Evergrande Group’s chief economist Ren Zeping wrote on October 8 that the current pig cycle began in mid-2018, which took 1 year and 3 months, and has increased by 141%. The number of sows and live pigs on the market has fallen too fast, and prices may turn to a turning point in the second half of 2020 .
Abstract: The “pig cycle” is a periodical price fluctuation in the production and sales of pork . When the pork price is booming, in order to chase profits, farmers increase the supply of sows and pigs, which causes the price of pigs to fall, and farmers reduce their supply, and the price of pigs rises again. The pig production cycle determines a complete pig cycle that lasts 3-4 years, and at the same time, it shows small cycle fluctuations due to holidays and climate within a year. The ability to multiply sows represents production capacity. To expand the supply of hogs, we must first expand production capacity. It takes 7 months to reach the fertile status from piglets to back-up sows. It takes about 5 months to produce 1 litter, and 5 litters can be produced in 2 years (2.4-2.5 litters / year). After sow farrowing, the 1-2 month nursery period and the 5-6 month fattening period, the pigs can be slaughtered . Therefore, it only takes about 6 months to directly supplement the piglets . The stock of pigs in that month indicates the supply of pigs in the next six months; however, it takes about 18 months from the sow supplementation to increase the pork supply, which is about 3 pig cycles. Around the year. China ’s annual slaughter volume is about 700 million heads. Therefore, at the end of the month, there should be at least 350 million live pigs. However, as of the end of August, China ’s live pigs were only 198 million heads, which was 38.7% year-on-year. 37.4%.
The nature of the pig cycle is the relationship between supply and demand. The demand side is generally stable, and the key is the supply side. The environment in which retail farming is the mainstay in our country has magnified price volatility. First, pork consumption demand is determined by residents’ income levels, population growth and consumption structure in the long run, and it is affected by seasonal dietary habits, epidemic diseases , food safety and consumption substitution effects in the short term . Second, the pork supply side mainly by farming profits, policy interventions, natural disasters, epidemics affecting other factors. At present, pig breeding is mainly divided into two modes, namely “self-propagation and self-support”, typical such as Muyuan stock; the other is “company + farmers”, the company provides piglets, feed, vaccines and veterinary drugs and technical staff support, until the pigs grow After the weight is released, the company is responsible for recycling sales and paying the farmer’s maintenance costs, such as Wen’s shares, new hope and so on. The former occupies relatively large funds, with more depreciation, higher veterinary drugs and vaccine costs, but the process is controllable; the latter occupies less capital and less depreciation, which is beneficial for companies that have just entered the pig breeding industry to overtake the curve, but need to pay a large amount of commission Farming costs.
Since 2006, China has roughly experienced four “pig cycles”, which mainly have the following characteristics: First, each round of the pig cycle is basically 3-4 years, and the down time is slightly longer than the up time, mainly because in the down phase, profits have fallen But as long as there is no loss, the willingness of farmers to withdraw is not strong. Second, each round of the pig cycle is accompanied by the disease, but the recent pig cycle obviously has non-market-based policy factors such as environmental protection interventions. The third is scale and Technological progress has led to a reduction in the number of fertile sows and pigs required, so the corresponding inventory after a new round of pig cycle capacity recovery will be lower than the previous period. Fourth, unlike previous pig cycles, this round of pig cycles only affects CPI, and It is not transmitted to PPI, core CPI and non-food CPI are down, PPI is continuously negative, and the macro environment is insufficient aggregate demand. The first three rounds of the pig cycle lasted about 4 years, and the upward cycles were 2 years, 15 months, and 2 years, with the highest increases of 132.6%, 98%, and 76.6%, respectively.
This round of super pig cycle has a large increase and fast speed. There are four major reasons: the expansion of environmental protection bans, large-scale breeding strategies, African swine fever , and endogenous pig cycle. First, in recent years, especially since 2015, the impact of environmental protection policies on pig farming has been prominent. Various regions have formulated demarcation plans and relocation plans for polluted farmers in the area, which have been enlarged and expanded across the board. Second, the upgrading of large-scale farming has led to a large number of retail outlets, and pork supply has declined. However, the pattern of relatively high retail farming and low-scale farming in China has not changed. The number of free-range farmers whose annual output is less than 100 heads decreased from 81 million in 2007 to 37 million in 2017, a decrease of 54%, while the number of large-scale farms with more than 1,000 heads in the same period increased from 40,000. To 82,000, an increase of 150%. However, the number of farmers raising less than 500 heads still accounted for 99.4%, the number of farmers raising more than 500 heads accounted for 0.6%, and the number of farmers raising more than 500 heads accounted for less than 50% (about 49.1%). Third, African swine fever has caused a large number of pigs to be infected. As of July 2019, there were 143 African swine fever outbreaks nationwide , killing more than 1.16 million pigs. Fourth, before the African swine fever , the excess capacity accumulated in the previous pig cycle was gradually cleared. A new pig cycle has begun, and there is an endogenous driving force for pork prices.
