Hogageddon forced up food inflation in China last month as pork prices surged by 46.7% on the back of an African swine fever epidemic in the world’s second-largest economy.
The year-on-year jump illustrated the depth of the problem after millions of pigs were slaughtered, or died, from the outbreak.
Data from the National Bureau of Statistics showed that the cost of food in the official Consumer Price Index, or CPI, jumped by 10% in August compared to the same period last year.
Significantly, that was the highest level in more than seven years.
“Consumer price inflation should accelerate in the coming months as pig stocks continue to fall,” Julian Evans-Pritchard and Martin Rasmussen, economists with Capital Economics, wrote in a note released on Tuesday.
The knock-on effect also hit beef, mutton and chicken prices, which soared by between 11.6% and 12.5% last month compared to the same period in 2018. Unseasonal weather continued to play havoc with fresh fruit prices, which increased by 24% year-on-year, although it was down from July’s 39% rise.
“But the upcoming [reserve requirement ratio] cuts announced last Friday are in line with our view that rampant food price inflation is not a barrier to monetary easing, and we continue to anticipate further loosening in the next few quarters,” Evans-Pritchard and Rasmussen said.
They were referring to the decision last week by the People’s Bank of China to reduce the amount of funds banks have to hold in reserve in a move to stimulate the economy as the trade war with the United States drags on.
Still, it was the rise in pork prices which have grabbed the headlines during the past three months.
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 in a report 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,” they added.
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 has seen] 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, said.
The full impact of African swine fever in the pig industry first came under the spotlight in a 2018 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 continued.
“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 report added.
Earlier this year, a study by Rabobank predicted that the ASF virus could wipe out between 150 million and 200 million pigs in China. The fallout from mass infections would result in nearly a 50% drop in pork production.
“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.
For China, pork prices will continue to rise in the second half of the year unless ‘hogageddon’ can be contained.