The “pig cycle” is a cyclical price fluctuation in the production of pigs and pork. In the case of pork prices, farmers are chasing profits, increasing the supply of sows and pigs, causing pig prices to fall, farmers reducing supply, and pig prices rising again. The pig’s production cycle determines a complete cycle of pigs that lasts 3-4 years, while showing a small cycle of fluctuations due to holidays and climate effects within a year. The ability to breed sows represents production capacity, and the expansion of live pig supply requires expansion of production capacity. From piglets to gilts, it takes 7 months to reach a reproducible state. It takes about 5 months for a sow to produce 1 litter and 5 times for a 2 year (2.4-2.5 litters/year). The sows are given a 1-2 month incubation period and a 5-6 month fattening period, and the pigs can be slaughtered. Therefore, it takes only about 6 months to directly fill the piglets. The monthly stock of pigs indicates the supply of pigs in the next six months. However, it takes about 18 months from the pigs to increase the supply of pork, that is, about 3 pig cycles. About a year. China’s annual pig production is about 700 million pigs. Therefore, there should be at least 350 million pigs at the end of the month. However, as of the end of August, there were only 198 million pigs in China, 38.7% year-on-year; 37.4%.
The essence of the pig cycle is the supply-demand relationship, the demand side is generally stable, and the key is at the supply end. China’s environment dominated by retail farming has amplified the volatility of prices. First, pork consumption demand is determined by the income level, population growth and consumption structure of residents in the long run, and is affected by seasonal eating habits, epidemic diseases, food safety and consumption substitution effects. Second, the pork supply end is mainly affected by factors such as farming profits, policy interventions, and natural disasters. At present, pig breeding is mainly divided into two modes, namely “self-supporting and self-supporting”, typical such as Muyuan shares; the other is “company + farmers”, the company provides support for piglets, feed, vaccine veterinary drugs and technical personnel, until the pigs grow up After the weight is released, the company is responsible for recycling sales and paying the farmers a maintenance fee, such as Wen’s shares and new hopes. The former occupies relatively large funds, depreciation, veterinary drugs and vaccine costs are higher, but the process is controllable; the latter occupies less capital and less depreciation, which is conducive to the company that has just entered the pig breeding industry to overtake the curve, but needs to pay a large commission Farming fees.
Since 2006, China has experienced four rounds of “pig cycle”, which have the following characteristics: First, each round of pigs is basically 3-4 years, and the down time is slightly longer than the upside, mainly because the profit is down in the down phase. However, as long as there is no loss, the willingness of farmers to withdraw is not strong; secondly, each round of pig cycle is accompanied by epidemic disease, but the recent pig cycle has obvious non-marketing policy factors such as environmental protection intervention; the third is scale and The advancement of technology has led to a decline in the number of stocks of sows and live pigs. Therefore, the corresponding stocks will be lower than the previous period after the recovery of the new round of pig cycle capacity. Fourth, unlike the previous pig cycle, this round of pig cycles only affects CPI, and Not transmitted to PPI, core CPI and non-food CPI down, PPI continuous negative, macro environment is insufficient total demand. The first three rounds of pig cycles lasted for about 4 years, and the upward periods were 2, 15 and 2 years respectively, with the highest increases of 132.6%, 98% and 76.6% respectively.
This round of super pig cycle, the increase is large, the speed is fast, four reasons: environmental protection prohibition expansion, large-scale farming strategy, African piglets, endogenous pig cycle. First, in recent years, especially since 2015, the impact of environmental protection policies on pig farming has been highlighted. Various localities have formulated plans for the relocation of detained areas and polluted farmers in the area, and the layers have been enlarged and expanded across the board. Second, the large-scale farming upgrade has led to a large number of retail investors withdrawing, and the supply of pork has declined, but it has not changed the pattern of high-volume retailing and low-scale farming in China. The number of free-range farmers with an annual output of less than 100 has dropped from 81 million in 2007 to 37 million in 2017, a drop of 54%, while the number of farms with more than 1,000 heads in the same period has increased from 40,000. To 82,000, an increase of 150%. However, the proportion of farmers with less than 500 heads is still as high as 99.4%, the number of farmers with more than 500 heads is 0.6%, and the number of stalls with more than 500 heads accounts for less than 50% (about 49.1%). Third, African swine fever caused a large number of pigs to be infected. As of July 2019, there were 143 cases of African swine fever in the country, killing more than 1.16 million pigs. Fourth, before the African swine fever, the excess capacity accumulated in the last round of the pig cycle gradually cleared, and a new round of pig cycle has started, and pork prices have an endogenous upward momentum.
This round of pigs began in the middle of 2018. It has lasted for 1 year and 3 months and has risen by 141%. According to the rising cycle of 2 years and the current cycle, the number of sows and live pigs can decline too fast. It may be 2020. In the second half of the year, the price turned downward. First, residents’ demand for pork is large, but the number of sows and pigs can be kept at a 10-year low. The current supply gap is as high as 10 million tons. China’s pork consumption accounts for 49.3% of the world’s total, far higher than the EU’s 19% and the United States’ 8.7%. The domestic consumption of pork in meat consumption is as high as 73%. In the short term, cattle and poultry are difficult to replace. Second, China’s imports of pork accounted for only about 3% of domestic pork consumption for a long time, accounting for 18% of global pork exports. Although the import intensity has increased this year, it still cannot make up for the supply gap. From January to August, the cumulative import of pork was 1.164 million tons, which was close to the total of 1.193 million tons in the whole year, with a cumulative total of 40.4%; the monthly growth rate of pork imports from May to August was 62.6%, 62.8%, 106.7% and 76% respectively. With the sharp increase in pork imports, the unit price of imports has also increased significantly, reaching 2.27 US dollars / kg in August, up 31.6% from the beginning of the year, compared with 36.6%. Third, it is time to correct the environmental protection policy and develop the African swine fever vaccine.
