Pork and China are inextricably linked in the minds of many Westerners – not only is pig meat known to be an essential part of the Chinese diet, the country also provides a vital market for the international pig industry.

China treats pork as a strategically important food and with it’s rising standard of living, more can be spent on pork per head and demand for the meat will continue to be strong, especially for value-added and convenience products.

However, chicken is also popular especially with the younger generation. This can be seen by the number of fast food chains serving chicken dishes that are now commonly found all over the nation and meat consumption currently favors poultry over pork, because of the relatively lower price of the former.

Chinese pork consumption decline 
China’s pork consumption is expected to further decline to 62 percent by 2020, although given the sheer size of the pig industry, the meat is expected to retain its dominant position long-term, and will continue to show the greatest growth in volume. It is predicted that consumption will increase mainly in lower income categories living in urban areas as more of the rural population moves into towns and cities.

The value-added segment also is growing fueled by demand from the urban middle class and from the wealthy population groups. The country’s annual per capita meat consumption has quadrupled since the economic reforms in the late 1970s, standing at 37kg of pork and 13kg of poultry, along with 9kg of beef and sheep meat.
With regard to future pig meat consumption, food safety was cited in a 2010 university survey as the number one concern for most consumers.

Secure supply chain 
Significantly, consumers seem to be willing to pay a premium for pig meat produced in a secure supply chain. With the pork industry’s current fragmentation, it’s expected that it will take years to develop a widespread coordinated supply chain that will provide consumers with full confidence in food safety, especially after a number of recent health scare food scandals that have led to short-term falls in consumption.

Pig prices have been all over the board since 2006 because of unbalanced supply and demand as small pig producers quite the industry, and larger commercial units have not been established yet to replace all the production leading to fewer pigs being produced.

The soaring pig prices in 2008 and 2011 were indicative of shortages in those years. Furthermore, PRRS (Blue Ear) in 2008 caused a dramatic 20 percent decline in herd size, pushing prices up again. Then in early 2012 pork prices started to fall as production increased slightly and more pork was imported.

Consumer demand, food safety 
While observers today believe the demand for pig meat will continue to grow in line with incomes, any visitor to the country can see that food safety is of growing concern and several recent health-scare food scandals have resulted in short-term declines in consumption.

But this has not reduced the confidence of Chinese businessmen who own large commercial pig units and are buying modern equipment to replace their traditional labor forces, because of steadily rising wages. They discovered that automatic pig feeding systems are more accurate and lead to less waste than when pigs are fed by hand.

In addition, a number of the country’s leading processors are now setting up their own pig production units to help them establish vertically integrated operations. They include Wen’s Group, CP Group, Zhengbang Technology Co., Muyuan Foodstuff Co. and the Chuying Agro-Pastoral Group all have farms with more than 500,000 pigs. The COFCO Group, Shandon Liuhe Group and AgFeed have farms with more than 100,000 pigs.

In the case of Wen’s, which is producing 7 million pigs per year, the company breeds the pigs and they are bought and finished by contracted producers, with feed being provided by Wen’s. On the processing front, the major national players are Shineway, Yurun and People’s Food.

Despite fears of problems with over-capacity in slaughtering, the entrepreneurial Shineway plans on slaughtering between 45 million to 55 million pigs by the end of 2012.and Yuhun announced that it will be able to slaughter 70 million pigs by 2015.

The move away from small pig units to started in China in 2007 when many of the back-yard farms were hit far harder by disease than the larger units, because of sanitation and a lack of proper management. Backyard pig producers were also more susceptible to variable input costs and market volatility and they were less competitive than the larger units.

In 2008, China became a net importer of pork, mainly because of internal supply shortages, importing pig meat from the United States, Brazil, Denmark and the United Kingdom.

Pork imports temporary 
A recent Rabobank report found that although China increased its pork imports in recent years, this is a temporary strategy rather than long-term because Chinese consumers prefer to fresh pork rather than imported frozen product.

Additionally, China’s cost of pig production is currently one of the highest on the planet, because of low productivity (the national output is less than 15 pigs per sow per year) plus feed conversion is poor.

If the current moves to upgrade the quantity and quality of pig production are successful, the country’s demand for pork imports could fall, concluded the report, but it added: “If China could improve its corn yields and swine FCR towards U.S. levels, its goals of self-sufficiency are mathematically achievable. However, there are many challenges in achieving this success, such as the continuation of disease and food safety issues, as well as logistics. If China does not import pork, we believe that all indications are that it will need to import corn ... how much of each will depend on improvements in the supply chain.”

 

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Ref: Rabobank Industry Note September 2012. “Industrialization of China’s Pork Supply Chain.”