This round of pig cycle started in mid-2018, which has lasted 1 year and 3 months, and has increased by 141%. According to the rising cycle of about 2 years and the number of sows and pigs that can be reproduced in this cycle, it will fall too quickly, and may reach 2020. The second half of the year ushered in a downward turning point in prices. First, the demand for pork consumption by residents is large, but the sow and pig population can reach a ten-year low, and the current supply gap is as high as 10 million tons. China ’s pork consumption accounts for 49.3% of the world ’s total, much higher than the European Union ’s 19% and the United States ’8.7%. Domestic pork consumption accounts for 73% of pork consumption, which is difficult to replace in the short term. Second, China ’s imports of pork have long accounted for only about 3% of domestic pork consumption and 18% of global pork exports. Although the import intensity has been increased since this year , it still cannot make up for the supply gap. The cumulative import of pork from January to August was 1.164 million tons, which was close to the total amount of 1.193 million tons last year, a cumulative year-on-year increase of 40.4%. The growth rate of pork imports in May-August were 62.6%, 62.8%, 106.7% and 76% respectively. With the sharp increase in pork imports, the unit price of imports also increased significantly, reaching $ 2.27 / kg in August, an increase of 31.6% from the beginning of the year and a year-on-year increase of 36.6%. Third, it takes time to rectify environmental protection policies and develop vaccines for African swine fever.
The super pig cycle will have a greater impact on the macro, meso and micro. 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. Rising pig prices will boost food CPI, and at the same time drive the prices of substitutes such as beef and mutton, eggs, chicken, etc., driving CPI, CPI will continue to fluctuate around 3% in the second half of the year, and may exceed 3% in individual months. However, this round of rising CPI has distinct structural characteristics, with core CPI falling, PPI continuously negative, and the possibility of overall inflation is unlikely. The macroeconomic situation is mainly facing deflation rather than inflationary pressures. Monetary policy is more of a demand side than a supply side, so easing monetary policy will not exacerbate inflation. 2) On the meso scale, accelerating large-scale pig breeding and increasing industry concentration; affecting the pattern of the meat and poultry transportation industry, from live to cold pork, and from “pig-adjusting” to “meat-adjusting”, cold-chain pork transport welcomes opportunities Have an impact on the upstream feed industry, reduce demand for corn , soybeans and other feed in the short term , and the price will fall. As the stock increases, the upstream feed price will increase. At present, China ’s hog breeding industry has a relatively low concentration. The top 10 listed companies that entered the hog industry in 2018 had a total of 47,167,000 heads of hogs, with a market share of only 6.82%. Leading companies include Wen ’s, Muyuan and Zhengbang Technology Hexin Hope’s slaughter volume was 2230, 1100, 554, and 2.25 million heads, which was still very small compared with close to 700 million slaughter volumes. 3) On the micro level, residents of low-income groups are more affected by rising pork prices, so we must pay attention to reducing the pressure on expenditure of low-income groups through subsidies.
Policy recommendations: First, take multiple measures to increase supply, stabilize the pork market supply, closely track the prices of alternative beef and mutton, and increase delivery. It is recommended to appropriately relax the environmental protection constraints on the pig breeding industry in the short term and reduce the unreasonable delimitation of detention areas. Speed up the stocking of frozen pork. Support large breeding farmers who have withdrawn from the market in the early stage, and help them resume production as soon as possible. In addition, new pork import markets such as Brazil and Australia should be found as soon as possible, and the quantity of imported pork should be increased significantly while ensuring the safety of inspection and quarantine. The second is to reduce the related taxes, fees, transaction and transportation costs in the pork production process, and increase financing support for farmers, especially large-scale farmers. The third is to focus on subsidizing low-income groups that are more sensitive to pork price increases from the demand side, and establish a dynamic subsidy mechanism linked to the increase in pork prices. The fourth is to further improve the level of large-scale farms in the fields of stock selection, breeding technology, inspection and quarantine from the long-term mechanism, increase the concentration of the industry, accelerate industrial transformation and upgrading, and increase the level of scale, standardization, industrialization and informatization , Strengthen the construction of cold chain logistics distribution system, etc., and promote the “ slaughter nearby , cold chain distribution” operation method of live pigs .
1 What is the “pig cycle”
1.1 The “Pig Cycle”
The pig cycle is a cyclical price fluctuation in pig production and pork sales. Specifically, when the price of pork rises, farmers will expand production capacity, increase the number of capable sows, and increase the number of pigs on the market. After fattening and maturity, the number of pigs will increase, pork supply will increase, and prices will decrease. Farmers have observed a decline in pork prices, reduced production capacity, elimination of fertile sows, hog stock and slaughter volume decline, pork supply declines, pork prices rebounded again and again.
The pig production cycle determines a complete pig cycle that lasts 3-4 years, and at the same time, it shows small cycle fluctuations due to holidays and climate within a year. The ability to multiply sows represents production capacity. To expand the supply of hogs, we must first expand production capacity. It takes 7 months for piglets to become sows to be fertile, capable of breeding sows at about 114 days of gestation, 20 days of lactation, and 14 days of gestation, so it takes 148 days for a sow to produce a parity (5 Month), can give birth 5 times in 2 years (2.4-2.5 parity / year). In 2018, the average number of commercial pigs (MSY) provided per sow year in China was 19.2 pigs, which is 4-6 pigs lower than foreign advanced levels, and will increase with the progress of breeding technology. After sow farrowing, the 1-2 month nursery period and the 5-6 month fattening period, the pigs can be slaughtered. Therefore, it takes only about 6 months to directly supplement piglets, which means that the supply of pigs in the next six months can be inferred based on the number of pigs in the month; The cycle is about 3 years. China ’s annual slaughter volume is about 700 million heads. Therefore, at the end of the month, there should be at least 350 million live pigs. However, as of the end of August, China ’s live pigs were only 198 million heads, which was 38.7% year-on-year. 37.4%.