The super pig cycle will have a greater impact on the macro, meso and micro levels. 1) Macroscopically, since 2008, the correlation coefficient between pork price and CPI index has reached 0.82, which is much higher than other commodities in the CPI basket. The increase in pig prices will push up the food CPI, and at the same time drive up the price of substitute beef, mutton, eggs, chicken, etc., driving the CPI. In the second half of the year, the CPI will continue to fluctuate around 3%, and individual months may exceed 3%. However, this round of CPI rise has a distinct structural characteristics, the core CPI is down, the PPI is negative, and the possibility of full inflation is not high. The macroeconomic situation is mainly faced with deflation rather than inflationary pressure. “The pigs are deflated after they are taken out.” Monetary policy has more to do with demand rather than supply, so monetary policy relaxation will not exacerbate inflation. 2) In the middle view, accelerate the large-scale breeding of pigs and increase the concentration of the industry; affect the pattern of the meat and poultry transportation industry, from live transport to cold pork transport, from “tune up the pig” to “tune the meat”, the cold chain pork transport welcomes the opportunity Impact on the upstream feed industry, the demand for corn, soybeans and other feeds will be reduced in the short term, and the price will fall. As the stocks rise, the upstream feed prices will rise. At present, China’s pig breeding industry is less concentrated. In the 2018 years ago, the listed companies in the pig industry entered a total of 4,731,700 pigs, and the market share accounted for only 6.82%. The leading Wenshi, Muyuan, Zhengbang Technology And the number of new hope pigs are 2230, 1100, 554 and 2.25 million, respectively, which is still very small compared to the nearly 700 million heads. 3) Microscopically, the residents of low-income groups are more affected by the increase in pork prices. Therefore, it is necessary to pay attention to reducing the expenditure pressure of low-income groups through subsidies.
Policy recommendations: First, increase the supply by multiple measures, stabilize the supply of pork market, closely track the price of substitute beef and mutton and increase the price. It is recommended to appropriately relax the environmental protection of the pig breeding industry in the short term and reduce the unreasonable demarcation zone. Speed up the storage of frozen pork. Support large-scale farmers who have withdrawn from the market in the early stage to help them resume production as soon as possible. In addition, new pork import markets such as Brazil and Australia should be sought as soon as possible to significantly increase the quantity of imported pork under the premise of ensuring the safety of inspection and quarantine. The second is to reduce the costs of related taxes, taxes, transactions and transportation in the production of pork, and increase financing support for farmers, especially large-scale farmers. The third is to focus on subsidizing low-income groups that are sensitive to the rise in pork prices, and establish a dynamic subsidy mechanism linked to the increase in pork prices. The subsidized population is linked to the list of low-income and poor households. Fourth, from the long-term mechanism, further improve the level of large-scale farms in the fields of population selection, breeding technology, inspection and quarantine, increase industry concentration, accelerate industrial transformation and upgrading, and improve the scale, standardization, industrialization and informationization level. Strengthen the construction of the cold chain logistics distribution system, and promote the operation mode of “slaughtering and cold chain distribution” of pigs.
1 What is the “pig cycle”?
1.1 “Pig cycle”
The pig cycle is a cyclical fluctuation in prices during pig production and pork sales. Specifically, when the price of pork rises, farmers will expand their production capacity, increase the number of sows, and increase the stock of live pigs. After the fattening, the amount of pigs will increase, the supply of pork will increase, and the price will fall. Farmers observed a decline in pork prices, reduced production capacity, eliminated the ability to breed sows, reduced the amount of live pigs and slaughter, reduced pork supply, and re-raised pork prices.
The pig’s production cycle determines a complete cycle of pigs that lasts 3-4 years, while showing a small cycle of fluctuations due to holidays and climate effects within a year. The ability to breed sows represents production capacity, and the expansion of live pig supply requires expansion of production capacity. From piglets to gilts, it takes 7 months to reach a viable state. It can be used for breeding sows for about 114 days, breastfeeding for 20 days, and empty for 14 days, so it takes 148 days for a sow to produce one child (5 About 5 months, 2 times can be born 2 times (2.4-2.5 tires / year). In 2018, the average number of commercial pigs (MSY) per sow in the country was 19.2, which was lower than the foreign advanced level of 4-6, which will increase with the advancement of farming technology. The sows are given a 1-2 month incubation period and a 5-6 month fattening period, and the pigs can be slaughtered. Therefore, it takes only about 6 months to directly fill the piglets, which means that the supply of pigs in the next six months can be inferred based on the amount of live pigs in the current month. However, it takes about 18 months from the pigs to increase the supply of pork, so a round of pigs The cycle is about 3 years. China’s annual pig production is about 700 million pigs. Therefore, there should be at least 350 million pigs at the end of the month. However, as of the end of August, there were only 198 million pigs in China, 38.7% year-on-year; 37.4%.
The essence of the pig cycle is the supply-demand relationship, the demand side is generally stable, and the key is at the supply end. China’s environment dominated by retail farming has amplified the volatility of prices. First, pork consumption demand is determined by the income level, population growth and consumption structure of residents in the long run, and is affected by seasonal eating habits, epidemic diseases, food safety and consumption substitution effects. Second, the pork supply end is mainly affected by factors such as farming profits, policy interventions, and natural disasters. Policy interventions include environmental protection, financial subsidies, and the system of receiving and storing. Since pork directly affects residents’ living standards, CPI and monetary policy, there are relatively many policy interventions, mainly based on indicators such as pork price, pig-to-food ratio, and farming profit, to observe the market supply and the profit and loss of farmers, and further adjust the pigs and able pigs. The amount of stock, the amount of stock, the amount of slaughter, etc. The break-even point of the pig food ratio is generally 5.5-6, the current pig grain price is 13.92, the breeding profit is higher, the profit of self-cultivated pigs and out-of-purchase piglets has reached 1683.6 and 1412.5 yuan / head. However, if the intervention is too strong, it will increase price fluctuations. Third, China’s aquaculture industry is dominated by farmers’ free-range, producers have higher homogeneity, industry concentration is low, and individual producers have weaker influence on market prices, making it easier to “catch up and down” and prevent disease. The technology and funds are insufficient, and it is easier to make a big ups and downs. The price of pork presents a more obvious characteristic of the cobweb cycle.
