People's Republic of China: Agricultural Situation: Livestock and Products 2008

USDA Foreign Agricultural Service GAIN Report by Zhang Jianping and Chanda Beckman. A link to the full report is provided. Pork production in 2009 is forecast to reach 46.8 million metric tonnes - 5 per cent higher than 2008. High production costs will delay the industry's recovery to output levels before blue ear disease.

15 September 2008

10 minute read

Report Highlights

China’s beef production in 2009 is expected to rise just two percent to 6.4 million metric tonnes (MMT), as increased input costs and comparatively low net returns continue to constrain supply growth. Pork production in 2009 is forecast to reach 46.8 MMT, up five percent over 2008, but still well below pre-blue ear disease levels of 52 MMT in 2006. High pork production costs continue to hinder recovery in China’s pork production. The National Statistics Bureau recently announced significant revisions for 2006 meat production numbers. The PS&D tables for cattle, beef, swine and pork included in the full report have been revised based on these changes. China’s 2009 beef imports are forecast to increase to 12,000 MT, while pork imports are forecast to increase to 550,000 MT. Strong domestic pork demand and short supply are forecast to continue to drive imports in 2009.

Executive Summary

China’s total meat production in 2009 is forecast to increase by nearly four percent to 73.8 MMT. Beef share is forecast to account for nearly nine percent and pork share is forecast to account for about 62 percent.

Beef production growth in 2009 is expected to slow, due to smaller than expected increases in beef cattle heifers. As a result, beef production is forecast to grow by only two percent. Pork production in 2009 will recover quickly due to strong demand. However, swine and pork production levels are not expected to recover to pre-blue ear disease levels.

On April 10, 2008, China’s National Statistics Bureau (NSB) announced significant revisions for 2006 meat production numbers after completing the Second National Agriculture Census conducted at the beginning of 2007. Total meat production in 2006 was revised down eight percent to 70.9 MMT from 77.4 MMT in 2005. Beef production in 2006 was revised down 19 percent to 5.8 MMT from 7.1 MMT in 2005, and pork production in 2006 was revised down seven percent to 46.8 MMT. NSB also revised the animal inventory and slaughter figures to match beef and pork production in 2006. It is uncertain whether NSB will change China’s historical livestock numbers before 2005. FAS/Beijing and the Chinese meat industry believe the revised 2006 and 2007 numbers are in line with actual production and slaughter. The PS&D tables for cattle, beef, swine, and pork included in this report have been revised based on these changes in 2006 production.

Production

Pork Production Recovering

China’s pork production in 2009 is forecast to recover by five percent to 46.8 MMT, up from the revised 2008 estimate of 44.6 MMT. Production is not expected to rebound to pre-porcine reproductive respiratory syndrome (PRRS or blue ear disease) levels in 2009 because increased production costs are expected to continue to hamper production. Strong demand and short supply will most likely drive China’s imports in 2009, which should result in increased U.S. exports since the United States is the largest pork supplier to China.

China’s swine production suffered great losses during the latter half of 2006 and the first half of 2007 due to outbreaks of PRRS in many Chinese provinces. As a result, the beginning year swine stock in 2007 is revised down 15 percent to 418.5 million head from the previous estimate, and the beginning year sow stock and swine production decreased by six and three percent to 44.2 million and 592 million head, respectively. These new figures reflect the latest industry and NSB data.

Short pork supplies have pushed prices up sharply. Increased food prices, particularly pork and vegetable oil, were major factors in a four-percent increase of China’s consumer price index (CPI) in 2007. Food accounts for one-third of China’s CPI calculation. From January-June 2008, China’s average retail pork price increased 63 percent to U.S. $3,047 per ton (21,021 RMB) over the same period in 2007. April 2008 saw an increase of 78 percent to U.S. $3,722 per ton (25,680 RMB) compared with the same month in 2007, much higher than the average imported pork price of U.S. $1,439 during January-June 2008. This dramatic domestic price increase explains why China’s pork imports almost tripled during the first half of 2008. Although pork prices have decreased slightly due to recovering production, pork prices are expected to remain at high levels through the end of 2008 because of increased production costs, especially higher feed prices (See chart above). The price of feed accounts for 70 percent of total swine production cost in China. In July 2008, China’s average production price index (PPI) rose 10 percent, the highest monthly percentage to date in 2008. On June 20, 2008, the National Development and Reform Commission approved gas and diesel price increases to U.S. $145 per ton (1,000 RMB), which increased the cost of animal transportation. The earthquake in Sichuan Province in May, 2008 killed about five million pigs. According to media reports, the government provided 300 head of breeding stocks to the province for free to help restart production. As a result of this government help, China’s total swine production in 2009 is not expected to be significantly impacted by the Sichuan earthquake.

