Executive Summary

FAS Beijing (Post) forecasts continued steady growth in China's total meat production in 2009, rising four percent to 75.4 million metric tons (MMT). Pork production is expected to approach 50 million metric tons, as producers continue to recover from a devastating outbreak of blue ear disease in 2007. Rising domestic pork shipments have been fueled by direct government subsidies to quickly stimulate production and reduce consumer pork prices.

Post forecasts China's pork production in 2009 will rise by four per cent to 48.7 MMT (CWE). Lower pork prices will fuel higher consumer pork demand compared to 2008 levels. China's breeding swine imports are expected to decline 25 per cent from last year's record imports to 9,000 head as lower prices hinder growth in piglet and fattening swine placement. Post forecasts China's 2009 live swine exports to rise three percent to 1.7 million head, and pork exports to decrease by six per cent to 210,000 tons due to weak demand from export markets impacted by the world financial crisis.

In January 2009, seven Chinese government agencies announced a swine price alert system and subsidy program designed to ensure pork producers earn sufficient returns as prices fall and/or input costs rise. This is the first time government agencies have joined forces to monitor pork producer returns and ensure farm-level incentives are maintained, underscoring the importance the government is placing on providing stable and sufficient pork supplies.

Pork Production Recovering from PRRS Impact

Post forecasts China's pork production in 2009 will increase nearly four per cent to 48.7 MMT (CWE), after rising 8 per cent in 2008. China's efforts to increase production following the sharp losses due to swine blue ear disease (PRRS) in 2007 have been largely successful, boosted by direct subsidies to rebuild the sow herd and other supports. Reportedly, farmers received subsidies of at least 148 yuan (RMB) per head for more than 8 million sows. Meanwhile, strong piglet demand led to a sharp rise in breeding swine imports in 2008. As a result, pig crop production in 2008 rose 7 per cent to 636 million head.

In 2009, the combined effects of continued government subsidies for sow production, declining feed prices due to a grain record harvest in 2008 which resulted in an expected ten percent increase in swine feed production at 44 MMT in 2008, and a new government market intervention program to ensure sufficient returns, have resulted in higher farmer incentives for new placements of sows and fattening swine. Sow population accounts for nearly 11 per cent of China's total swine inventory, which will translate into continued strong production in 2009.

China's pork production is also stabilized by improved disease control measures since the 2007 PRRS outbreak. One improvement is timely compensation for culling infected pigs. Disease monitoring and control is also more extensive. Reportedly, an outbreak of PRRS in Shanxi Province in January 2009 that affected more than 1,000 pigs was swiftly controlled through rapid culling and preventing movement of pigs from the infected area.

An emerging disease control challenge in 2009 is an increase in the backyard pig herd driven by the return of newly unemployed migrant workers, which totaled nearly 20 million in late 2008. Insufficient disease control among these inexperienced operators increases the risk of new PRRS outbreaks, which mainly occur in small-scale backyard operations. Overall, about half of China's pork production comes from farms with an annual slaughter below 50 head.

China's swine and pork production depends on sufficient supplies of soybean meal and other proteins from abroad. Overall grain and meal account for nearly 60-70 per cent of total swine feed costs. China imports over 30 MMT of soybean and over 1 MMT of fishmeal a year.

International prices for these feeds are a significant factor in Chinese swine industry returns.

New National Swine Price Alert System and Subsidy Program

On 9 January 2009, the government introduced a new market intervention scheme called the 'National Swine Price Alert System to Prevent Extreme Price Falls (temporary implementation)'. For the first time ever, several Chinese government agencies have joined forces to launch a price monitoring scheme to ensure sufficient farmer returns. As the most important meat for Chinese consumers, maintaining stable pork supplies and prices through self-sufficiency is a key objective of the program.

China's swine and piglet prices experienced significant fluctuation in 2008 due to a sharp fall in production after PRRS outbreaks in 2007. Average hog and piglet prices in the first four months in 2008 jumped 82 and 166 per cent, respectively, over the same period in the previous year. Swine and piglet prices in April, the peak month, rose by 89 and 187 per cent, respectively, from the same month of the previous year. A doubling in retail pork prices in late 2007 and early 2008 stretched family budgets and helped fuel inflation, an intolerable situation for the Chinese leadership. Through purchases of a large quantity of imports and introduction of new production incentives, prices began falling in May and continued dropping through the end of 2008, below costs of production for some operators. Farmers who put new placements of sows and fattening hogs at the time of high prices in early 2008 began losing money, resulting in a higher risk of sow slaughter and lower production later this year. With the announcement of the price alert system and subsidy program, the government believes it has stabilized swine and pork production, preventing further fluctuations in price.