Pig breeding is in the middle of the industrial chain. The upstream is mainly planting, feed, veterinary drug vaccines, etc. The downstream is mainly slaughterhouses and meat processing plants. The total output value of the industrial chain exceeds 3 trillion yuan, of which the output value of the aquaculture industry is more than 10,000 billion. . At present, pig breeding is mainly divided into two modes, namely “self-supporting and self-supporting”, typical such as Muyuan shares; the other is “company + farmers”, the company provides support for piglets, feed, vaccine veterinary drugs and technical personnel, until the pigs grow up After the weight is released, the company is responsible for recycling sales and paying the farmers a maintenance fee, such as Wen’s shares and new hopes. At present, both models have successful cases. The former has relatively large capital occupation, more depreciation, higher veterinary drugs and vaccine costs, but the process is controllable; the latter occupies less capital and less depreciation, which is beneficial to companies that have just entered the pig breeding industry. Road overtaking, but need to pay a large amount of entrusted farming fees. The depreciation expense for each pig of Makino shares is 2.58 times that of Wen’s shares. The current farming direction is mainly for scale, technology and industrialization. The key to profitability is capital, technology and cost control.
1.2 Pork price fluctuations are highly correlated with CPI
From historical data, China’s pork price volatility is highly correlated with CPI volatility. Since 2008, the correlation coefficient between pork price and CPI index has reached 0.82, which is much higher than other commodities in the CPI basket.
Pork price trends and CPI are highly correlated mainly due to the high proportion of pork in the CPI basket. According to estimates, the current proportion of pork in the CPI basket is about 2%-2.5%. Considering that the total proportion of food products in the CPI basket is about 30%, and the variety of goods in the CPI basket is large, the proportion of pork as a single commodity is very big. In addition, some of the commodities in the CPI basket, such as clothing and household appliances, are generally stable in price, and the price is not as strong as pork. The fluctuation period of other commodities such as housing rental fees is longer than the period of pork price fluctuation, which makes the price of pork prices Sexual changes are more obvious in CPI and become important variables affecting CPI.
1.3 Four-round pig cycle since 2006
Since 2006, China has experienced four rounds of “pig cycle”, which have the following characteristics: First, each round of pigs is basically 3-4 years, and the down time is slightly longer than the upside, mainly because the profit is down in the down phase. However, as long as there is no loss, the willingness of farmers to withdraw is not strong; secondly, each round of pig cycle is accompanied by epidemic disease, but the recent pig cycle has obvious non-marketing policy factors such as environmental protection intervention; the third is scale and The advancement of technology has led to a decline in the number of stocks of sows and live pigs. Therefore, the corresponding stocks will be lower than the previous period after the recovery of the new round of pig cycle capacity. Fourth, unlike the previous pig cycle, this round of pig cycles only affects CPI, and Not transmitted to PPI, core CPI and non-food CPI down, PPI continuous negative, macro environment is insufficient total demand.
The first round of “pig cycle” was from mid-2006 to May 2010, which lasted for 4 years, with an up cycle of 2 years, an increase of 132.6%, and a down cycle of 2 years. Pork prices continued to be low in early 2006, causing the pig industry to lose money. Some farmers have suffered serious losses, permanently withdrawn, and a large number of sows have been eliminated. In 2006, the stock of capable sows in the country fell by 3.6%, and the stock of live pigs fell by 2.6%. After large-scale production clearance, the decline in the number of live pigs began to be transmitted to the pork supply end. In 2007, high-pathogenic blue-ear disease broke out nationwide, delaying the speed of replenishment. Therefore, the price of pork has stabilized and rebounded since mid-2006. In 2007, the average price of pork in 22 provinces and cities nationwide was 18.8 yuan/kg, up 41% from the previous year. In addition, the short-term factors such as the Spring Festival, the price of pork reached in March 2008. A high of 25.9 yuan / kg. Since then, pork prices have begun to enter the downtrend channel. In 2009, the H1N1 (swine flu) epidemic broke out. In 2010, food safety incidents such as lean meat and water-injected pork appeared. The public’s consumer confidence was frustrated, and the demand declined in stages, which further suppressed the price of pork. In June 2010, the average price of pork in 22 provinces and cities nationwide fell to a low of 15.5 yuan / kg.
The second round of “Pig Cycle” was from June 2010 to April 2014, which lasted about 4 years, of which June 2010-September 2011 was an up cycle, which lasted 15 months, or 98%, September 2011. – May 2014 is the down cycle and lasts 32 months. This cycle is a relatively classic pig cycle with fewer external disturbances and the price is mainly driven by the pig’s cycle. Under the influence of the previous cycle, the stock of capable sows began to decline since 2009. In 2010, the impact on pork supply began to appear gradually, and pork prices began to climb. In August 2010, the number of capable sows fell to 45.8 million heads, the lowest point in the cycle. After 13 months, pork prices ushered in a high point in the cycle. In September 2011, pork prices climbed to 30.4 yuan/kg. With the high price of pork, farmers have increased the stock of gilts, and pork prices have once again entered the downward channel and continued until the first half of 2013. In order to stabilize the price of pork, in May 2013, the Ministry of Commerce and other three ministries jointly launched the work of collecting and storing frozen pork, boosting market confidence and recovering short-term prices. However, with the anti-corruption work deepening and cracking down on “three public consumption”, pork prices fell again in 2014.