The nature of the pig cycle is the relationship between supply and demand. The demand side is generally stable, and the key is the supply side. The environment in which retail farming is the mainstay in our country has magnified price volatility. First, pork consumption demand is determined by residents’ income levels, population growth and consumption structure in the long run, and it is affected by seasonal dietary habits, epidemic diseases, food safety and consumption substitution effects in the short term. Second, the pork supply side is mainly affected by factors such as breeding profit, policy intervention, and natural disasters. Policy interventions include environmental protection, financial subsidies, and the system of collection, storage and release. As pork directly affects residents ‘living standards, CPI, and monetary policy, there are relatively many policy interventions. The market supply and farmers’ profit and loss are mainly observed based on indicators such as pork price, pig-to-food ratio , and breeding profit, to further regulate live pigs and capable sows Inventory volume, production volume, slaughter volume, etc. The break-even point of pig food ratio is generally 5.5-6, the current price of pig food is 13.92, and the breeding profit is high. The profit of self-bred and self-bred pigs and outsourced piglets has reached 1683.6 and 1412.5 yuan per head. But if the intervention is too aggressive, it will increase price volatility. Third, China ’s aquaculture industry is dominated by free-range farmers, with a high degree of homogeneity of producers and a low concentration of the industry. The single producer ’s influence on market prices is weak, and it is easier to “chasing up and killing” and prevent epidemics Insufficient technology and funds make it easier to fluctuate greatly. The price of pork shows a more obvious cobweb cycle.
Hog breeding is in the middle of the industrial chain. The upstream is mainly plantation, feed, veterinary drugs and vaccines, and 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 breeding industry exceeds 1 trillion. . At present, pig breeding is mainly divided into two modes, namely “self-propagation and self-support”, typical such as Muyuan stock; the other is “company + farmers”, the company provides piglets, feed, vaccines and veterinary drugs and technical staff support, until the pigs grow After the weight is released, the company is responsible for recycling sales and paying the farmer’s maintenance costs, such as Wen’s shares, new hope and so on. At present, there are successful cases in both models. The former occupies a relatively large amount of capital, with more depreciation, higher veterinary drugs and vaccine costs, but the process is controllable. The latter occupies less capital and has less depreciation, which is beneficial to companies that have just entered the pig breeding industry. Road overtaking, but you need to pay a large entrusted breeding fee. The depreciation expense allocated to each pig of Muyuan shares is 2.58 times that of Wen’s shares. The current breeding direction is mainly 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 fluctuations are highly correlated with CPI fluctuations. Since 2008, the correlation coefficient between pork prices and the CPI index has reached 0.82, which is much higher than other commodities in the CPI basket.
The high correlation between pork price trends and CPI is mainly due to the relatively 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 there are many types of products in the CPI basket, the proportion of pork as a single commodity is very big. In addition, the prices of some commodities in the CPI basket, such as clothing and household appliances, are generally relatively stable and less cyclical than pork prices. Other products, such as housing rental costs, have a price fluctuation cycle that is longer than the pork price fluctuation cycle, which makes the pork price cycle Sexual change is more obvious in the CPI and becomes an important variable that affects the CPI.
1.3 Four Pig Cycles Since 2006
Since 2006, China has roughly experienced four “pig cycles”, which mainly have the following characteristics: First, each round of the pig cycle is basically 3-4 years, and the down time is slightly longer than the up time, mainly because in the down phase, profits have fallen But as long as there is no loss, the willingness of farmers to withdraw is not strong. Second, each round of the pig cycle is accompanied by the disease, but the recent pig cycle obviously has non-market-based policy factors such as environmental protection interventions. The third is scale and Technological progress has led to a reduction in the number of fertile sows and pigs required, so the corresponding inventory after a new round of pig cycle capacity recovery will be lower than the previous period. Fourth, unlike previous pig cycles, this round of pig cycles only affects CPI, and It is not transmitted to PPI, core CPI and non-food CPI are down, PPI is continuously negative, and the macro environment is insufficient aggregate demand.
The first round of the “Pig Cycle” was from mid-2006 to May 2010 and lasted 4 years, of which the upward cycle was 2 years, an increase of 132.6% and the downward cycle was 2 years. Pork prices continued to be low in early 2006, leaving the pig industry at a loss. Some farmers suffered serious losses, withdrew permanently, and a large number of sows were eliminated. In 2006, the stock of fertile sows in the country decreased by 3.6%, and the stock of live pigs decreased by 2.6% year-on-year. After the large-scale production capacity was cleared, the decline in the number of pigs began to be gradually transmitted to the pork supply side. In 2007, the highly pathogenic swine blue ear disease broke out nationwide, which delayed the rate of replenishment. As a result, pork prices have stabilized and started to rise since mid-2006. In 2007, the average pork price in 22 provinces and cities nationwide was 18.8 yuan / kg, an increase of 41% over the previous year. In addition, the short-term factors such as the Spring Festival, pork prices in March 2008 reached A high of 25.9 yuan / kg. Since then, pork prices have begun to enter a downward channel. In 2009, the H1N1 (swine flu) epidemic broke out. In 2010, there were food safety incidents such as lean meat and water-injected pork. The public’s consumer confidence was frustrated, and the demand fell in stages, which further suppressed pork prices. In June 2010, the average pork price in 22 provinces and cities nationwide fell to a low of 15.5 yuan / kg.
