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Agriculture

China's pork producers race to fatten up and hog market share

Beijing offers incentives to expand industry after disease cuts supplies

The first domestic case of swine flu was reported in August 2018, and the deadly hog disease quickly spread across China by spring 2019.   © Reuters

DALIAN, China -- The country's top pork producers plan to invest billions of dollars into doubling output to stabilize supply as African swine fever has decimated China's hog population, a move that will further cement their leading positions in the market.

The producers' expansion push has the support of Beijing, which is eager to nurture big hog producers to prevent market volatility that wreaks havoc on a country that eats half of the world's pork output.

Wens Foodstuff Group, China's biggest hog company in terms of herd size, will invest 6.2 billion yuan ($921 million) to build more pens by summer 2023 under an expansion plan released Sept. 15.

The three other top players -- Muyuan Foods, Jiangxi Zhengbang Technology and New Hope Liuhe -- also have unveiled investments to boost supplies, with the total for the quartet reaching $7.59 billion.

This spending is expected to raise production by the four companies to at least 85 million animals in 2022 from 38 million now, lifting their combined market share to 12% from the 2018 level of 7%.

Aggregate sales by these producers reached 118.2 billion yuan in the first half of 2020, surging 40% from a year earlier. The growth has been driven partly by acquisitions in an industry without strong state-owned businesses.

In China, 99% of hog farmers keep 500 pigs or fewer. These small and midsize farmers go on a tear to increase production when prices rise. But once prices tumble due to a supply glut, they must scale back or even shut down. Such cyclical fluctuations in the market, known as the "pork cycle," have been exacerbated by the outbreak of African swine fever.

The first domestic case was reported in August 2018, and the deadly hog disease quickly spread across China by spring 2019. Chinese production tumbled about 20% in 2019 from roughly 690 million pigs the previous year. The only way to stamp out the disease is to depopulate an exposed herd, even after just a single case.

Zhang Jian, a farmer in Dalian, said he had to kill all his roughly 1,700 pigs after a few of them were infected in December 2018.

Prices remain high. Live hog prices came to 33.7 yuan per kilogram at the end of September, jumping about 150% from two years earlier. As pork plays a big part of the Chinese diet, the upturn has driven the overall consumer price index higher.

Beijing is promoting frozen pork imports, which have accounted for about 10% of China's pork consumption. But the coronavirus pandemic has rocked the hog industry in the U.S., the second-biggest producer, sending pork prices higher in Europe and elsewhere.

China is also assisting industry expansion. The government made it easier for bigger farmers to absorb smaller peers by reducing land acquisition costs related to building pig pens, as well as lowering taxes.

"The aim is to help larger farmers increase supplies to curb the price fluctuations that have been going on for many years," said an executive at a food trading company.

Beijing also is boosting support for smaller farms to encourage stable supplies. In March, the threshold was eased for subsidies on bank loan interest to cover farmers having as few as 500 pigs, from the previous requirement of 5,000 or more.

But a quick rebound is unlikely. Pigs reach slaughter age at about 6 months. It will take until 2022 for China's production capacity to recover to levels seen before the disease's outbreak, a Chinese Academy of Agricultural Sciences report predicted in June.

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