How to Control the Pork Market for Chinese Government

Pork plays a vital role in China’s commerce. There are almost half a billion pigs in China, one for every three people. In gross terms, like in humans, China dwarfs other countries in pigs. This year is the "Year of Pig" in the Chinese calendar, but it has not brought good luck for ordinary Chinese people.

Chinese Premier Wen Jinbao travelled last month to Xian, the capital of Shaanxi province, he told the media that China faced a serious nationwide pork shortage and exhorted farmers to provide affordable meat to the urban population.

He has made public appearances in recent weeks to reassure people that the government will bring prices under control. And speaking at a supermarket, he promised: "The government is going all out to ensure the supply of pork and keep it affordable." That week, pork prices in Xian jumped 21 percent.

The porcine price plummet has forced the government to add to its much vaunted frozen pork reserve, a series of icy warehouses around the country it set up a few years ago to stabilize pork prices.

The Education Ministry has ordered universities and campuses to subsidies pork rather than raising prices. The Railway Ministry has given priority to the transport of pigs. The Commerce Ministry has even raised the possibility of releasing the country’s "strategic reserves of pork".

The government could try to curb pork price rises by freeing up supply reserves。The hope is that by adding to the frozen pork hoard, the government demand will take enough meat off the market to drive prices back up. The consumer price index jumped to 5.5 per cent year on year in May -- the highest since July 2008 and far above the official annual target of 4.0 per cent -- as food costs soared on power shortages and droughts in some areas.


Regardless of how Chinese pork market policy evolves, the demand for U.S. feed grain will increase, causing some movement of land in the U.S. from wheat production into feed grain production. Pork price might retreat by 5-7% during its low season from Mar to Aug while it might surge to aroundRMB22/kg in 4Q11. A sudden deterioration in hog plague remains as the biggest risk.


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