Global Economy Driven by Chinese Pigs

by 5m Editor
22 September 2011, at 10:31am

CHINA - Of the one billion pigs being raised in the world, about half are in China, where pork consumption is increasing as the economy develops.

As a result, pork prices are rising, a trend that is impacting the world economy, reports Japan's Asahi Shimbun.

To ease the public's dissatisfaction with the price increase, which could lead to rioting, the Chinese government is increasing pork production. However, the move is causing a growth in demand for pig feed and raising feed prices in international markets.

Around the Jiumu Professional Cooperation Society of Pig Farm, about an hour's drive from Tiananmen Square in central Beijing, the corn fields used for pig feed are about six feet high.

The pig farm cooperative was jointly established in 2007 by nine farmers with 8,000 pigs. Now, the numbers of farmers and pigs have increased to 29 and 20,000, respectively.

Following the rise in living standards in China, the number of people who prefer eating meat is growing. However production is not keeping up with the increasing demand. As a result, the price of one pig has increased from 600 yuan (CNY; ¥7,280 or US$94) to CNY2,100. Still, Wang Guangyi, manager of the farm, is not happy.

He explained: "Not only the price of pork but also those of the feeds and fuels are rising. We have also raised wages to employ more workers. We have to lower production costs by making our farm a larger-scale one."

Corn feed prices have tripled since 2007. The starting wage for migrant workers from Sichuan province and other parts of China has doubled to CNY2,200.

Mr Wang is now planning to transfer the Jiumu pig farm to neighbouring Hebei province or the northern Inner Mongolia autonomous region and increase the number of its pigs to 100,000 within five years.

In China, pork production has increased more than 10 per cent in the past five years to 52.5 million tons. By comparison, poultry production is about one-quarter of that amount, and beef about one-eighth.

The consumer price index (CPI) in China in July rose 6.5 per cent from the same month last year. The growth rate is the largest since June 2008. Of the 6.5 per cent, 1.5 per cent was attributed to pork, whose prices rose nearly 60 per cent year-on-year.

As the CPI is greatly influenced by pork prices, the Chinese newspaper, Economic Information, poked fun at the index, saying that CPI means 'China Pig Index'.

China, which is called the factory of the world, is also a major world consumption centre, reports Asahi Shimbun. The sharp rise in pork prices, a mainstay of dinner tables in China, is angering the public, forcing the government to take countermeasures.

In July, the government announced that it would earmark CNY2.5 billion for expansion of pig farms and breed improvement. It also plans to release stockpiled frozen pork and import some products from the United States.

By inviting participation from foreign companies, the government is also trying to improve distribution systems and expand pig farms to raise production efficiency.

However, those measures are not expected to bring immediate relief. Small-scale pig farm operators, which account for most of the pig farm operators in the country, are withdrawing from the business one after another due to the increase in production costs.

As the Chinese government is intent on maintaining food security, it cannot drastically increase pork imports. As a result, the rise in pork prices does not stop.

In China, pork prices have been in a three-year cycle, starting with a rise in prices leading to policies to increase production. Then, more farms start raising pigs. However, overproduction of pork arises, leading to a decline in prices. (Sometimes, diseases break out.) Then, pig farm operators withdraw from the business one after another, causing supply shortages. As a result, prices rise again. The period from a rise in prices to the next is about three years.

However, there is a growing sign that such a cycle will not recur.

The rise in prices of feeds and fuels is increasingly linked to overseas market moves. In addition, personnel costs are rising. As a result, there is a growing possibility that pork prices will not decline as much as expected.

Zhang Ping, a senior official of the Chinese government's National Development and Reform Commission, said in its report to the National People's Congress in late August, "There is a possibility that prices will continue to stay at high levels."

The pork production increase is also raising world grain prices. In China, corn imports that are used for pig feed increased sharply from 50,000 tons in 2008 to 1.57 million tons in 2010.

According to the Beijing office of the major Japanese trading house Marubeni Corp., the imports could increase further to five million tons in 2011 and 10 million tons in 2015.

In the Chicago market, the futures prices of corn per 25kg rose sharply from less than $4 in the first half of 2010 to about $8 in June, marking the highest price ever.

The volume of China's corn imports is not large compared to the country's domestic production of 177 million tons.

"But moves and prospects in China are influencing the trading in the market," said Takeshi Ito, a senior Marubeni official.

Meanwhile, anticipating that pork consumption in China will increase further, companies in Japan, including Marubeni, Singapore and other countries are investing in pig farming-related businesses in China.

To improve the quality of its products, Mr Wang's farm has imported pigs for breeding purposes from the United States and some European countries, including the Netherlands. The prices of those pigs have jumped about 60 per cent in several years. The sharp rise is partly attributable to the purchase of those pigs by Chinese companies.

Mr Wang is also inspecting pork producing centres in countries such as the United States and France, to obtain information on pigs. He is now also sensitive to international prices of feeds and fuels.

"My company's pigs are linked to the world," Mr Wang told Asahi Shimbun.