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Economy

Chinese pork prices risk 70% surge as African swine fever rages

Tighter supplies of staple meat deal new economic blow amid trade row with US

Workers in protective gear disinfect pigs on a farm in China's eastern Zhejiang Province in August 2018.   © Getty Images

DALIAN, China -- An outbreak of African swine fever is tearing through China's pig stocks, and there is no end in sight. With concerns over pork supplies mounting, soaring meat prices could deal a fresh blow to China's economy as trade tensions with the U.S. continue.

Zhang Jian, a pig farmer in his 60s in the northeastern city of Dalian, was forced to cull all of his 1,700 or so pigs in December last year after the African swine fever virus was detected in several animals on his hog farm.

Although Zhang took many steps to minimize the risk of infection in his herd, like keeping away vehicles from outside the farm since last summer, the disease found its way in. Facing losses of about 800,000 yuan ($115,600), Zhang said he is not sure whether he can stay in business.

Pork is a staple in China, and authorities worry that a long-term rise in prices could lead to social unrest. The country's consumer price index in April was up 2.5% from the previous year and at a six-month high thanks to soaring pork prices. Prices rose to 15.1 yuan per kilogram in late May, up from 11.9 yuan per kilogram in late February. China's Ministry of Agriculture and Rural Affairs predicts that pork may be 70% more expensive in the second half of 2019, and that the CPI could rise 3%.

Prices are surging due to falling domestic production brought on by the swine fever outbreak, higher tariffs on U.S. pork and uncertainty over when the epidemic will end.

African swine fever is a viral disease that affects only pigs. It was first detected in northeastern China last August and spread to other parts of the country by spring of this year. The government is calling on pig farmers to take countermeasures, including building fences to keep out infected animals and using the latest disinfection equipment.

But with 60% of China's pig farmers operating on a small scale, many producers who are unable to pay for preventive steps will be forced out of business, said Yang Hanchun, a professor at China Agricultural University in Beijing.

China's swine herd shrank 21% on the year in April, to a level not seen since the early 1990s, according to agriculture ministry data. Dutch lender Rabobank forecasts the herd will decline between 20% and 30% in 2019 from the previous year.

The trade spat with the U.S. is making the situation worse. Last July, China raised tariffs on U.S. pork to 62% in retaliation for higher U.S. duties on a range of Chinese exports. The swine fever infection was detected shortly afterward.

China's imports of U.S. pork imports fell 30% by volume in 2018, but the U.S. remains an important supplier, accounting for 30% of all imports. China will probably have to keep buying from the U.S. regardless of the price increases, and imports from the country are rising again. China has no choice but to rely on American imports, said one industry insider.

The search is on for alternative suppliers but experts say it could take a few years to find them. This presents an opportunity for other overseas pork producers, who are planning big investments in China to meet demand. Vadim Moshkovich, chairman of Russian food processor Rusagro, said China's pork industry had great potential and he wanted to begin doing business as soon as possible when he met with officials from the northeastern city of Qingdao in late May.

The Russian company plans to spend $5 billion to set up several hog farms and pork processing plants in Qingdao, with a goal of raising 2.8 million pigs a year in China. Rusagro is expected to make a large investment in infection control, as most Chinese producers are too small to do so themselves.

Thailand's Charoen Pokphand Group began constructing a hog farm in China's central Hunan Province in late April. The Thai conglomerate is already one of China's largest pork processors, but it plans to add another 500,000 pigs to its herd.

Others are gearing up to do the same. Canada increased its pork exports to China by 80% from a year earlier in March, while Argentina announced in April that 25 pork processing facilities had obtained export licenses from the Chinese government. The European Union is also expected to increase exports to China.

The U.S. Department of Agriculture forecasts China's pork imports will jump about 40% in 2019 from a year earlier.

Chinese pork producers, meanwhile, are trying to turn things around. Muyuan Foodstuff said in March that it would spend 500 million yuan to build a facility that can process 2 million pigs annually in Henan Province, in central China.

WH Group, the world's biggest pork producer, bought Polish peer Pini Polonia in late May. The Chinese company plans to boost pork imports using Pini Polonia's production capacity of 4 million pigs a year.

It has taken other countries at least five years to eradicate African swine fever in previous outbreaks, and it could take twice as long in China given the country's size and low sanitary standards, said Ernan Cui, an analyst at Hong Kong-based research specialist Gavekal Dragonomics. An industry insider also predicts it will take a few years for the supply chain to stabilize.

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