The third round period is from May 2014 to May 2018, which lasted for 4 years, of which May 2014-May 2016 was an up cycle, which lasted 2 years, or 76.6%, May 2016-20 May. It is a down cycle and lasts for 2 years. At the end of 2014, pork prices crossed the W-shaped bottom and began to enter the rising range. Since 2014, China has implemented strict environmental protection and ban regulations, and has made efforts to increase the scale of the pig breeding industry. As a result, a large number of free-range households have withdrawn from the market, and pigs and capable sows have entered a continuous decline channel. In the first half of 2015, the outbreak of pig erysipelas caused the supply of pork to decrease, and the price of pork rose to May 2016. This round of pig cycle is characterized by environmental protection and scale, and the rise in pork prices has not led to significant replenishment of pigs. Because environmental protection suppresses the bar, and large-scale farming has improved the industrial efficiency, on the one hand, it has increased the monomer weight of the pigs, and on the other hand, the number of piglets provided by the sows has increased, so the number of sows can continue to decline, 2016 The live pig stocks rebounded slightly by 3% in the second half of the year, and the slaughter of pigs was not significantly affected. Pork prices have started to decline since mid-2016 and have bottomed out in 2018.
The fourth round of the cycle is from mid-2018 to the present. It has lasted for one year and three months. According to the rising cycle of two years, it may last until the middle of 2020, but considering the supply cycle of pigs and capable sows is falling too fast. It is expected that the upswing cycle may be extended to the second half of 2020. The price of pork in this round is affected by many factors such as African swine fever, environmental protection and production restriction policy, endogenous kinetic energy in the pig cycle, and large-scale farming. It shows the characteristics of large increase and fast speed. The price increase is the highest in the pig cycle. Called the “Super Pig Cycle.” Since April this year, the price of pork has risen rapidly. As of the end of September, the average price of pork in 22 provinces and cities nationwide has reached 38.3 yuan/kg, which has obviously exceeded the high point of 30 yuan/kg in the previous two rounds, up 83% from the beginning of the year. . The price of pig food, which reflects the ratio of pork price to cost, has reached 13 times, far exceeding the break-even line of about 6 times and the previous high of about 11 times. The absolute and relative levels of current pork prices have reached record highs. The current pork supply gap is still large, and short-term supply is difficult to increase. It is expected that there will be further upside in pork prices in the later period.
2 Causes, effects and prospects of the formation of the super pig cycle
2.1 Four major reasons lead to this round of super pig cycle
2.1.1 Environmental policy has led to a continuous decline in live pig stocks
In recent years, especially since 2015, the impact of environmental protection policies on the pig breeding industry has gradually become more prominent. The pig breeding industry has high demand for water resources and pollution, and the contradiction with environmental protection has become increasingly prominent. In particular, the environmental protection pressures in ecologically sensitive areas such as the southern water network area have increased significantly. In recent years, environmental protection policies related to the pig breeding industry have been introduced one after another. These policies focus on the pollution of the ecological environment, especially water resources, by traditional small-scale free-range, and propose to accelerate the transformation of industrial production methods, promote the development of large-scale farming, and reduce the scale of free-range breeding. . Among them, the new “Environmental Protection Law” requires farmers who do not meet the environmental protection standards to expedite the withdrawal and increase the cost of breeding; the “Water Pollution Prevention and Control Plan” clearly proposes to prevent pollution of livestock and poultry breeding, scientifically delineate livestock and poultry ban areas, and relocate according to law before the end of 2017. Or close aquaculture companies that do not meet the standards. On this basis, the Ministry of Agriculture issued the “Guiding Opinions on Promoting the Adjustment and Optimization of the Distribution of Pig Breeding in the Southern Water Network Area”, proposing the principle of transformation, improving quality and efficiency, vigorously developing standardized large-scale breeding of pigs, and improving the production efficiency of breeding. And production level. Among them, the total amount of aquaculture in the southern water network area was reduced by 16 million, and 24,659 farms were closed or relocated in the 133 main producing counties in the national water network area, reducing the number of live pigs by 2.82 million.
Under the vigorous promotion of the central ministries and commissions, various localities have formulated plans for the relocation of detained areas and polluted farmers in the area, and the layers have been enlarged and expanded across the board. Judging from the progress announced by the Ministry of Environmental Protection, the closure and relocation of the farms in the southern water network area is progressing smoothly. Shandong, Sichuan, Chongqing, Hubei and other provinces and cities have completed the relocation of the banned areas. However, in the process of implementation, the implementation of policy enforcement in some places has been superimposed, resulting in the continuous expansion of the scope of the restricted area. For example, in Panyu, Guangdong, in May this year, the plan for the no-parent area of live pigs was revised. The area of the forbidden area was greatly expanded from the original 50 square kilometers to 410 square kilometers, which is eight times the original planned area. A large number of free-range farmers have to withdraw from pig breeding. Some large-scale farms that do not comply with environmental protection regulations have also been shut down. A large number of pigs have been disposed of, resulting in a continuous decline in the number of live pigs in recent years.
The original intention of the environmental protection policy was to reduce the environmental pressure on the southern water network area of the pig breeding industry. However, while reducing the scale of farming in the south, the northern region could not undertake or refuse to undertake the pig breeding industry, which aggravated the supply shortage of pigs. On the one hand, as the northern region is also facing increasingly severe environmental assessment pressures, there are also concerns about undertaking pig farming. On the other hand, due to differences in geography, climate and human conditions, some northern regions do not have the conditions to directly undertake the production capacity of pigs in the south. For example, the northeastern region has a cold climate, so the cost of warming has increased significantly. At the same time, affected by the outflow of population in Northeast China and the knowledge structure of workers, the supply of pig breeding workers in the Northeast is obviously insufficient, which also limits the capacity transfer of pig breeding.