The second round of the “pig cycle” was June 2010-April 2014, which lasted about 4 years, of which June 2010-September 2011 was an upward cycle, which lasted 15 months, an increase of 98%, September 2011 -May 2014 was a downward cycle, which lasted 32 months. This cycle is a relatively classic pig cycle, with fewer external interference factors, and the price is mainly driven by the endogenous power of the pig cycle. Under the influence of the previous cycle, the stock of fertile sows began to decline since 2009, and in 2010, the impact on pork supply began to gradually appear, and pork prices began to rise. In August 2010, the number of fertile sows in stock was reduced to 45.8 million heads, the lowest point in the cycle. 13 months later, pork prices ushered in a high point in the cycle. In September 2011, pork prices climbed to 30.4 yuan / kg. As the price of pork has risen, farmers have increased their stock of back-up sows, and pork prices have once again entered a downward path and continued until the first half of 2013. In order to stabilize pork prices, in May 2013, the three ministries and commissions, including the Ministry of Commerce, jointly started the frozen pork collection and storage work, which boosted market confidence and restored short-term prices. However, as anti-corruption work deepened and cracked down on “three public consumption”, pork prices fell again in 2014.
The third cycle was May 2014 to May 2018, which lasted 4 years, of which May 2014-May 2016 was an upward cycle, which lasted 2 years, an increase of 76.6%, May 2016-May 2018 The downward cycle lasts 2 years. At the end of 2014, pork prices crossed the W-shaped bottom and began to enter an upward range. Since 2014, China has implemented strict environmental protection and nourishment regulations, and has focused on increasing the scale of the pig breeding industry. As a result, a large number of free-range farmers have withdrawn from the market, and the pig and fertile sow inventory has entered a continuous decline. The outbreak of swine erysipelas in the first half of 2015 reduced pork supply, and pork prices rose to May 2016. The characteristics of this round of pig cycle are affected by environmental protection and large-scale, rising pork prices have not driven pigs to fill up significantly. Because environmental protection suppresses the supplementation, and large-scale farming improves the efficiency of the industry, on the one hand, the weight of individual pigs is increased, and on the other hand, the number of piglets that can be reproduced by sows is increased. The pig inventory increased slightly by 3% in the second half of the year, and the slaughter volume of pigs was not significantly affected. Pork prices have begun to decline since mid-2016, and bottoming has been completed in mid-2018.
The fourth cycle is from mid-2018 to now, which has lasted 1 year and 3 months. According to the rising cycle of about 2 years, it may continue until mid-2020, but considering that the supply of live pigs and fertile sows in this round has fallen too quickly. It is expected that the rising cycle may be extended to the second half of 2020. This round of pork prices is affected by multiple factors such as African swine fever, environmentally-restricted production policies, endogenous rising kinetic energy in the pig cycle, and large-scale farming. It has shown a large increase and fast speed. The price increase is the highest in previous pig cycles. Called the “Super Pig Cycle.” Since April this year, pork prices have risen rapidly. As of the end of September, the average pork price in 22 provinces and cities across the country has reached 38.3 yuan / kg, which has clearly exceeded the high of 30 yuan / kg in the previous two cycles, an increase of 83% over the beginning of the year. . The price ratio of pork grains reflecting 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. Both the absolute and relative levels of pork prices have hit record highs. The current pork supply gap is still large, and it is difficult to increase short-term supply. It is expected that there will be further upward space for pork prices in the later period.
2 Causes, Impacts and Prospects of the Super Pig Cycle
2.1 Four reasons lead to this round of super strong pig cycle
2.1.1 Environmental policies lead to continuous decline in pig inventory
In recent years, especially since 2015, the impact of environmental protection policies on the pig breeding industry has become increasingly prominent. The pig farming industry has a high demand for water resources and a large pollution, and the contradiction between environmental protection and environmental protection has become increasingly prominent. In particular, environmental pressures in ecologically sensitive areas such as the southern water network region have increased significantly. In recent years, environmental protection policies related to the pig breeding industry have been successively introduced. These policies focus on the pollution of the ecological environment, especially water resources, by traditional small-scale free-range breeding. They have proposed to accelerate the transformation of industrial production methods, promote the development of large-scale breeding, and reduce the scale of free-range breeding. . Among them, the new “Environmental Protection Law” requires farmers who fail to meet environmental protection standards to speed up the withdrawal and increase the cost of breeding; the “Water Pollution Prevention Plan” clearly proposes to prevent pollution of livestock and poultry breeding, scientifically delimit livestock and poultry breeding areas, and relocate by the end of 2017 according to law Or shut down non-compliant breeding enterprises. On this basis, the Ministry of Agriculture issued the “Guiding Opinions on Promoting the Adjustment and Optimization of the Hog Breeding Layout in the Southern Water Net Area”, proposing the principle of changing methods, improving quality and efficiency, vigorously developing standardized scale breeding of pigs, and improving the production efficiency of breeding And production levels. Among them, the total number of breeding farms in the southern water net area was reduced by 16 million, and 24,659 farms were closed or relocated in the 133 main producing counties in the national water net area, reducing the number of pigs in the stock by 2.82 million.
With the vigorous promotion of the central ministries and commissions, various localities have formulated demarcation zones and relocation plans for polluted farmers in the area, which 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 closed water areas in the southern water network area is progressing smoothly. Shandong, Sichuan, Chongqing, Hubei and other provinces and cities have completed the relocation of closed areas. However, in the process of implementation, the policy implementation in some places has been increased, which has led to the continuous expansion of the delimitation zone. For example, in May this year, Panyu, Guangdong, revised the plan for pigs’ closed areas. The area of the closed areas was greatly expanded from 50 square kilometers to 410 square kilometers, which was 8 times the original planned area. A large number of free-range farmers have to withdraw from pig farming, some large-scale farms that do not meet environmental protection regulations have also been shut down, and a large number of pigs have been processed, resulting in a continuous decline in the number of pigs in recent years.
