On June 5, 2009, the National Development and Reform Commission announced the Government of China is preparing to purchase pork for frozen stocks under the National Swine Price Alert System.
Voluntary - Public
Clearance Office: Office of Global Analysis (OGA)
GAIN Report Number: CH9048
China - Peoples Republic of
China Plans to Purchase Pork for State Reserves
Livestock and Products
Zhang Jianping and Michael Woolsey
On June 5, 2009, the National Development and Reform Commission announced the Government
of China is preparing to purchase pork for frozen stocks under the National Swine Price Alert
System. Significant pork purchases are considered likely in the near term to boost prices and
returns for pork producers.
NDRC Announces Preparations Underway for Pork Purchases
In response to a continued decline in pork prices, China?s National Development and Reform
Commission (NDRC) announced the government has launched preparations to purchase pork for
frozen stocks to stabilize the market. Under the National Swine Price Alert System announced in
January 2009 (see GAIN 9017), if the ratio of hog to grain prices falls below 6.0 for more than four
weeks, the government will consider purchases for reserve stocks to reduce market supply and
increase prices. On May 12, 2009, NDRC published a market alert announcing the live hog to grain
price ratio had fallen below 6.0 and urged pork producers to reduce the marketing of hogs where
possible, setting the stage for possible reserve purchases.
Chinese live hog prices in China have dropped for 20 straight weeks, as supply gains continue to
outpace rising demand. NDRC reports on May 27, the nationwide average hog price in large and
medium cities fell to 9.75 yuan per kilogram, down 3.75 percent from the previous month.
Meanwhile, corn prices rose slightly during the same period to 1.66 yuan per kilogram. Pork
producers are reportedly losing up to 100 yuan per head due to the continued price decline. With the
continued slide in hog prices since the market alert announcement, significant purchases for
government-held stocks are now considered likely in the near term to boost prices and returns for
NRDC reports total live pig stocks at the end of April reached 454 million head, up 1.4 percent from
the previous month. The number of sows stood at almost 50 million head, down 0.4 percent from
March. According to NDRC, the proportion of sows to pigs in recent months has been the highest
on record, suggesting further upward pressure on pork production.
Cold storage capacity for reserve stocks could be a significant limitation without government
incentives to free up commercial space. An analyst with the Ministry of Agriculture confirmed the
Government of China's warehouse space is likely insufficient, noting total frozen reserve capacity
is roughly 600,000 MT. Therefore, commercial reserve space assisted with government subsidies
will likely be key to ensuring sufficient capacity.
Overview of National Swine Price Alert System
Under the National Swine Price Alert System, when the hog:grain price ratio falls below 6.0, the
Chinese government shall announce a four-week market alert to encourage producers to reduce
slaughter where possible. If the ratio remains below 6.0 for four consecutive weeks, the central and
local governments shall increase frozen pork reserves. If the ratio drops further to below 5.5 for
four weeks, the central government will further increase central reserves, and at the same time
request main consumption areas in large-medium coastal cities to increase frozen reserves. When
the hog:grain ratio drops below 5.0, the central government shall further increase purchases for
reserves. If the hog:grain ratio remains below 5.0 following the increased purchases, the
government directs producers to begin slaughtering significant numbers of sows until the sow
inventory decreases considerably. For this stage, the Chinese government shall provide an additional
one-time RMB100 ($14.6) for each productive sow for large swine producing counties that
distribute hogs to other provinces, and also subsidize one-time RMB100 to each breeding boar at
breeding farms identified by the Ministry of Agriculture (MOA). The government also shall
encourage large-sized pork processing plants to increase commercial reserves with low-interest
loans provided by the government, and increase production of processed products.
Although the four-week period following the market alert has not yet expired, some provinces have
already started taking action. For example, in Sichuan Province, the largest swine producing
province, the hog:grain ratio has reportedly been below 5:1 for more than four weeks. Sichuan
authorities have requested large processing plants to help local government increase frozen
reserves. Gaojin Foods Co., Ltd. reportedly purchased 22,000 MT in response to the request.
Subsidies for Productive Sows May Continue
A primary factor driving higher pork supplies is China?s expanded subsidy regime for pork to
encourage a recovery in production following a devastating outbreak of blue ear disease in 2006/07.
The initial subsidy was 50 yuan ($7.30) per productive sow during the first yearly subsidy period
which ended on June 30, 2008. The second yearly subsidy period is from July 1, 2008 to June 30,
2009. The second yearly subsidy is raised to 100 yuan ($14.60) per productive sow.
The subsidies have attracted large investment in swine raising. According to the China Animal
Husbandry Association, swine raising investment in 2009 is double compared with that in 2007.
Further adding to upward pressure on production is the return of millions of recently unemployed
migrant workers who returned to rural China and began raising swine. This resulted in a quick
increase in sow inventory and swine supplies, outpacing rising pork demand and resulting in higher
supplies and lower hog prices. According to farmers, one fattened hog is losing RMB 100-200
($14.6-29.2). However, the swine industry expects the productive sow subsidy program may
continue from mid 2009 to mid 2010 to prevent a large slaughter of sows, short swine supplies and
rising prices. A well-known swine farm contact told FAS Beijing (Post) that subsidy content may
change to favor large-sized swine farms. Post believes that the productive sow insurance subsidy,
which is RMB60 ($8.79) per productive sow with farmers only paying RMB12 ($1.76) will not
change, but may also favor large-sized farms.
Source: Ministry of Agriculture