2.1.2 Large-scale farming upgrades led to a large number of retail investors withdrawing, and pork supply declined
In recent years, China has promoted a large-scale farming strategy to encourage breeding plants to expand production capacity, while at the same time continuously reducing the size of ordinary farmers, but it has not changed the pattern of high-volume retailing and low-scale farming in China. Large-scale farming has a scale effect relative to the free-range households, and management, technology and capital have more advantages, which is conducive to enhancing the stability of the market and reducing the blindness of retail farming. With the acceleration of urbanization, the aging rate, and the lack of funds and technology, retail farming will gradually shrink, but this is a process. In the short term, promoting large-scale farming by means of environmental protection will not be conducive to the stability of pork supply. In 2016, the Ministry of Agriculture issued the “National Pig Production Development Plan (2016-2020)”, which requires that the proportion of large-scale farming of more than 500 heads in 2020 will reach 52%; the “Office of the State Council issued in September 2019” will promote the transformation of stable pig production. According to the “Opinions on Upgrade”, in 2022 and 2025, the pig industry has made important progress in the transformation and upgrading of the pig industry, and the industrial quality has improved significantly. The scale of farming has reached 58% and above 65% respectively. In recent years, the number of small-scale free-range farmers has dropped significantly. The number of free-range farmers with an annual output of less than 100 has dropped from 81 million in 2007 to 37 million in 2017, a drop of 54%. The number of farms with more than 1,000 heads increased from 40,000 to 82,000, an increase of 150%. Among them, the number of large-scale farms with more than 50,000 heads per year increased from 50 to 407, an increase of more than 700%. Even so, the proportion of farmers with less than 100 farms is still as high as 97.8%, the proportion of farms with less than 500 is 99.4%, and the number of stalls with more than 500 is less than 50% (about 49.1%). .
China’s large-scale farming rate has a long way to go and it is difficult to achieve it overnight. In recent years, the efficiency of large-scale breeding plants has been decreasing marginally. In 2018, China’s MSY (the number of commercial pigs that can be provided by the breeding sows per year reflects the breeding efficiency) is about 19.2, which is 3.7% higher than the 18.5 in 2017. The growth rate is significantly lower than the 11.6% in 2016, showing the scale effect. Being diminishing marginally. On the other hand, there is still a gap between the current MSY level in China and the MSY level of foreign advanced farms 23-24.
2.1.3 African swine fever causes a large number of pigs to be infected
In August 2018, the African swine fever epidemic was introduced to China. Because of the strong contagiousness, there is no effective vaccine, and some illegal traders have transported all the provinces, cities and cities in the country in order to facilitate the transportation of sick pork. At the same time, due to the weak anti-epidemic ability in some areas of China, objectively, it has not effectively prevented the widespread spread of African swine fever. Yu Kangzhen, deputy director of the Ministry of Agriculture and Rural Affairs, said that in recent years, the efforts of some local animal epidemic prevention agencies have been weakened, which are highlighted by imperfect institutional systems, inadequate grassroots work teams, inadequate funding guarantees, and aging old infrastructure, which are difficult to meet the epidemic prevention work. Industry development needs. The spread of African swine fever has caused significant losses to our pig breeding industry. As of July 2019, there were 143 cases of African swine fever in the country, killing more than 1.16 million pigs.
Historically, because there is no effective vaccine, it is very difficult to prevent and control African piglets once they are introduced. For example, African swine fever was introduced to Brazil in 1978, and it took the Brazilian government six years to eliminate African swine fever from Brazil in 1984. After being introduced to Russia in 2007, African swine fever has been popular in Russia and has not yet been completely eradicated. Therefore, the introduction of this African swine fever into China has put forward high requirements for China’s epidemic prevention capacity, epidemic management, vaccine research and development, etc. In the short term, China’s pig breeding industry still faces serious challenges from African swine fever.
2.1.4 The new round of pig cycle makes the price of pork have endogenous rising power
Currently, we are in the ascendant phase of the new round of pig cycles. Judging from the self-regulation of the pig cycle, the excess capacity accumulated in the last round of the pig cycle was gradually cleared. From June 2016 to May 1818, the pig price continued to decline, the profit of pigs continued to decline, and the profit of self-supporting pigs decreased from 780.1 yuan/head to -381.3 yuan/head in May 2018, 3-7 in 2018. The farmer’s profit for the fifth consecutive month was negative, driving the production capacity and output of pigs to continue to decline. Before the introduction of African piglets into China in August 2018, except for a slight increase in March 2018, the stocks of able sows and pigs have been reduced for 15 months, and the live pigs are in a historically low range, so pork prices exist endogenously. Rising momentum. External factors such as environmentally-friendly production and African piglets further magnified the pork supply gap and drove up the price of pork.
2.2 Future Outlook: In the short term, pork prices may remain high, and price inflection points may occur in the second half of 2020.
2.2.1 China’s pork consumption is relatively stable overall
As mentioned earlier, pork consumption demand is determined by the income level, population growth and consumption structure of residents in the long run, and is affected by seasonal eating habits, epidemic diseases, food safety and consumption substitution effects. At low income levels, meat consumption needs are more affected by per capita disposable income. When the society enters the middle income level, the meat consumption demand is mainly related to the residents’ diet structure and dietary preference.
From 1978 to 2018, China’s pork consumption increased from 7.79 million tons to 55.4 million tons, with an average annual growth rate of 5.03%, mainly due to higher income levels and preference for pork. In terms of population, China’s population has grown from 960 million to 1.395 billion, with an average annual growth rate of 0.93%. In terms of income, the average annual growth rate of per capita disposable income of urban residents is 7.11%. From the perspective of consumer preferences and habits, in 1978, China consumed 18.4% of the world’s total pork consumption with 22.3% of the world’s population. In 2018, it consumed about 50% of the world’s total pork consumption by 18% of the world’s population. In the domestic meat consumption structure. Among them, the proportion of pork has dropped from 90% in 1978 to about 73% today. It is generally stable and still far exceeds beef, mutton and poultry. At the beginning of reform and opening up, influenced by China’s traditional farming and eating culture, coupled with the overall low income level of residents, pork accounted for an absolute leading position in China’s meat diet, and its consumption accounted for the total meat consumption (pork, beef, About 90% of chicken). With the improvement of the living standards of our residents, the demand for dietary diversification and healthy diet has gradually increased, the proportion of pork consumption has declined, and the proportion of consumption of beef and chicken has steadily increased. Since 2000, the influence of income factors in meat consumption has gradually decreased, and the factors of dietary preference have risen, making the proportion of pork consumption basically stable. At present, the proportion of residents’ pork consumption to meat consumption is stable at around 73%, with occasional small fluctuations.