The original intention of the environmental protection policy was to reduce the environmental pressure of the hog breeding industry on the water network area in the south. However, while reducing the breeding scale in the south, the northern region was unable or unwilling to undertake the hog breeding industry, which exacerbated the shortage of pig supply. On the one hand, because the northern region is also facing increasing pressure on environmental protection assessment, there are also concerns about taking on 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 accept the pig production capacity transferred from the south. For example, the climate in the Northeast is cold, so the cost of warming up has increased significantly. At the same time, affected by the population outflow in Northeast China and the knowledge structure of workers, the supply of pig breeding workers in the Northeast region is obviously insufficient, which also limits the capacity transfer of pig breeding.
2.1.2 Large-scale farming upgrades lead to a large number of retail outlets, and pork supply declines
In recent years, China has implemented a large-scale breeding strategy, encouraging breeding plants to expand production capacity, and continuously reducing the size of ordinary farmers, but it has not changed the pattern of relatively high proportion of small-scale breeding and low-scale breeding in China. Large-scale farming has a scale effect compared to individual farmers, and has more advantages in management, technology, and funding, which are conducive to enhancing the stability of the market and reducing the blindness of individual farmers. Retail farming will gradually shrink as the process of urbanization accelerates, the aging rate increases, and the lack of funds and technology, but this is a process. In the short term, the promotion of 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 Hog Production Development Plan (2016-2020)”, which requires that the proportion of large-scale breeding of more than 500 heads in 2020 should reach 52%; the “Regulations on Stable Hog Production to Promote Transformation” issued by the General Office of the State Council in September 2019 The Opinions on Upgrades propose that in 2022 and 2025, significant progress will be made in the transformation and upgrading of the pig industry, and the industrial quality will be significantly improved. The scale of breeding will reach approximately 58% and 65%, respectively. In recent years, the number of small-scale free-range farmers has significantly decreased. The number of free-range farmers with an annual output of less than 100 heads has dropped from 81 million in 2007 to 37 million in 2017, a drop of 54%. The number of large-scale 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 an annual output of more than 50,000 heads increased from 50 to 407, an increase of more than 700%. Even so, the number of farmers raising less than 100 heads still accounted for 97.8%, the number of farmers raising less than 500 heads accounted for 99.4%, and the number of offenders with more than 500 heads accounted for less than 50% of the total number of offenders (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 improvement of large-scale breeding plants is decreasing marginally. In 2018, China’s MSY (the number of commercial pigs that can breed sows each year, reflecting breeding efficiency) was about 19.2 heads, which was an increase of 3.7% from 18.5 heads in 2017, and the growth rate was significantly lower than that of 11.6% in 2016, showing a scale effect. Decreasing marginal. On the other hand, there is still a gap between the MSY level of China’s MSY and that of advanced foreign farms 23-24.
2.1.3 African swine fever causes large numbers of pigs to become infected
In August 2018, the African swine fever plague spread to China. Due to its high contagion and the lack of effective vaccines, as well as the illegal transportation of diseased pork by illegal traders for profit, African swine fever quickly spread to all provinces, autonomous regions and municipalities across the country. At the same time, due to weak epidemic prevention capacity in some areas of China, objectively failed to effectively prevent the widespread spread of African swine fever. Yu Kangzhen, deputy minister of the Ministry of Agriculture and Rural Affairs, said that in recent years, some local animal epidemic prevention institutions have weakened their teams, which is manifested in inadequate institutional systems, inadequate grass-roots work teams, insufficient funding guarantees, and aging and obsolete infrastructure. Need for industrial development. The spread of African swine fever has brought significant losses to China’s pig breeding industry. As of July 2019, there were 143 African swine fever outbreaks in the country, killing more than 1.16 million live pigs.
Historically, since there is no effective vaccine, once swine fever in Africa is introduced, it is difficult to prevent and control it. For example, African swine fever was introduced to Brazil in 1978. 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 endemic in Russia and has not yet been completely eradicated. Therefore, the introduction of African swine fever in China this time 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 severe challenges from African swine fever.
2.1.4 New round of pig cycle causes endogenous upward momentum for pork prices
We are currently in a rising phase of the new pig cycle. Judging from the regularity of the pig cycle, the excess capacity accumulated in the last pig cycle is gradually cleared. From June 2016 to May 2018, pig prices continued to fall, and pig profit continued to decline. The profit from self-producing pigs declined from 780.1 yuan / head to -381.3 yuan / head in May 2018, 3-7 in 2018. For five consecutive months, the profit from breeding was negative, which led to continued decline in pig production and production. Before the introduction of African swine fever in China in August 2018, in addition to a slight rebound in March 2018, the stock of fertile sows and pigs has dropped for 15 months. The pig inventory is in a historically low range, so pork prices are endogenous. Upward momentum. External factors such as environmental protection and production restriction and African swine fever have further enlarged the pork supply gap, driving up the price of pork.
2.2 Future Outlook: Pork prices may remain high in the short term, and price inflection points may occur in the second half of 2020
2.2.1 China’s pork consumption as a whole is relatively stable
As mentioned earlier, pork consumption demand is determined by residents’ income levels, population growth and consumption structure in the long run, and it is affected by seasonal dietary habits, epidemic diseases, food safety and consumption substitution effects in the short term. At low income levels, the demand for meat consumption is greatly affected by per capita disposable income. When the society enters the middle income level, the demand for meat consumption is mainly related to the dietary structure and dietary preferences of the residents.
