China’s pork sector: A global powerhouse

By Liz Bonsall, Promar International

- Last updated on GMT

China’s pork sector: A global powerhouse
China is now clearly the world’s largest player in the global pork industry and produces and consumes over half of all pork in the world. While Chinese prices are currently soaring, due to a combination of increasing corn prices and strong domestic demand, many of the current features of the Chinese industry can be traced back to its historical development over the last 10–20 years.

Production and trade

Chinese pork production is now estimated at almost 52 million tonnes (mt). This continues the growth in production seen over the last 30 years. In 1980, production was around 10mt and, by 1990, had reached over 20mt. In comparison, the next biggest international producer is currently the US, with some 10mt. To re-emphasise the dominance of the Chinese industry, the EU-27 produces some 22mt and Brazil just 3mt.

 
Despite being the world’s largest producer of pork, China still only exports relatively small volumes, with 2012 estimated to see these reach around 400,000t. Exports now account for less than 1% of overall production. Chinese domestic consumption has been increasing for many years. It is now at around 38kg per annum. In comparison, per capita consumption in the US is 27kg; in the EU-27, it is just over 40kg; in Russia, it is 20kg; and in Australia, it is some 22kg per capita. 

China is still highly self-sufficient in terms of overall production, but with imports in 2012 still expected to reach over 500,000t. As such, imports account for around 2% of total pork supply. The 2012 figure is much lower than that of 2011, which saw imports reach some 760,000t, as a result of a foot-and-mouth disease outbreak hitting domestic supply. 

The government encouraged pork imports, so as to lower prices and help control food price inflation; pork makes a significant contribution towards this, at around 30% of CPI. Importing into China was made easier in 2011 by the lifting of the ban from the US, due to its previous H1N1 disease. The US is now the largest supplier to China.

Policy issues and modernisation

While China is seeing ongoing increases in production – this is up by some 10mt in the last five years alone – it still has many issues to be addressed in order to develop its industry. Pork policies are therefore all angled to transform the traditional structure of ‘backyard’ farms, small butchers and informal sellers into a modern livestock sector.

Since the 1980s, this has included standardising breeds, feeds and veterinary medicines, regulating the use of feed additives and enforcing animal health regulations and the development of more modern slaughter and processing facilities. Chinese policy has also invariably supported production through the use of subsidies, tax breaks and market interventions in both production and processing.

Efforts to modernise really gathered momentum however in 2007. This saw a combination of soaring prices and widespread animal disease epidemics. The prevalence of small-scale backyard farmers was seen as a major source of instability, because they are less able to address food safety and other related disease issues.

2007 was something of a turning point. The decrease in domestic supply caused a massive rise in pork prices and, at the same time, attracted the attention of international exporters. The high prices seen in 2007/8 also attracted additional finance from meat, feed and real estate companies and also international investment banks. Modern pork production now accounts for 35% of the Chinese industry. By 2015, it is expected that this might be as much as 50%. A few years ago it was only 25%.

Prices

While Chinese pork prices have increased significantly in the last two years, the price has actually been increasing steadily since 2000. Average production costs doubled between 2002 and 2009. Of these costs, feed is the single largest, accounting for around 60% of the total. Recent highs in corn prices (which China has led) in recent years, has had a significant knock on impact on prices.

Consumption and processing

Pork has always been a central part of the overall diet in China, representing around 65% of meat consumption. This is currently at around 105g per day, but is expected to grow up to 110g (per day) by 2020. Within China, though, pork consumption differs significantly. As an example, rural areas still tend to eat more pork than urban areas. In rural areas pork consumption accounts for 73% of total meat consumed, whereas urban area pork consumption only accounts for 61% of all meat consumed.

Chinese consumers are also becoming more aware of the food they are eating, and products such as premium chilled pork is gaining popularity as, in particular, middle-class urban consumers, become wealthier.  Expatriate residents in China often still opt to buy imported pork. They see it as being a safer option, due to China’s past record of food scares, such as melamine in milk. Value-added products are also gaining ground. The processing sector now accounts for 13% of overall pork usage. Of this 13%, 45% is now processed into Chinese-style products and 55% into Western-style products, such as frankfurters and ham.

Future prospects

Despite an inherent high level of self-sufficiency, China’s pig industry is increasingly subject to the volatility that has impacted on the rest of the global pork sector. It is now part of a global market. It is not immune from changes in input prices, currency and other key costs of production. Many of the other factors that will continue to drive the Chinese industry are not new.

The population of 1.3 billion may not get too much larger, but it will become wealthier and more urbanised. This is not a recent phenomenon. Issues such as increased input prices, energy and labour costs, and animal disease, such as FMD, are not likely to go away. Government will still support the modernisation of the sector and the problems and challenges faced are not confined to just China. The scale of opportunity, however, is at a different scale altogether from other markets.

In reality, the Chinese pork industry continues to go from strength to strength. The domestic herd will continue to expand, but the pace of this (expansion) will probably slow in 2012. Volatile prices may force small Chinese farmers to exit the sector more quickly than the more modern large operations can expand.

The market will also remain attractive for global exporters, such as the US – not least, as pork imports have risen, this has led to a surge in prices on a global level. China is expected to be the key driving force in future prices. In addition, with Brazilian exporters also having access to the Chinese market, competition between supplying countries will only intensify. The Brazilian Pork Industry and Exporter Association estimates that China could import 50,000t of Brazilian pork in 2012. 

As the global pork powerhouse, China will continue to influence all aspects of the world pig industry. It really is “all to play for” in the Chinese market, with the overall size of the prize for all players in the supply chain (input suppliers, farmers, processors and exporter and importers/distributors) still huge.

Liz Bonsall is a research analyst with Promar International, which is the value chain consulting arm of Genus, and she can be contacted at the following email address:Elizabeth.bonsall@genusplc.com

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