MNI INTERVIEW: China's CPI Pork Prices To Rise In H2

Pork prices, a major CPI driver in China, will rise steadily in H2 as government policy to reduce breeding sow population reasonably using market mechanisms to deal with excessive supply takes effect, an agricultural policy advisor has told MNI.

Officials have reduced the target for breeding sow population from 42 million to 39 million, which will help cut excess supply using market mechanisms and push prices up gradually in H2, said Zhu Zengyong, a leading pork industry advisor to the Ministry of Agriculture and Rural Affairs.

Prices will rise by less than 10% from today’s CNY15 per kg given the policy aims to “reasonably” regulate supply compared to demand, which will fall back from a consumption spike during Chinese new year, Zhu added.

“The modest price increases will still support CPI levels, especially after the second quarter,” Zhu continued.

China's CPI grew 0.7% in Feb with pork prices up 0.2% y/y versus January's 17.3% drop. The PBOC has set a target of 3% inflation in 2024, despite the real level likely printing closer to about 1% due to sluggish demand, advisors and economists recently told MNI. (See MNI: MNI: China To Target 3% CPI Rise Despite Deflation Pressure)

RESTORE DISCIPLINE

Zhu said government policy aimed to utilise market operations after China sold 726.62 million hogs last year, up 26.68 million from 2022, despite prices dropping to CNY14-15 per kg for most of 2023, below the industry breakeven benchmark of CNY16-17 per kg and far from the previous cyclical high of CNY27.66 per kg seen in October 2022.

Previous downturns had lasted for about seven months, but market turbulence caused by the African swine flu disruption — between 2018-2021 — had allowed large corporate firms to quickly dominate market share by raising capacity rapidly while absorbing losses by incurring debt, Zhu, who is also a researcher at the Chinese Academy of Agricultural Sciences, added.

"This has altered the pattern of pork prices and production capacity versus previous cycles," Zhu continued.

However, the big industry players took market risk themselves, Zhu stressed. “If one producer went bankrupt it would not cause a supply shock, the market can absorb the reduction,” he added.

“Financial losses are not only from breeding, but also from low management efficiency,” Zhu said, adding more cooperation with world-class international producers would help enhance domestic husbandry practices and reduce the demand for breeding sows.

On pork exports, Zhu said China had limited potential to increase shipments to absorb excess supply, and therefore regulating domestic levels is the priority. However, import demand had now fallen to levels equal to the pre-swine flu era, he added.