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 rising income levels and preference for pork. From the perspective of population, China’s population increased from 960 million to 1.395 billion, with an average annual growth rate of 0.93%. In terms of income, the average annual disposable disposable income growth of urban residents was 7.11%. From the perspective of consumption preferences and habits, China consumed 18.4% of the total global pork consumption with 22.3% of the global population in 1978, and consumed approximately 50% of the total global pork consumption with 18% of the global population in 2018; the domestic meat consumption structure Among them, the proportion of pork has dropped from 90% in 1978 to about 73% at present, and overall stability is still far higher than beef, mutton and poultry, and it is absolutely dominant. In the early days of reform and opening up, influenced by China ’s traditional farming and diet 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 total meat consumption (pork, beef, Chicken) is about 90%. With the improvement of the living standards of Chinese residents, the demand for diverse diets and healthy diets has gradually increased, the proportion of pork consumption has declined, and the proportion of beef and chicken consumption has steadily increased. Since 2000, the influence of income factors in meat consumption has gradually decreased, and the factors of dietary preferences have increased, making the proportion of pork consumption basically stable. At present, the proportion of residents’ consumption of pork to meat consumption is stable at about 73%, with occasional fluctuations.
It has never been seen that in the long run, the total pork consumption of Chinese residents affected by income, urbanization and consumption habits will continue to rise. In the short term, the impact of rising prices and swine fever may decline, but it is significantly lower than the supply side. Demand-side impact changes are relatively small. China’s residents’ income will continue to increase, and the process of urbanization will continue to rise. The pursuit of health may slightly reduce the proportion of pork consumption. However, from a global level, the per capita pork consumption of mainland Chinese residents is 39.8 kilograms, which is at a high level among Asian countries and regions. Compared with Hong Kong’s 67.1 kg, there is still a certain 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 has been highly dependent on domestic supply, and the proportion of imported pork in total pork production does not exceed 3%. Since the beginning of this year, China has stepped up its efforts to import pork from South America due to the growing pork supply gap. Since July, pork imports to the US have increased significantly. From January to August, China accumulatively imported 1.164 million tons of pork, which was close to the total amount of 1.193 million tons last year, a cumulative year-on-year increase of 40.4% and an amount of 56.7% year-on-year. The growth rate of pork imports from May to August was 62.6%, 62.8%, 106.7%, and 76%, among which pork imports to the United States have continued to decline since the Sino-US trade friction in March last year, and pork was not imported from the United States in the fourth quarter of last year. In 2018, it was -48.3%, accounting for 7% of China’s pork imports from 13% in recent years. Since the beginning of this year, China has increased pork imports from the United States, with its growth rate rising from -30% at the beginning of the year to 206.5% in July and 426% in August, a cumulative growth rate of 85%.
China ’s pork imports account for 18.5% of total global exports, and other Asian countries such as Japan and Vietnam have similarly increased demand for pork imports due to domestic swine fever. Compared with the supply gap of about 10 million tons, pork imports are still low, and it is difficult to stabilize the market supply. Chinese pork imports are mainly concentrated in 11 countries: Germany 19.1%, Spain 18.4%, Canada 13.4%, Brazil 12.6%, United States 7.2%, Netherlands 7.1%, Denmark 6.1%, United Kingdom 4.2%, France 4.1%, Chile 3.7%, Ireland 2.8%.
As China increased its pork imports, the unit price of imports also increased significantly, reaching US $ 2.27 / kg in August, up 31.6% from the beginning of the year and 36.6% year-on-year.
2.2.3 Environmental policy correction and swine fever vaccine development takes time
There are still many difficulties in developing African swine fever vaccine. Positive progress has been made in the prevention and control of African swine fever, and the frequency of African swine fever has decreased since this year. But to truly prevent and control the African swine fever epidemic, effective vaccines need to be developed and widely vaccinated. However, the research and development of African swine fever vaccine is a worldwide problem. As of now, no international vaccine has been approved for marketing. At present, the research and development of African swine fever vaccine in China is still in its infancy, and there is still a long way to go to develop a safe, effective and controllable quality African swine fever vaccine. Therefore, we expect that the African swine fever epidemic will still be difficult to eliminate completely, and the negative effects on pig production will continue.
In order to rectify issues such as one-size-fits-all and expansion in the implementation of environmental protection policies, various ministries and commissions have begun to rectify excessive environmental protection policies implemented in the early stage. However, it takes time to implement the policy, and it takes about half a year for pig fattening. The Ministry of Ecology and Environment and the Ministry of Rural Agriculture jointly issued a notice requiring that all regions except for core areas such as drinking water protection areas and scenic spots should not be designated as restricted areas. Cancellation of custody regulations exceeding laws and regulations and over-planned custody areas found in the investigation shall be cancelled. Violations of laws and regulations restricting the development of the pig industry and reducing the production capacity of pigs must be rectified immediately. Accelerate the environmental review and approval of 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 documents proposing to provide working capital support for pig breeding enterprises and stabilize their willingness to produce pigs.
In summary, the short-term pork supply-demand gap is difficult to resolve, and the rise in hog prices will continue. In view of the current significant reduction in the number of fertile sows and live pigs, the full restoration of production capacity needs to start with increasing fertile sows, and the cycle between fertile sows, piglets and fattening is longer. It is expected that the contradiction between supply and demand will ease in the second half of 2020. By then, the price of pork may usher in an inflection point.
