Report Highlights

FAS Beijing forecasts China's pork production will continue rising in 2010 to more than 50 million metric tons (MMT). Higher pork production and lower prices will reduce pork imports in 2009 by more than half and further declines in import demand are expected in 2010. China's 2009 beef production is expected to slide six per cent to 5.8 MMT and continue falling in 2010 due to low returns for Chinese cattle producers. Continued double-digit gains in China's breeding cow imports are expected in 2010, fueled by a forecast rise in demand for Chinese milk products and recovering Chinese production.

Executive Summary

FAS Beijing forecasts China's total meat production in 2010 will reach 78.6 million metric tons (MMT), a four per cent gain from 2009. Beef and mutton production are expected to decline, while pork production is expected to grow steadily. Meanwhile, continued modest growth is expected for poultry production.

Post forecasts China's beef production in 2010 will fall five per cent to below 5.5 MMT, following a six per cent decline in 2009, as continued low beef producer returns dampen beef cow production. Post forecasts China's 2010 beef imports will rise 20 per cent to 18,000 MT, encouraged by continued high prices in the Chinese beef market. Significantly higher quantities of imported beef will continue to move through grey channels. Meanwhile, further declines in Chinese beef exports are expected, falling to 25,000 metric tons in 2010.

China suspended imports of live swine and swine products from Mexico, the United States and Alberta Province in Canada in late April 2009 due to an outbreak of human A-H1N1 flu in Mexico and North America. Although China subsequently lifted its ban on US cooked pork, porcine casings and gelatin, US exports have not resumed due to China's policy to require pre-export disinfection of the exterior of shipping containers containing US pork products.

Post forecasts China's pork production in 2010 will increase nearly four per cent to 50.3 MMT from an estimated 48.5 MMT in the previous year, fueled by government sow subsidies and improved PRRS control. An oversupply of hogs in 2009 pushed swine and pork prices down considerably, with the benchmark average retail price in 36 cities falling to a three-year low in June of just over 10 yuan per kilogram. The price decline spurred government purchases of 120,000 metric tons in mid-June under a market intervention scheme, as the pork to corn price ratio fell below the intervention trigger level of 5.5. Prices have since rebounded strongly, up 10 per cent in late August compared to early June. Dampened by abundant local supplies, China's pork imports are expected to continue falling to an estimated 120,000 MT in 2010. Meanwhile, Chinese pork exports are forecast to increase four per cent to 240,000 MT.

Production: Steady Growth in Swine and Pork Production

Although China's swine and pork prices experienced continued significant declines in 2009, Post believes Chinese pork production in 2010 will continue rising to 50.3 MMT, up four per cent from 2009. Rising pork production has been boosted by government subsidies for sows, improved PRRS control and higher productivity from a rising number of Chinese hog producers with herds of 50 head or more. Additionally, a market intervention scheme introduced this year to shore up prices through state reserve purchases has successfully boosted prices and farmer confidence in the profitability of hog farming, further improving prospects for continued production gains in 2010.

China's growth in larger-sized hog farms and decline in backyard operations are also a factor in higher production. According to the Ministry of Agriculture, farms of 50 hogs or more accounted for 56 per cent of total slaughter at the end of 2008, up eight per cent from the previous year. These larger farms are more likely to practice disease control measures and operate under contracts with slaughter facilities, making returns more predictable. Post expects further gains in larger farms as a share of total production into 2010.

Government subsidies to increase China's sow herd, introduced in the wake of the 2007 blue ear disease (PRRS) outbreak, have also played a significant role in increased production. However, it is uncertain these will continue into 2010 given the full recovery in production since the 2007 outbreak. The subsidy grew from RMB50 ($7.32) per head to RMB100 ($14.64) before expiring in most production regions in mid-2009. Separately, a sow insurance subsidy of RMB60 ($8.80) per head will continue into 2010.

China's sow stock in 2009 jumped six per cent to a record 50.1 million head following a seven per cent increase in the previous year. Meanwhile, China's pig crop production in 2009 is forecast at 667.7 million head, up five per cent from 2008, following a seven per cent increase in 2008.

