Cheap Pork Could Become Costly in China

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The Chinese love pork so much that the meat sits prominently on the government's plate of policy considerations.

That's why it's potentially pertinent that the state television station ran a little-noticed story late Sunday, reporting a further drop in domestic pork prices and warning against diminishing hog-breeding incentives that could lead to a spike in prices later in the year.

Statistics from the National Development and Reform Commission, Beijing's top economic planning agency, show that pork prices in major Chinese cities fell 10% in April from a year earlier. If prices continue to fall, farmers will start killing pigs because it makes no sense for them to buy the feed for hogs that are worth little when sold.

The TV report warned the government is already considering boosting the country's pork reserves and offering subsidies to pig farmers, in a bid to ensure future supply.

That's a sobering message and interesting timing as it came on the eve of data that showed further declines in China's consumer-price and producer-price indices.

Pork has always been much more than a basic ingredient of Kung Pao dishes in China. Food constitutes nearly 33% of China's CPI, and pork's weight in the food category is estimated to be at least 10%. In April, food prices dropped 1.3% from a year earlier.

But those data aside, it appears that Beijing is starting to become worried about a potential spike in pork prices down the track, and with good reason.

Rising pork prices due to expensive raw material costs were a major factor driving inflation to around 7% only two years ago, forcing Beijing to hike interest rates six times and take a series of other measures to try and bring pork prices down.

If the authorities don't prevent another supply crisis, a repeat of 2007 could well take place in the coming months, with potentially disastrous consequences.

With the global economy in recession and China struggling to keep growth over the magic 8% mark, via a huge stimulus plan, the last thing it wants to see is stagflation.

Shen Hong

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