2.3 Impact of the Super Pig Cycle: CPI is pulled macro, the industry structure is changed on the meso level, and the household expenditure burden is increased on the micro level
2.3.1 On a macro level, the rise in pig prices has driven CPI to remain high and continued to diverge from PPI. Monetary policy should pay more attention to insufficient overall economic demand and deflation in industrial products
The continuous rise in pork prices has a significant pulling effect on food CPI. Since the price of pork has risen rapidly this year, other dietary protein sources such as beef, mutton, and eggs have risen, and prices of vegetables and fruits have also risen in a short period of time, which has significantly increased the CPI of foods and the CPI index. It rose from 1.7% at the beginning of the year to 2.8% in August. Among them, the prices of pigs, cattle, sheep, and eggs in August were 23.1%, 4.4%, 2%, and 5%, respectively, compared with 47.6%, 12.3%, 12.5%, and 3.6% year-on-year. As pig prices will continue to rise in the short term, CPI is expected to continue to fluctuate around 3%, and individual months may exceed 3%.
However, it should be noted that this round of rising inflation has distinct structural characteristics. It is driven by insufficient supply of some commodities rather than strong demand, and will not trigger full inflation. The current macroeconomic situation is mainly deflationary pressures, not inflationary pressures. Will constrain monetary policy. Since the beginning of this year, although food prices have risen significantly, core CPI has declined steadily year-on-year. PPI has been in deflation for two consecutive months due to weak domestic and external demand, suppressing corporate profits and manufacturing investment. This year’s inflation is characterized by two major divisions: the differentiation between CPI’s food and non-food, and the differentiation between CPI and PPI, which will continue in the second half of the year. Against this background, monetary policy should strengthen counter-cyclical adjustments, reduce the MLF interest rate to guide the actual interest rate downward, and attach great importance to the unblocking of monetary policy transmission channels. At the same time, it is necessary to prevent currency bubbles from causing asset bubbles, and on the other hand, to prevent initiative. Piercing has caused major financial risks, using time for space, finding new economic growth points, expanding reform and opening up, and mobilizing the enthusiasm of local governments and entrepreneurs (see “Estimating the severity of the current economic and financial situation fully-a comprehensive interpretation of June economic and financial Data “and” Deflation after removing pigs, it is time to cut interest rates-comment on August price data “).
Some people think that the current CPI is at a high level, which 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 remains high is the pork supply side. To solve the CPI problem, the supply-side policy should be used. For example, in a short period of time, the environmental protection constraints on the pig breeding industry will be appropriately relaxed, and unreasonable delimitation zone demarcation will be reduced; financial subsidies and other means will be used to support large-scale farmers who have withdrawn from the market earlier to help them resume production as soon as possible; Develop a safe and effective vaccine for African swine fever. Monetary policy mainly acts on the demand side. Increasing counter-cyclical adjustments will mainly stimulate effective demand and prevent the economy from falling too quickly. The demand for pork is mainly affected by factors such as population, consumption preferences, and residents’ income. It has remained stable in recent years. Historically, pork consumption has not changed significantly due to changes in monetary policy. Therefore, increasing the counter-cyclical adjustment of monetary policy will not further push up the price of pork, but will increase the effective demand to hedge the rapid decline in PPI and core CPI, the decline in corporate profits, and the rapid rise in real interest rates. Quality development wins time.
2.3.2 On the meso level, the super pig cycle will accelerate the large-scale pig breeding, 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 the swine fever epidemic has exposed some of China ’s small and medium-sized farms in terms of epidemic prevention, compared with high-pollution and low-efficiency free-range farming, large-scale farming is still the future development of the breeding industry. At present, the scale of China’s pig breeding industry is not high, and the industry concentration is low. The top 10 listed companies that entered the pig industry in 2018 had a total of 47,167,000 pigs, with a market share of only 6.82%. 94% of pig farmers are retail farmers with less than 50 pigs. Individuals’ awareness of epidemic prevention is generally not strong, and the level of biological safety is not high. They have the habit of feeding pigs with food and kitchen residues. Since many food and kitchen wastes have not been aged, the risk of pigs infected with the virus is increased. During the spread of African swine fever in this round, the breeding habits of retail investors have increased the spread of African swine fever to some extent. Large-scale farms usually have stricter standards and technical strength in terms of inspection and quarantine, breeding technology, and disease prevention and control. Western developed countries also have relatively successful experiences, so this is the development direction of China’s pig industry. Recently, the environmental protection policy has been relaxed. However, with the continuous improvement of the technological and management advantages of large-scale breeding enterprises, it is expected that the scale of individual farms will be reduced during the current round of new capacity additions, and the number of large-scale farms will increase. Production 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 transportation to cold pork transportation, and from “pig adjustment” to “meat adjustment”. In 2017, the scale of provincial pork transportation in China reached 1,240 tons, accounting for 24% of the output of the year. Residents of China like to eat fresh meat. Therefore, the long-distance transportation of live poultry and livestock is mainly used for the transportation of pork. The production capacity of the transportation industry is mainly based on the “pig truck” that transports live pigs. After the onset of African swine fever in this round, the central government adopted a policy of banning transportation in the epidemic area, temporarily closing the province’s live pig trading market, and using cold chains to transport pork from the production area to the sales area, which quickly led to a “pig cart” A large number of idle, and the supply of refrigerated trailers to transport fresh meat is in short supply. The freight rate of cold chain trucks in some areas has increased by more than 60% compared with the embargo. Considering the gradual maturity of cold chain logistics technology in recent years, and the existence of many problems with traditional live poultry and livestock transportation, 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 live transportation to cold storage. The transportation of pork has been transferred to realize the transformation from “pig-adjusting” to “meat-adjusting”.