The rapid increase in China's pig herd in 2008 and 2009 pushed average hog, piglet, and pork prices down 35, 47, and 28 per cent respectively in the first six months in 2009 from the same period of the previous year. According to the Ministry of Agriculture, the percentage of swine farmers operating at a loss increased from 5.8 per cent in January to 45.8 per cent in May 2009. Some sows were slaughtered in response to oversupplies and low prices. The average hog-grain ratio dropped below 5.5, the trigger point for state purchases under the new market intervention scheme. State frozen pork purchases for central reserves totalled 120,000 MT, well below the overall estimated state reserve capacity of 600,000 MT. This reserve policy combined with sow pattern adjustment has helped turn pork prices upwards since mid-June. During July 27-August 2, 2009, the average wholesale pork price in major large-medium cities was RMB15.49 ($2.27) per kilogram, up 10 per cent from mid-June.

Consumption: Increasing Pork Consumption

China's 2010 pork consumption is forecast to rise four per cent to 50.2 MMT, following a three per cent increase in 2009. Higher pork sales have been fueled by sharply lower pork prices compared to 2008. Other factors supporting growing consumption include rising pork distribution through supermarkets, which have been facilitated by an improving cold chain. Meats sold in supermarkets are perceived as safer by many consumers and sales to middle and upper class consumers through these outlets are expected to continue rising. H1N1 flu outbreaks briefly lowered Chinese pork consumption in many markets in April-May 2009, but following the WHO's decision to modify the name of the virus from 'swine flu' to 'novel H1N1', pork consumption rebounded quickly.

Trade: China Bans US Swine and Swine Products due to A-H1N1

On 26 April, AQSIQ and MOA jointly issued Announcement Number 31, which banned live swine and swine products from Texas, California, and Kansas States of the United States, as well as Mexico, due to human cases of A-H1N1 infection. The announcement also required the exterior of containers of all pork shipments passing through these states to be disinfected.

On 29 April 2009, AQSIQ and MOA jointly issued Announcement Number 36 to ban live swine and swine products from two additional states (New York and Ohio). Announcement 36 also stated that, in the future, live swine and swine products from any state reporting a case of human A-H1N1 will automatically be prohibited.

On 3 May 2009, AQSIQ and MOA jointly issued Announcement Number 38 to ban live swine and swine products from Alberta Province in Canada because of a case of A-H1N1 infection in swine.

In a letter on 8 May 2009 to the US Embassy, AQSIQ lifted its temporary suspension on imports of US heat-treated pork products after reviewing information provided by USDA regarding the safety of these products. However, AQSIQ maintained the pre-export container exterior disinfection measure imposed in Announcement 31. This requirement has prevented resumption of trade.

On 26 June 2009, AQSIQ and MOA jointly issued Announcement Number 62 to lift China's ban on salted porcine casings and edible gelatin after concluding these products are safe to import. However, trade has not resumed due to China's continuation of its container exterior disinfection requirement.

The United States continues to maintain that China's restrictions on US live swine and swine products due to A-H1N1 are unnecessary and inconsistent with guidance from the World Animal Health Organization (OIE). 2008 US exports to China of live swine and swine products, including heat treated pork, casings and frozen/chilled pork meat and offals is estimated at over $500 million.

Higher Chinese pork production dampens import demand

Post forecasts total Chinese pork imports in 2009 will slide 66 per cent from 2008 to 150,000 metric tons, due to China's recovery from blue ear disease and restrictions on US pork imports due to A-H1N1. Import demand is expected to continue lower in 2010, down 20 per cent to 120,000 metric tons, due to expected gains in Chinese pork production.

Increasing swine and pork exports

Sharply lower prices for Chinese live swine and pork have spurred modest gains in exports in 2009 and this is expected to continue in 2010. Post forecasts China's live swine exports in 2010 will increase two per cent to 1.74 million head, following a three per cent increase in 2009. Meanwhile, 2009 China's pork exports are forecast to rise three per cent in 2009 to 230,000 metric tons and four per cent in 2010 to 240,000 metric tons. Hong Kong and Macau will continue to account for the great majority of China's swine and swine product exports.

Further Reading

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January 2010