‘Pigageddon’ sees Chinese pork prices surge

Hog hell forced up retail inflation in China last month as pork prices surged by 18% on the back of an African swine fever epidemic in the world’s second-largest economy.

Data from the National Bureau of Statistics showed that the Consumer Price Index, or CPI, hit 2.7% in May, the highest level in more than a year.

Overall food prices jumped by 7.7% last month compared to the same period in 2018.

Crop failure due to unseasonal weather also hit fresh fruit stocks with costs soaring by 26.7% from 14.8% in April.

“While Chinese diners, who account for half of the world’s pork consumption, may get upset about higher prices, the development is not a something that would cause wider market panic,” Bo Zhuang, the chief China economist at TS Lombard, told CNBC news.

“Pork prices have been on a roller-coaster for the last decade,” Zhuang added.

Domestic demand

As for the broader producer price index, or PPI, it edged lower at 0.6% in May from 0.9% compared to the previous month.

Recognized as an important indicator of domestic demand, analysts at Nomura reported that economic “growth could slow further on escalating US-China trade tensions.”

“We expect Beijing to undertake further easing [or] stimulus measures to bolster confidence and to stabilize growth,” they added in a note.

Still, it was the rise in pork prices which grabbed the headlines.

Up to 200 million pigs could die, or be culled, in China this year after contracting African swine fever.

If that happens, pork prices could soar by 70%, according to a senior Chinese official who declined to be named.

In March, a report by Nomura backed up that assessment. The Japanese bank warned that prices could rise to 33 yuan (US$4.90) per kilogram by January 2020 from February’s figure of 18.5 yuan-per-kilogram. That would represent a 78% price hike.

“Despite the rise in pork prices, pig farmers may be reluctant to increase hog stocks on concerns about [African swine fever],” Nomura’s analysts said in the study.

“In this regard, the upturn of the hog cycle could last longer and drive pork prices higher than in previous hog cycles,” they added.

Highly contagious

Reports about the highly-contagious virus have been sketchy in China’s state-run media for fear of triggering panic buying. Even the official statistics are vague.

In April, the Ministry of Agriculture and Rural Affairs confirmed that China’s sow population had plunged 21% in March compared to the same period in 2019.

But detailed numbers were missing from the statement.

“Second quarter [pork production] will see a marked drop from the first quarter, and the third quarter could be even bigger,” Feng Yonghui, the chief analyst at industry website Soozhu.com, told Reuters.

The full impact of African swine fever in the pig industry was first highlighted in a report by the United Nations’ Food and Agriculture Organization’s Regional Office for Asia and the Pacific. “[There is a] major threat to the swine industry in China and to the livelihoods of small-scale farmers and others along the value chain,” the study stated.

“Because pork is produced and consumed by so many Asian countries, particularly in East and Southeast Asia, the introduction of the virus to other countries of the region is a near certainty,” it added. “In its most virulent strain, it is 100% fatal to infected pigs. However, unlike swine flu, ASF [African swine fever] poses no direct health threat to humans.”

The depth of the crisis was also highlighted in a study by Rabobank, which predicted that the ASF virus could wipe out between 150 million and 200 million pigs in China.

Fallout from mass infections would result in a 30% drop in pork production, it said.

Back in November, China’s Agriculture Ministry rolled out stringent hygiene measures in an effort to halt the spread of ASF.

At least 18 provinces were reported to be affected, resulting in the death of 200,000 pigs – a figure which analysts believe is just the tip of the iceberg.

Officially, China’s hog population has declined by 10.1% to 375.25 million animals.

Food chain

Considered a staple in the food chain, further dramatic increases would set off alarm bells in Beijing, as the country celebrates 70 years of Communist Party rule later this year.

“The key question … is what is the true severity of China’s African Swine Fever outbreak? And, actually, no one, not even Beijing, knows the answer,” Rory Green, an economist at TS Lombard, said.

But then, China is not the only country hit by the ASF virus.

The deadly disease has also broken out in Vietnam and Cambodia, while there are concerns it could spread to Thailand.

“Based on the commonalities with Chinese production, we expect these markets to suffer sizeable ASF herd losses [on a percentage basis] and experience similar difficulties in disease containment,” the Rabobank report pointed out.

“Much of Southeast Asia will have difficulty repopulating its [stocks] and securing provisional protein supplies. ASF losses in Southeast Asia will exacerbate global protein shortfalls, adding further upside pressure to global markets,” it added.

For China, pork prices could rise considerably in the second half of the year unless ‘pigageddon’ can be contained.