Impact of New Corporate Income Law on Swine Production

On December 11, 2007, the State Council announced the “Regulation on Implementing the Law of the People’s Republic of China on Corporate Income Tax” effective January 1, 2008. The new regulation exempts companies involved in animal and poultry rearing from paying corporate income tax, while lowering tax rates for other domestic companies to 25 percent, down from 33 percent. This new tax law has already attracted large investment in swine rearing. For example, the China National Cereals, Oils and Foodstuffs Corp. (COFCO), the country's largest oils and food importer and exporter, started a five-year pig raising project, investing U.S. $1.36 billion in Hubei Province, Central China. COFCO will build a 500,000 head reproducible sow breeding base, a 10 million live pig raising demonstration project, and establish centers for pig breeding technology research and swine disease prevention. A U.S. investment bank is reported to have bought over 10 farms in Jiangxi and Fujian provinces. Foreign companies are also investing in swine rearing through joint ventures. The Tongrenshen Company in Hunan Province recently undertook a new 10 million swine project, which will be completed in the next few years. FAS/Beijing believes these investments will begin to show returns beyond 2009 because it takes at least one year from to grow breeding piglets to commercial swine ready for slaughter.

The incentive for swine rearing in China is driven by large profits. According to the swine industry, the grain and swine conversion ratio in May 2008 was 9.0:1, a 5-month running at this level, and a 21-month running above the profit point at 5.5:1. China raised its subsidy for sow rearing from U.S. $7 (50 RMB) to U.S. $14 (100 RMB) for the period July 1, 2008 to June 30, 2009, to stabilize the supply of piglets.

Impact of Strategic Meat Reserves for Frozen Meat

Most of China’s strategic reserves are pork. Beef and mutton reserves are small and designated for specific consumers. There is no reserve for broiler meat, because broiler production cycles are short and easily recover from production disruptions. Most strategic reserves in China are held as live animals because of the high costs associated with storage in cold warehouses. The Ministry of Commerce (MOFCOM) identifies and approves swine farms for live reserves. The government provides certain subsidies to guarantee an adequate swine supply when needed. If there is no need four months into the future, farmers can sell their swine and replace them with new animals. However, farmers may not play the game when driven by high profits. The year long disruption in production caused by PRRS, and natural disasters like the May 2008 earthquake in Sichuan Province and the ice storm in South China in early 2008 forced the government to increase frozen meat reserves to guarantee an adequate supply. MOFCOM requested provincial level government reserves be large enough to supply China’s more than 500 million urban residents for seven days. China’s pork reserves are mostly composed of imported pork. Smithfield, a U.S. company, is the largest supplier to the central reserves. China’s increasing reserve system will continue to benefit U.S. exporters. Over the long run, the strategic reserves are expected to help stable domestic pork prices.

Consumption

Pork Consumption Increasing, Despite High Pork Prices

China’s pork consumption in 2009 is forecast to increase five percent to 47.2 MMT, up from the revised estimate of 44.9 MMT in 2008 that was also a five percent increase over the revised consumption figure for 2007. As PRRS has come under control, consumer confidence in pork has recovered quickly. Pork is still the most popular animal protein, and accounts for 63 percent of China’s total meat consumption. The Chinese government provides subsidies for the lowestincome consumers to buy meat, U.S. $4.40-8.70 per person per month (30-60 RMB) for six months of the year to help encourage consumption. However, the government also capped pork prices in February 2008 following the winter ice storm that swept South and Central China and caused transportation and distribution channel disruptions that resulted in higher food prices. China temporarily reduced its frozen pork import tariffs from 12 percent down to six percent from the period June 1 to December 31, 2008, which is also boosting imports. Domestic pork prices decreased about five percent from April to June in response to large imports and increased domestic production. Consumers are expected to increasingly switch back to pork consumption from poultry because pork prices are expected to continue decreasing into 2009.

Trade

Pork Imports Strong Despite of Rising International Pork Prices

China’s pork imports in 2009 are forecast to increase by nine percent to 550,000 MT, up from the revised estimate of 505,000 MT in 2008. Strong domestic pork demand and short supply are forecast to continue to drive imports in 2009. The United States is expected to remain the largest supplier of China’s imports, despite the fact that U.S. pork export prices increased 149 percent in the first half of 2008. A substantial portion of U.S. pork is used for China’s strategic reserves, a government subsidized program used to stabilize the market and ensure steady supplies.

Increasing Live Swine Imports

China’s live swine imports in 2009 are forecast to increase by 11 percent to 10,000 head, up from the revised estimate of 9,000 head in 2008, as a result of China’s fast recovering swine rearing sector. This increase follows the more than double increase witnessed in 2008. Increasing production costs have encouraged China’s swine farmers to look for better genetics as a potential cost saving measure. In addition to pork meat, the United States is also the largest supplier of live swine to China. This trend will continue into 2009 because RMB appreciation against the U.S. dollar makes U.S. swine less expensive to import. At the same time, the RMB has weakened against the Euro, which has contributed to the decrease in China’s imports from the European Union.

Decreasing Live Swine and Pork Exports

China’s live swine and pork exports in 2009 are forecast to decrease by six and 14 percent to 1.4 million head and 170,000 MT, respectively. Hong Kong remains the dominant swine export market for mainland China. However, strong mainland demand and higher pork prices, combined with the appreciation of the RMB against the Hong Kong Dollar (the RMB has already appreciated 17 percent), will narrow the competitive profit margin for Hong Kong and constrain China’s exports to Hong Kong.

China’s total pork exports are expected to be hampered by high Chinese pork prices. From January to June 2008, China’s average export pork price was $3,319 MT, a 55 percent increase over the same period in 2007. As a result exports to Hong Kong and Japan - the top two markets for China’s pork exports - decreased by 34 and 44 percent, respectively, in the first half of 2008.