over the same period in 2006. The CPI rose by 4.4 and 6.5 percent in July and August from the same months in 2006. The average food prices in the first half of 2007 increased by 7.6 percent. Increased pork prices contributed 30 percent of the total food price increase.

High pork prices have encouraged Chinese consumers shift to poultry and other meats that cost less. However, the availability of other meats can only partially offset demand. Pork prices may fluctuate at high levels into the first half of 2008 because of tight supplies, helping to drive imports in 2007 and 2008.

Recovering Pork Consumption

While high pork prices have not heavily impacted high-income consumers, price-sensitive middle and low-income consumers have either reduced pork consumption or shifted to other meats. However, this shifting will be limited because increased consumption of substitute meats already has pushed other meat prices up -- narrowing the gap between pork and other meat prices.

The substitution is also limited because the Chinese consumer still prefers pork when prices for other meats are close. In addition, many low-income consumers and school students are subsidized by the government as a new policy. On August 27, 2007 AQSIQ announced the Regulation on Food Recall Management (Memo #98), which is the first Chinese regulation to recall unqualified food products. This would no doubt give Chinese consumers confidence in meat consumption. Population increase, urbanization and constant labor moving from rural to urban areas, combined with strong economic growth (GDP growth forecast at 11 percent in 2007), will translate into sustained commercial pork demand.

Poultry meat is the most popular substitute for pork in China because it is also a traditional meat that can be cooked in many ways and consumed all the year round. However, broiler chest meat cannot substitute pork because it is considered tasteless. Beef, sheep and goat meat are normally consumed in cold weather for hot pot or consumed outdoors. Although sheep and goat meat production has been increasing fast (4.7 MMT), they only account for 6 percent of China’s total meat production (81.5 MMT) in 2006 – not enough to be close substitutes for pork. Also, about 94 percent of the Chinese population is Han Chinese, many of whom do not prefer the taste and smell of sheep and goat meat. Although beef is slowly winning market share, production already lags demand, resulting in high prices.

Muscle pork meat is popular in most provinces in China. The Chinese also like to eat meat with bones such as pork feet, legs and ribs. Women often prefer pork feet because they believe consuming pork feet improves their complexion. Pork offal or by-products, such as tongues, livers, and ears are popular for cold dishes, while kidneys and tripe are popular for deep fried dishes or soup. Pork offal cannot be substituted by beef offal except bovine stomach for hot pot. This will translate into large pork offal imports in 2007 and 2008. The United States could benefit as the second largest supplier to China.

Rapidly Increasing Pork Imports

FAS Beijing now calculates China’s pork imports by using reporting countries export statistics because China’s pork imports are likely under reported. According to traders, high domestic and international pork prices are driving grey trade through South China from overseas or Southeast Asia.

Tight domestic supplies, combined with strong demand and China’s currency appreciation (7.5 percent over the last year), will drive China’s pork imports in both 2007 and 2008. China’s pork imports from January to July 2007 increased by 73 percent to 62,991 MT valued at $72.4 million. The United States is the largest supplier to China. Its exports to China during January-July 2007 via direct shipments increased by 74 percent to 29,821 MT valued at $36.9 million over the same period in 2006. China’s pork imports in 2008 are likely to increase by 15 percent to 150,000 MT, a lower percentage increase from 2007 because of an expected recovery in domestic pork and other meat production.

China Plant Delistings & Zero Tolerance

U.S. exports are challenged by China’s ban on ractopamine usage in feed and a zero tolerance of epidemic pathogens on meats. Ractopamine is a beta agonist to produce lean pork that has been approved in the United States and has been recommended for approval in the Codex Alimentarius, the international standards body governing these kinds of substances. Despite the developing international consensus on the issue, China has not approved ractopamine.

If ractopamine or epidemic pathogens are detected on pork for the first time, China will notify the U.S. side while giving the affected plants 45 days to correct the problem. If the same problems are detected again in the future or during the 45-day corrective period on pork from the same plants, China will delist the plants for eligible exports to China. Traders report that CIQs (quarantine offices) at entry ports sample and test every container from the United States. The ractopamine ban for feed and zero tolerance raise concerns since these standards are not based on sound science.

The Ministry of Agriculture (MOA) regulates ractopamine standards, while the Ministry of Health (MOH) regulates zero tolerance standards on meat pathogens. Final revision of standards are approved by the China Administration of Standardization (SAC).

Although USDA, USTR, FDA, and FAS Beijing are working to resolve the issues, it is unclear whether China would change its standards. As a result, ractopamine and zero tolerance on meat pathogens may cause continued trade disruptions and further open the market to competitors. The EU will continue to edge into the U.S. market share in 2008 since China resumed pork imports in July from some EU countries that were shut off due to dioxin problems a couple of years ago.

Importers must also apply for a meat quarantine import permit (MQIP) to cover that contract amount. The importer must supply documentation regarding the volume of the shipment to AQSIQ with the MQIP application. The restrictions often tie importers to one supplier or one country, imposing costs of around RMB 150-450/MT ($20-60/MT).

Rising Exports

China’s live swine exports almost entirely go to Hong Kong and Macau. The trade occurs under an export quota allocated by MOFCOM at the beginning of each year. The quota is more or less the same each year. The policy will remain in place during 2008.

The forecast two percent recovery in Chinese pork exports is far below levels prior to PRRS. China was the world’s 10th largest exporter in 2006, exporting about 400,000 MT mainly to Hong Kong, Japan, and North Korea. China is not big player in the export market. Exports account for only one percent of China’s total pork production. Some processing plants are not interested in exports because domestic demand and prices are good. Exports are also more difficult as AQSIQ has apparently stricter inspection and quarantine requirements for exports than domestically produced products. All exported food products should be inspected and marked “QS” (quality safety) by AQSIQ before shipments.

China will continue focusing on prepared pork exports due to food safety related restrictions by other countries for animal disease outbreaks in China. However, its fresh and chilled pork exports to Hong Kong increased rapidly in 2007 and will likely continue growing in 2008. Despite the domestic shortage in swine and pork supplies, China tries to guarantee hog and pork supplies to Hong Kong with limited profit margins for policy purposes. Vietnam has become China’s 4th largest market in 2006 from almost nothing before that. After China signed the Free Trade Agreement with Southeast Asian countries, convenient land transportation links between China and Vietnam have supported trade. On the other hand, China’s pork exports to Russia fell nearly 91 percent compared to shipments in 2002-2004 partly due to Russia implementation of import meat quota system and partly due to outbreaks of swine disease in China.

Further Reading

- To view the full report, including tables, please click here.

List of Articles in this series

To view our complete list of 2007 Livestock and Products Annual reports, please click here

October 2007