The national swine price alert system is based on a ratio of the live market hog price to the corn price. The targets are: hog and grain ratio shall not be lower than 5.5:1, piglet to carcass ratio not lower than 0.7:1, annual hog inventory not be lower than 410 million head, and productive sow inventory not be lower than 41 million head. NDRC will announce hog producer prices and corn wholesale prices each week. MOA will announce piglet prices weekly and every month provide inventory numbers of swine and productive sows, as well as the swine disease situation. MOFCOM will announce ex-slaughterhouse carcass prices weekly, swine slaughter numbers monthly (identified slaughterhouses), and disinfection treatment of disease-infected swine at slaughterhouses quarterly.

The price monitoring and subsidy system is in addition to existing subsidies, which will continue in 2009. These include subsidies for each productive sow, which were raised from RMB50 in 2007-08 to RMB100 in 2008-09, and government commercial insurance subsidies for productive sows (each sow insurance fee at RMB 60 with the government payment at RMB 48.0). Producers also receive local subsidies, depending on local herd size and returns.

Pork Consumption to Rise Five Percent

Post forecasts China's pork consumption in 2009 to increase nearly five per cent to 48.8 MMT (CWE), following a 9 per cent increase in the previous year. Lower pork prices have continued through early 2009, encouraging a shift back to higher pork consumption partly from chicken and other alternatives. The effect of lower prices will be partially offset by slower economic growth in 2009. Weak sales will be especially notable at the lower end in urban markets, as nearly 20 million migrant workers have recently become jobless. These workers are a major source of consumption in canteens and other low-priced outlets.

Decreasing Breeding Swine and Pork Imports

Post forecasts China's pork imports in 2009 to decline 39 per cent to 300,000 MT because of higher domestic production and declining pork prices. Sales will also be limited by China's price monitoring and subsidy scheme, where China will use domestic product for its strategic reserves instead of imports. Strategic reserves were a major destination for imported pork in 2008. The United States is expected to continue as China's largest overseas pork supplier in 2009. US exports in 2008 reached 145,000 MT valued at $287 million. Traders report significant additional shipments of US pork were sent to China in 2008 through grey channels (as much as 100,000 MT).

Imports of loin meat and other quality cuts will be especially impacted by increased domestic pork supplies. However, imports of variety meats will be comparatively strong, as consumer demand for these products will continue to exceed domestic supply. In 2008, China imported 637,589 MT of pork offal valued at $696 million with US market share accounting for 26 per cent of total sales.

Post expects China's imports of live swine in 2009 will fall 25 per cent to 9,000 head, after sharply higher sales in 2008. Imports will be reduced by slower placements of breeding animals by swine farmers in response to lower market prices. China only imports breeding swine. Imports are mainly by domestic large companies or joint-ventures with their own breeding farms. The United States is expected to continue dominating China's imports accounting for nearly 70 per cent of the market. US exports to China in 2008 reached a record high of 7,086 head, valued at $12 million.

Increasing Live Swine Exports

China's 2009 swine exports are forecast to increase by 3 per cent to 1.7 million head. This is a significant increase from the previous forecast in the annual report (CH8078), as increased hog production and sharply lower prices will fuel additional sales.

China only exports swine to Hong Kong and Macau allocated by export quotas announced by MOFCOM at the end of each calendar year. MOFCOM's 2009 export quota increased slightly to 1.88 million head in response to increased domestic production. Post believes exports will fall short of the quota, as stricter sanitary and environmental protection requirements for swine slaughter in Hong Kong will limit sales growth.

Pork Exports to Decline

Post forecasts China's pork exports in 2009 to decrease six per cent to 210,000 tons because of expected weak demand in traditional export markets in 2009 impacted by world financial crisis. Chinese traders expect China's exports to be faced with stronger competition from the United States in 2009 because Russia reduced its imported pork quota by 200,000 tons, which will result in more US product on the world market.

Further Reading

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March 2009