Never seen, in the long-term, the total consumption of pork by Chinese residents affected by income, urbanization process and consumption habits will continue to rise. In the short term, the price will increase and the impact of piglets may decrease, but it will decrease sharply compared with the supply side. The demand side impact changes are relatively smaller. The income of Chinese residents will continue to grow, the urbanization process will continue to rise, and the pursuit of health may slightly reduce the proportion of pork consumption. However, from the world level, the per capita pork consumption of mainland Chinese residents is 39.8 kg, which is at a medium-high level among Asian countries and regions. Compared with Hong Kong’s 67.1 kilograms, there is still some growth potential.
2.2.2 Imported pork accounts for less than 3% of consumption, making it difficult to make up for the production gap
For a long time, China’s pork market is highly dependent on domestic supply, and the proportion of imported pork to total pork production does not exceed 3%. Since the beginning of this year, due to the increasing supply gap of pork, China has increased its efforts to import pork from South America and other places. Since July, the import of pork to the United States has increased significantly. From January to August, China imported a total of 1.164 million tons of pork, approaching the total of 1.193 million tons last year, a total of 40.4% year-on-year, an amount of 56.7%. The monthly growth rate of pork imports in May-August was 62.6%, 62.8%, 106.7% and 76% respectively. Among them, the import of pork to the United States continued to decline since the trade friction between China and the United States in March last year, and basically did not import pork from the United States in the fourth quarter of last year. In 2018, it was -48.3% for the whole year, and the proportion of pork imports in China dropped from 13% in recent years to 7%. Since the beginning of this year, China has increased its imports of pork to the United States. The growth rate has increased from -30% at the beginning of the year to 206.5% in July and 426% in August, with a cumulative growth rate of 85%.
China’s pork imports account for 18.5% of global exports, and other Asian countries such as Japan and Vietnam have also increased their demand for pork imports due to domestic piglets. Compared with the supply gap of about 10 million tons, the import volume of pork is still low, and it is difficult to stabilize the market supply. China’s pork imports are mainly concentrated in 11 countries: Germany 19.1%, Spain 18.4%, Canada 13.4%, Brazil 12.6%, the United States 7.2%, the Netherlands 7.1%, Denmark 6.1%, the United Kingdom 4.2%, France 4.1%, Chile 3.7%, Ireland 2.8%.
With China’s increase in pork imports, the unit price of imports has also increased significantly, reaching 2.27 US dollars / kg in August, up 31.6% from the beginning of the year, compared with 36.6%.
2.2.3 Environmental Policy Correction and Development of Hog Cholera Vaccine
The development of African swine fever vaccine still faces many difficulties. At present, the prevention and control of the epidemic situation of African swine fever has made positive progress, and the frequency of epidemics in African swine fever has decreased since this year. However, in order to truly prevent and control African swine fever, it is necessary to develop effective vaccines and widely inoculate them. However, the development of African swine fever vaccine is a worldwide problem. As of now, no vaccine for African swine fever has been approved for marketing. At present, the research and development of African swine fever vaccine in China is still in its infancy, and it is a long way to go to develop safe, effective and controllable African swine fever vaccine. Therefore, we expect that the African swine fever epidemic is still difficult to completely eliminate, and the negative effects on pig production will continue.
In order to correct problems such as across the board in the implementation of environmental protection policies, various ministries and commissions began to correct the excessive environmental protection policies in the early stage. However, it takes time for the implementation of the policy to take place, and it takes about half a year for the pig to fatten. The Ministry of Ecology and the Ministry of Agriculture and the Ministry of Agriculture jointly issued a notice requesting that no areas other than the core areas such as drinking water source protection areas and scenic spots should be demarcated. Cancellation of the prohibition regulations and super-deficient areas found in the investigation. For violations of laws and regulations to restrict the development of the pig industry and reduce the production capacity of pigs, it is necessary to immediately carry out rectification. Accelerate the approval of the EIA for livestock and poultry breeding construction projects that meet environmental protection requirements. The Ministry of Agriculture and Rural Affairs and the Ministry of Finance have also issued a proposal to provide liquidity support for pig breeding enterprises and stabilize the willingness to produce pigs.
In summary, the short-term pork supply and demand gap is difficult to solve, and the hog price increase will continue. In view of the significant reduction in the current stocks of sows and live pigs, the full recovery of production capacity needs to start from the increase in the ability to breed sows, and the period from the ability to breed sows to piglets to fattening is longer. It is expected that the contradiction between supply and demand will be eased in the second half of 2020. At that time, pork prices may usher in a turning point.
2.3 The impact of the super pig cycle: macroscopically pulling the CPI, changing the industry structure on the middle, and increasing the burden of residents’ expenditure on the micro level
2.3.1 Macroscopically, the rise in pig prices has driven CPI to remain high, and PPI continues to differentiate. Monetary policy should pay more attention to the lack of total economic demand and industrial product deflation.
The continued rise in pork prices has had a significant pulling effect on food CPI. Since the beginning of this year, due to the rapid increase in pork prices, prices of other dietary protein sources such as beef, lamb, and eggs have risen. The prices of vegetables, fruits, and other commodities have also risen in a short period of time, which has obviously promoted food CPI and pulled the CPI index. From 1.7% at the beginning of the year to 2.8% in August. Among them, the prices of pig, cow, sheep and eggs in August were 23.1%, 4.4%, 2% and 5%, respectively, which were 47.6%, 12.3%, 12.5% and 3.6% respectively. As pig prices will continue to rise in the short term, CPI is expected to continue to fluctuate around 3%, with individual months likely to exceed 3%.
