China’s pork industry produces and consumes about half the world’s pig meat and it accounts for a large chunk of the country’s GDP.
While most people know the Chinese economy is booming, the numbers are still staggering. Retail sales are expected to reach 18 trillion Yuan (€2 Tn., US$ 2.8 Tn.) this year, up 17% in 2010 and 34% in 2009.
In 2001, Chinese retail sales represented only 2.76 trillion Yuan. Car sales, expenditure on health and tourism, even jewelry are benefiting more than food including meat – nonetheless, meat consumption mainly pork, continues rising.
At the moment, the Chinese government is successfully managing the transition of the economy from investment and export-led to a more balanced one where consumption plays a larger part. It is also successfully combating inflation, which fell from a peak of 6.5% in August to a more manageable 5.5% in October 2011.
Fresh pork is the largest single item in the “consumer basket” used to calculate the price index and an increase in price is responsible, to some extent, for the rise in inflation. On the positive side, wages are rising faster in rural areas reducing the gap in incomes between rural and urban areas.
On the negative side, inflation has hit low wage earners, many of whom claim they cannot afford to buy pork anymore. A housing bubble in the largest cities and the explosion of investment credit also cast a shadow on what is a uniquely successful experiment in lifting hundreds of millions out of poverty.
Development of the pork sector
Chinese pig production has increased considerably over the past 20 years at an average rate of 2.1% per year. However, the average Chinese pig farm remains small with only nine sows.
There are no clear estimates of the number of backyard producers, although some estimate about 50 million pig producers. Approximately 92% of pig production is concentrated in 12 provinces. The Yangtze River region alone accounts for 42.6% of the pig population, Northern China a further 22.5% and the Southern coastal region 16.8%.
Pigs compete with people in these densely populated areas and there is clear political will to move pig production to less populated regions. The Chinese pig sector faces a formidable challenge of converting to large-scale production to offset the dramatic exodus of small-scale producers through subsidies.
Modern pig production now accounts for around 30% of the total. Fast growing concerns have emerged, among them Shuangui, Yurun, Zhongpin, Jinluo, Tangreshen, Gaojin and Delisi. The revolution that is taking place in production is also affecting processing. The government plans to cut the number of abattoirs from 20,000 to 3,000 by 2020.
The production of processed pork products is progressing fast and now accounts for 13% of pork usage with a ratio of 45% Chinese-style products and 55% Western-style products, mainly frankfurters and ham. The high rate of growth of processed meat products sales is expected to continue in the foreseeable future. Pork processors are also becoming perceptive and more marketing-led.
In the short term, pig wholesale and retail prices have come back about 10% from their summer high at around Yuan 24.28 Yuan/kg (€2.84 /kg – US$3.80 /kg) to mid-November, although they are still nearly a third higher than a year ago. There is every indication than supplies will remain tight until next spring.
Management is a major area of concern in China. Living in the countryside is still associated with poverty and hardship. It means that few graduates choose agriculture and fewer choose to work in the pig production sector.
Food safety has become a major concern for Chinese consumers over the last few years. Regarding pork alone, more than 800 people were arrested between January and September 2011 for administering or trafficking clenbuterol.
Chilled logistics represents around 10% of the meat distribution in mainland China and wet markets represent 68% of the pork sold in China. With millions of food outlets, the situation looks intractable for the authorities.
The environment is another issue. This could be mitigated by higher efficiency, but requires the major transformation from backyard to more controlled large-scale pig production. For instance, raising the productivity of Chinese pig production to Danish levels could save 25 million tones of feed and limit pollution. The quality of ground water is an increasingly hot topic in China and the issue will not go away.
Pig health may be the limiting factor in the expansion of the Chinese pig sector with many diseases remaining endemic and the impact of PRRS still not fully discounted.
Finally, the issue of long transport of live pigs is raising its head. Many pigs produced in the north face more than 1,000 kilometers road travel leading to quality and animal welfare issues.
Pork imports increasing
Although imports are growing fast, China remains 97% to 98 % self sufficient in pork. Between January and September 2011, about 249,800 tons of pork was imported to China and 620,600 tons of offal. This does not take into account stomachs (maws) and hog casings.
The value of China’s pork imports increased from US$1.10/kg to US$1.43/kg in 2011 reflecting rising prices and a move towards meatier cuts. Still, offal represents about 80% of imports. The United States has overtaken Denmark as the main supplier but there are also rising imports from France, Spain, Canada and Ireland.
Chinese people like all parts of the pig and frozen offal finds a good outlet in food service. For instance, pig maws and ears have a higher value than lean meat. As the usage of offal and variety meats has declined in the Western World, China has become a vital outlet for these products.
Frozen pork is increasingly imported for manufacturing as it offers a high level of standardization and facility of use and storage. Frozen manufacturing pork also is important to regulate the market.
Premium chilled pork is gaining in popularity as wealthy Chinese buyers opt for organic and “safer” pork (see, Figure 1). The 230,000 or so mainly Western residents and visitors also often choose imported against locally produced pork.
Imports are used as a regulatory mechanism (a ‘topping up’) for the huge pork market, which is very much under stress because of the conversion to large-scale pig production.
Smithfield Foods’ exports of frozen carcases in 2011 was used to dampen pork prices on the internal market (as was the release of intervention pork). Tönnies active involvement on the market is also influencing pork prices. Demand is high and traders report for example, that French and Irish plants are unable to meet demand.
However, the consequence of this situation is high volatility of import prices of key commodities like heads and trotters. In a falling market, the downwards price swings are amplified and so are the upward trends in a rising market.
The market is largely commodity-driven with limited loyalty, although some individual European or North American plants are favored. It is likely that China will keep an eye on the import tap to regulate a market that gives a living to millions of its citizens.
Pork consumption patterns
Pork consumption is high at around 39kg per person per year, but is below Taiwan or Hong Kong. Pork remains the meat of choice for the Chinese and represents around 65% of consumption.
Still the consumption of chicken, duck and farmed fish and to a lesser extent beef have grown and cut the proportion of pork eaten from 85.9% in 1989. Pork consumption per capita is now growing slowly (it is expected to rise from 105 g/day in 2010 to 110 g/day in 2020), but the increase of population is the leading increase of consumption.
A large dichotomy exists between the harsh conditions in the countryside where around 55% of the population still lives and the more affluent cities. Pork accounts for 73% of meat consumption in the countryside and only 61% in urban areas. Pork consumption is also much lower in the countryside and, as incomes have risen there, so has pork intake.
Although pork is consumed all year round, Chinese festivities such as the Chinese New Year are the occasion for pork feasts. Organic pork is a new and fast growing phenomenon but is limited to the larger cities and high income earners.
Finally, Chinese love to eat out in all types of food service outlets, from traditional Chinese emporia, luxury restaurants, fast food outlets and bars. Chinese may be very open towards Western goods but there are resolutely conservative in their eating habits.
It is unavoidable that China will take the central place in tomorrow’s pig world and we are now witnessing rapid change affecting this behemoth. So far, the country has successfully started a revolution in the production of pork but there is a long road ahead for pig producers, processors and consumers toward a different industry.