The super pig cycle also has an impact on the upstream industry. Short-term demand and price declines will continue to drive upstream feed prices as inventory levels increase. Due to the drastic drop in pig inventory. The main feed supply industry for pigs, the demand of corn and soybean processing industries is significantly affected. Take corn starch, an important feed for pig breeding, as an example. Since this year, the operating rate of the corn starch industry has decreased by 20%, but due to the sharp decline in demand, the inventory has increased by 20% -30% year-on-year. The price of corn starch has dropped significantly after the acceleration of pork prices this year. At present, the price has fallen by more than 7% from this year’s high. The price of the other main feed 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 is more than 80% dependent on imports, but since 2018, affected by the Sino-US trade war, China ’s soybean imports have declined. In 2018, the number of Chinese soybean imports fell by 7.8% year-on-year, driving a rise in soybean meal prices in 2018. After the African swine fever epidemic, the spot price of soybean meal continued to fall. In early March this year, the price of soybean meal fell by more than 30% from the high point of last year. Although it has rebounded due to the escalation of Sino-US trade frictions, the overall price is still low.
2.3.3 On a micro level, rising pork prices increase the cost of living for low-income families
Pork is the most important type of meat for Chinese residents. Rising pork prices are bound to increase consumer spending. But this effect is different for families with different income levels. For middle- and high-income residents, the Engel coefficient is relatively low, so even if the pork price rises sharply, it is basically within its range. At the same time, the diet of high-income groups is relatively more yuan, and the proportion of other proteins such as beef, mutton, fish and shrimp that are consumed daily is relatively high. Therefore, the impact of rising pork prices on high-income income is relatively limited. The main source of protein for low-income households is low unit price meat, such as pork and poultry. Considering the dietary habits of Chinese residents, the proportion of pork consumption is higher than in other countries, so rising pork prices will significantly increase low income Cost of living for the family.
According to the OECD’s data on residents’ income and meat consumption, it can be seen from the figure that the residents’ meat consumption is positively correlated with the logarithmic level of income. At the stage of low income levels, the residents’ meat consumption will rapidly increase as the income level increases When the income increases, the effect will gradually decline after income exceeds a certain value. At the same time, the lower the unit price of meat, the more obvious the effect of consumption as income increases. It is shown in the figure that the coefficient of consumption and income of low unit price meat such as pork and poultry is lower than that of high unit price meat such as Coefficient of beef and mutton. 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 meat expenditures of urban residents at different income levels. After the 2013 urban-rural integration sample survey, the relevant data will not be released. However, as residents’ eating habits have remained stable in recent years, this data is still of reference value. According to 2012 data, the annual meat consumption expenditure of the urban lowest-income households (10%) accounted for 10% of the total expenditure, and this proportion continued to decline as the income increased. Among the highest-income households (10%), this proportion was only 4 %. Therefore, rising pork prices have a greater impact on low-income households.
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 mutton. Therefore, the impact of rising pork prices on low-income households is very large. From a policy perspective, the current low-income group should pay special attention to make up for the extra expenses caused by rising pork prices by issuing meat subsidies, and the subsidy amount should be adjusted in accordance with market prices in time to prevent the normal living standards of residents from being affected.
3 Policy recommendations
The first is to relax the restrictions on environmental protection, increase subsidies to farmers and increase the amount of stocked meat to increase supply, stabilize the pork market supply, closely track the prices of alternative beef and mutton, and increase stocking. It is recommended to appropriately relax the environmental protection constraints on the pig breeding industry in the short term, expand the scope of pig breeding land, and reduce the unreasonable delimitation of detention zones. Use financial subsidies and other means to support large breeding farmers who have withdrawn from the market in the early stage and help them resume production as soon as possible. At the same time, it is necessary to accelerate the release of frozen pork in the reserve and do everything possible to stabilize the domestic pork supply.
From the perspective of foreign markets, although the current volume 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 number of imported pork substantially while 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, sheep, chicken, and soybeans. It is recommended that the prices of key commodities be tracked in a timely manner. For products with higher prices, timely increase in reserves and stable supply.
The second is to reduce related taxes, fees and transaction costs in the pork production process, and increase financing support to farmers, especially large-scale farmers. In the current situation, we can consider reducing the cost of pork during production and transportation. For example, the recent State Council executive meeting decided to include the transportation of piglets and chilled pork into the “green channel” to reduce logistics costs. In addition, tax cuts for pig breeding companies and related industries in the short term can be considered to reduce production costs and pork prices.
The third is to start from the demand side, focusing on subsidizing low-income groups that are more sensitive to pork price increases, and reducing the negative effects of pork price increases. Recently, the price of pork has risen rapidly. It is recommended to change the current fixed subsidy system to a dynamic subsidy system, link the subsidy quota with the increase in pork prices, link the subsidized population to the list of subsistence allowances, poor households, etc., and increase the subsidy intensity and timely distribution. , To minimize the negative impact of rising pork prices on people’s lives.
Fourthly, from the perspective of long-term mechanism, the level of large-scale farms in the fields of stock selection, breeding technology, and disease control should be further improved to reduce the impact of the pig cycle and external shocks on the pig industry in China. Large-scale farming can effectively reduce the characteristics of the cobweb cycle of the pork breeding industry, and then calm the endogenous fluctuations of the pig cycle, which should be the development direction of the pork breeding industry in China. In recent years, the scale of China’s hog breeding industry has been steadily advancing, but currently affected by factors such as technical level and personnel training, the efficiency is still low compared with foreign advanced levels. It is recommended to further improve the level of large-scale farms and breeding companies in the fields of stock selection, breeding technology, and disease control, actively develop various types of pig disease vaccines including African swine fever vaccine, and reduce external shocks such as the pig cycle and the disease. Impact of the pig industry.
Post time: Dec-23-2019