However, it should be noted that this round of inflation has a distinct structural feature. It is due to insufficient supply of some commodities rather than strong demand. It will not trigger comprehensive inflation. The current macroeconomics are mainly facing deflationary pressures rather than inflationary pressures. Will be constrained by monetary policy. Since the beginning of this year, despite the obvious increase in food prices, the core CPI has been stable and declining year-on-year. The PPI has been deflated for two consecutive months due to sluggish internal and external demand, suppressing corporate profits and manufacturing investment. This year’s inflation is characterized by two major divisions: the differentiation of food and non-food from CPI and the differentiation of CPI and PPI will continue in the second half of the year. In this context, monetary policy should strengthen the counter-cyclical adjustment, reduce the MLF interest rate to guide the actual interest rate down, and attach great importance to the dredge of the monetary policy transmission channel; on the one hand, we must prevent the money from releasing the asset bubble, and on the other hand, prevent the initiative. Puncture triggers major financial risks, uses time for space, seeks new economic growth points, expands reform and opening up, and mobilizes local government and entrepreneurial enthusiasm (see “Fully Estimating the Severity of Current Economic and Financial Situations” – A Comprehensive Interpretation of June Economics and Finance Data”, “After taking the pigs are deflation, the rate cuts – review August price data”).
There is a view that the current CPI is at a high level and will restrict monetary policy relaxation. We believe that the structural relaxation of monetary policy will not exacerbate the current inflation problem. The core reason why the current CPI is maintained at a high level is the supply side of pork. To solve the problem of CPI, it should be exerted through the policy of the supply side. For example, in the short term, appropriate relaxation of the environmental protection constraints on the pig breeding industry, reduction of unreasonable banned areas; use of financial subsidies to support large-scale farmers who have withdrawn from the market in the early stage, help them resume production as soon as possible; speed up the storage of frozen pork; Develop safe and effective African swine fever vaccines. Monetary policy mainly acts on the demand side, and increasing counter-cyclical adjustment will mainly stimulate effective demand and prevent the economy from falling too fast. The demand for pork is mainly affected by factors such as population size, consumption preference, and household income. In recent years, the overall stability has remained stable. Historically, pork consumption has not changed significantly due to changes in monetary policy. Therefore, increasing the counter-cyclical adjustment of monetary policy will not push up the price of pork, but will increase the effective demand, hedge the PPI and core CPI too fast, corporate profits decline, and the real interest rate rises rapidly. High quality development wins time.
2.3.2 In the middle view, the super pig cycle will accelerate the large-scale breeding of pigs, increase the concentration of the industry, and increase the proportion of cold chain pork transportation.
The super pig cycle will accelerate the development of large-scale pig breeding, and force the breeding industry to improve the level of disease prevention and control. Although this hog epidemic has exposed the problems of epidemic prevention in some small and medium-sized farms in China, compared with the high-pollution and low-efficiency free-range methods, large-scale farming is still the development direction of the future aquaculture industry. At present, the degree of large-scale pig breeding industry in China is not high, and the concentration of industry is low. The number of live pigs in the listed pigs entering the pig industry in the 20th year of 2018 totaled 4,731,700 heads, accounting for only 6.82% of the market. 94% of pig farmers are retailers with less than 50 heads. The awareness of retail anti-epidemic is generally not strong, the level of bio-safety is not high, and there is a habit of feeding the kitchen surplus to feed pigs. Since many kitchen residues are not matured, the risk of infection of the pig population is increased. In the current round of the spread of African swine fever, the farming habits of retail investors have aggravated the spread of African swine fever to some extent. Large-scale farms usually have more stringent standards and technical strengths in inspection and quarantine, breeding technology, disease prevention and control, etc. Western developed countries also have relatively successful experience, so it is the development direction of China’s pig industry. Recently, the environmental protection and ban policy has been relaxed. However, with the increasing advantages of large-scale aquaculture enterprises in terms of technology and management, it is expected that the scale of new-scale production will reduce the size of the free-range households and increase the scale of large-scale farms. Capacity, and strengthen the professional level of specialized farms and disease prevention and control capabilities, thereby improving the overall level of China’s pig breeding industry.
The super pig cycle will profoundly affect the pattern of China’s meat and poultry transportation industry, from live transport to cold pork transport, from “tune up pigs” to “tune up the meat.” In 2017, China’s provincial pork transportation scale reached 1,240 tons, accounting for 24% of the current year’s output. Chinese residents like to eat fresh meat. Therefore, pork transportation mainly adopts the method of long-distance transportation of live poultry and livestock. The transportation industry’s production capacity is mainly based on the transportation of pigs. After the current round of African swine fever, the central government adopted a policy of prohibiting transportation in the affected areas, temporarily shutting down the live pig trade market in the province, and using the cold chain to transport pork from the production area to the sales area, which quickly led to the “gun car”. A large number of idle, and refrigerated trailers carrying fresh meat are in short supply. The freight rates of cold chain vehicles in some areas have risen by more than 60% compared with the embargo, making the contradiction between the supply and demand of pork and the sales of land more prominent. Considering the gradual maturity of cold chain logistics technology in recent years, and the traditional live livestock transportation problems, it is expected that the African swine fever epidemic will drive the development of China’s cold chain logistics industry. China’s pork transportation is expected to gradually move from living transportation to cold storage. The transfer of pork transportation has realized the transition from “regulating pigs” to “regulating meat”.
