China: Government Steps into Pork Market to Stabilize Prices

By Joel Haggard, senior vice president, USMEF-Asia Pacific, and
John Lam, regional programs manager, USMEF-China/Hong Kong

The Chinese government has initiated a program to purchase domestic pork for its strategic reserve in an effort to stabilize pork prices, which have been falling or stagnant since April 2008. The program involves a coordinated effort among China’s Ministry of Commerce, the Ministry of the Treasury, the National Reform and Development Commission (NDRC), and the China Agricultural Development Bank. The initial target purchases by national authorities are estimated at 120,000 metric tons (264.5 million pounds), which will be stockpiled under the administration of China’s Merchandise Reserve Management Center. The Merchandise Reserve Management Center held and managed stocks of U.S. pork the government purchased in late 2007 in an effort then to cool a spike in pork prices.

Under the program, which commenced June 13, the central government will make direct purchases and extend favorable loans to meat processors to make commercial purchases of pork. Capital loans with favorable terms will also be made to meat processors who wish to expand their processing capacity. Local media in China have reported that the China Agricultural Development Bank is allocating approximately RMB 2.4 billion (U.S. $ 351 million) for the pork strategic reserve program. The true extent of expenditures however is difficult to estimate, because several provinces have initiated their own pork reserve programs, including Henan, Hunan, Fujian, Gansu and Sichuan. For example, Henan has established a target to purchase over 22,000 tons (48.5 million pounds) of pork for a provincial frozen pork reserve.

The pork reserve program is a component of China’s pork price stabilization effort announced by the NDRC on Jan. 9, 2009. Under the program, China announced it would start purchasing pork for the reserve if the ratio of the live market hog price to the corn price stayed below 6:1 for four successive weeks. The program calls for additional measures, including restricting imports, if the hog-corn ratio stays persistently low. 

USMEF-Beijing reports that the announcement of the program has halted the slide in hog prices and, in some provinces, caused prices to rise. For example, average live hog prices have risen 8.4 percent in the last 3 weeks in Shandong Province, a key eastern production area. Average hog prices in Shandong currently stand at approximately U.S. $ 70/cwt., and the current hog to corn ratio is just under 6:1. The price response has not been uniform throughout China however, as provincial pork reserve purchasing programs are being undertaken independently. According to some reports, some provincial programs are nearing completion, including those in Henan and Sichuan. Others, such as in Gansu province, are just commencing.

There are no signs that China intends to relax its de facto ban on imports of U.S. pork and pork products. Although China’s pork price stabilization program has provisions for the curb of imports if prices stay low over a prolonged period of time, Chinese authorities claim the current restrictions relate to H1N1 and its concern that the new virus could be transmitted to China’s domestic swine herd through imported pork scraps.

Larger domestic supplies and thus lower domestic prices have contributed to a 66 percent decline in China’s pork imports through May, totaling 54,728 tons (120.6 million pounds) compared to 162,111 tons (357.4 million pounds) during January through May 2008. Reported imports from the U.S. declined by 77 percent, totaling 18,862 tons (41.6 million pounds) compared to 81,230 tons (179.1 million pounds) during the first five months of 2008. However, China’s total pork imports were still 250 percent larger than the same period in 2007, with imports from the U.S. up 591 percent. China’s variety meat imports from all suppliers in the first five months of 2009 decreased by 35 percent to 143,703 tons (316.8 million pounds), but imports from the U.S. increased by 7 percent to 48,552 tons (107 million pounds).

# # #

The U.S. Meat Export Federation (www.USMEF.org) is the trade association responsible for developing international markets for the U.S. red meat industry and is funded by USDA, exporting companies, and the beef, pork, corn and soybean checkoff programs.

By Joel Haggard, senior vice president, USMEF-Asia Pacific, and
John Lam, regional programs manager, USMEF-China/Hong Kong

The Chinese government has initiated a program to purchase domestic pork for its strategic reserve in an effort to stabilize pork prices, which have been falling or stagnant since April 2008. The program involves a coordinated effort among China’s Ministry of Commerce, the Ministry of the Treasury, the National Reform and Development Commission (NDRC), and the China Agricultural Development Bank. The initial target purchases by national authorities are estimated at 120,000 metric tons (264.5 million pounds), which will be stockpiled under the administration of China’s Merchandise Reserve Management Center. The Merchandise Reserve Management Center held and managed stocks of U.S. pork the government purchased in late 2007 in an effort then to cool a spike in pork prices.

Under the program, which commenced June 13, the central government will make direct purchases and extend favorable loans to meat processors to make commercial purchases of pork. Capital loans with favorable terms will also be made to meat processors who wish to expand their processing capacity. Local media in China have reported that the China Agricultural Development Bank is allocating approximately RMB 2.4 billion (U.S. $ 351 million) for the pork strategic reserve program. The true extent of expenditures however is difficult to estimate, because several provinces have initiated their own pork reserve programs, including Henan, Hunan, Fujian, Gansu and Sichuan. For example, Henan has established a target to purchase over 22,000 tons (48.5 million pounds) of pork for a provincial frozen pork reserve.

The pork reserve program is a component of China’s pork price stabilization effort announced by the NDRC on Jan. 9, 2009. Under the program, China announced it would start purchasing pork for the reserve if the ratio of the live market hog price to the corn price stayed below 6:1 for four successive weeks. The program calls for additional measures, including restricting imports, if the hog-corn ratio stays persistently low. 

USMEF-Beijing reports that the announcement of the program has halted the slide in hog prices and, in some provinces, caused prices to rise. For example, average live hog prices have risen 8.4 percent in the last 3 weeks in Shandong Province, a key eastern production area. Average hog prices in Shandong currently stand at approximately U.S. $ 70/cwt., and the current hog to corn ratio is just under 6:1. The price response has not been uniform throughout China however, as provincial pork reserve purchasing programs are being undertaken independently. According to some reports, some provincial programs are nearing completion, including those in Henan and Sichuan. Others, such as in Gansu province, are just commencing.

There are no signs that China intends to relax its de facto ban on imports of U.S. pork and pork products. Although China’s pork price stabilization program has provisions for the curb of imports if prices stay low over a prolonged period of time, Chinese authorities claim the current restrictions relate to H1N1 and its concern that the new virus could be transmitted to China’s domestic swine herd through imported pork scraps.

Larger domestic supplies and thus lower domestic prices have contributed to a 66 percent decline in China’s pork imports through May, totaling 54,728 tons (120.6 million pounds) compared to 162,111 tons (357.4 million pounds) during January through May 2008. Reported imports from the U.S. declined by 77 percent, totaling 18,862 tons (41.6 million pounds) compared to 81,230 tons (179.1 million pounds) during the first five months of 2008. However, China’s total pork imports were still 250 percent larger than the same period in 2007, with imports from the U.S. up 591 percent. China’s variety meat imports from all suppliers in the first five months of 2009 decreased by 35 percent to 143,703 tons (316.8 million pounds), but imports from the U.S. increased by 7 percent to 48,552 tons (107 million pounds).

# # #

The U.S. Meat Export Federation (www.USMEF.org) is the trade association responsible for developing international markets for the U.S. red meat industry and is funded by USDA, exporting companies, and the beef, pork, corn and soybean checkoff programs.