The super pig cycle also has an impact on the upstream industry, and the short-term reduction in demand prices will continue to drive up the upstream feed price as the inventory rises. Due to the sharp drop in live pig stocks. The main feed supply industry for pigs is significantly affected by the demand for the corn and soybean processing industries. Take the important feed corn starch for pig farming as an example. Since the beginning of this year, the operating rate of the corn starch industry has dropped by 20%, but due to the sharp drop in demand, the inventory has increased by 20%-30% year-on-year. The price of corn starch has dropped significantly since the price of pork has accelerated this year. The current price has fallen by more than 7% from this year’s high. Another major feed for soybean meal is relatively complicated. Since last year, the price of soybean meal has been affected by the Sino-US trade friction and the super pig cycle. China’s soybean consumption exceeds 80% by imports. However, since 2018, China’s soybean imports have declined due to the Sino-US trade war. In 2018, China’s soybean imports decreased by 7.8% year-on-year, driving soybean meal prices to rise in 2018. After the African swine fever epidemic situation, the spot price of soybean meal continued to fall. In early March this year, the soybean meal price fell more than 30% from last year’s high point. Since then, although the Sino-US trade friction upgrade has rebounded, the overall price is still at a low level.
2.3.3 Microscopically, pork prices increase to increase the cost of living for low-income families
Pork is the most important type of meat for our residents. The rise in pork prices is bound to increase the consumption expenditure of residents. But this effect is different for families with different income levels. For middle- and high-income residents, their own Engel coefficient is relatively low, so even if the price of pork rises sharply, it is basically within its tolerance. At the same time, the diet of high-income groups is relatively more, and the proportion of other proteins such as beef and mutton, fish and shrimp is relatively high. Therefore, the impact of rising pork prices on middle-to-high income is relatively limited. The main source of protein in low-income families is low-priced meat, such as pork and poultry. Considering the dietary habits of Chinese residents, the proportion of pork consumption is higher than that of other countries. Therefore, the increase in pork prices will significantly increase low income. The cost of living for the family.
According to the OECD data on household income and meat consumption, it can be seen from the figure that the meat consumption of residents is positively correlated with the logarithmic level of income. At the low income level, the consumption of meat by residents will increase rapidly with the increase of income level. Increase, but after the income exceeds a certain value, this effect will gradually decline. At the same time, the lower the unit price of meat, the more obvious the effect of consumption with income increase. The figure shows the coefficient of low-unit meat consumption and income of low-priced meat such as pork and poultry, which is greater than that of high-priced meat. The coefficient of beef and lamb. That is, people always want to meet the body’s protein needs as efficiently as possible by consuming cheap meat.
In 2012 and before, the National Bureau of Statistics of China announced the proportion of urban residents with different income levels in meat expenditures. The data will not be released after the 2013 urban-rural integration sampling survey. However, as the dietary habits of residents have remained stable in recent years, this data still has reference value. According to 2012 data, the annual minimum meat consumption expenditure (10%) in urban areas accounts for 10% of total expenditures, which is decreasing with the increase of income. Among the highest income households (10%), this ratio is only 4%. %. Therefore, the rise in pork prices has a greater impact on low-income families.
On the whole, pork is the most consumed meat in China, and the price of pork is usually lower than the price of substitutes such as beef and lamb. Therefore, the impact of rising pork prices on low-income families is very large. From a policy perspective, the current low-income group should focus on the additional expenditures caused by the increase in pork prices through the payment of meat subsidies, and the amount of subsidies will be adjusted in time according to market prices to prevent the normal living standards of residents from being affected.
3 Policy recommendations
First, we will relax environmental protection restrictions, increase subsidies for farmers and increase the supply of reserve meat to increase supply, stabilize the supply of pork market, closely track the price of substitute beef and mutton and increase the price. It is recommended to appropriately relax the environmental constraints on the pig breeding industry in the short term, expand the scope of land use for pig breeding, and reduce the unreasonable demarcation zone. Use financial subsidies and other means to support large-scale farmers who have withdrawn from the market in the early stage to help them resume production as soon as possible. At the same time, it is necessary to speed up the storage of frozen pork and try to stabilize domestic pork supply.
From the perspective of foreign markets, although the current quantity of imported pork has increased, it is still far from meeting domestic demand. Therefore, it is recommended to expand new pork import markets such as Brazil as soon as possible, and continue to increase the quantity of imported pork significantly under the premise of ensuring the safety of inspection and quarantine. To reduce the current pork supply gap.
The rise in pork prices has led to an increase in demand for pork substitutes such as beef, mutton, and soybeans. It is recommended that the prices of key commodities be tracked in a timely manner. For commodities with higher price increases, timely increase in reserves and stable supply.
The second is to reduce the related taxes and transaction costs in the production process of pork, and increase financing support for farmers, especially large-scale farmers. In the current situation, we can consider reducing the cost of pork in the production, transportation and other processes. For example, the recent meeting of the State Council executive meeting to include piglet and chilled pork transportation into the “green channel” to reduce logistics costs. In addition, it is possible to consider reducing the production cost of the enterprise and reducing the price of pork in a short period of time, such as tax reduction for pig breeding enterprises and related industries.
The third is to start from the demand side, focus on subsidizing low-income groups that are sensitive to the rise in pork prices, and reduce the negative effects of rising pork prices. Recently, the price of pork has risen rapidly. It is suggested that the current quota subsidy system be changed to a dynamic subsidy system, and the subsidy quota will be linked to the increase in pork prices. The subsidized population will be linked to the list of low-income and poor households, and the subsidy will be increased and timely distributed. To minimize the negative impact of rising pork prices on people’s lives.
Fourth, from the perspective of long-term mechanism, the level of large-scale farms in the fields of population selection, breeding technology, disease prevention and control should be further improved, and the impact of pig cycle and external impact on China’s pig industry should be reduced. Large-scale farming can effectively reduce the characteristics of the spider web cycle in the pork farming industry, and thus stabilize the endogenous fluctuations of the pig cycle, which should be the development direction of China’s pork farming industry. In recent years, the scale of China’s pig breeding industry has been steadily advanced, but it is currently affected by factors such as technical level and personnel training, and its efficiency is still low compared with the advanced level in foreign countries. It is recommended to further improve the level of large-scale farms and aquaculture enterprises in the fields of population selection, breeding technology, disease prevention and control, and actively develop various types of pig disease vaccines including African swine fever vaccine, and reduce the external impact of pig cycle and disease. The impact of the hog industry.
Post time: Oct-11-2019