Pork price rises fuel China inflation fear

A disease killing millions of pigs in China has sharply lifted the price of pork, the country’s staple meat, fuelling fears about inflation and prompting a call from the top leadership for increased production of the meat.

Wen Jiabao, premier, provided confirmation of the seriousness of the crisis with a weekend visit to a market in Shaanxi province, where he said farmers should help “resolve the problem” of providing meat for 1.3bn people.

Pork prices have risen by as much as 30 per cent in Chinese cities over the last week. According to the agriculture ministry, wholesale prices for pigs have gone up even more, rising 71.3 per cent since April.

China’s 500m pigs are the country’s most important source of affordable meat, and any sustained interruption in supply would be a major political problem for the government.

While the price of feed, such as corn, has risen, the main culprit is an epidemic of a mysterious illness known as ‘blue ear’ disease, as well as the more common foot-and-mouth affliction.

“I have heard it has killed as many as 20m hogs,” said an industry executive on Monday.

The government has not issued any estimate of how many pigs have been struck down by disease, and in any case, China’s size and the number of small producers make it difficult to quickly tabulate reliable figures.

But the impact of the shortage of pork is apparent in many areas, from sausage makers switching meats, to rising offal prices, and attempts by Hong Kong to import meat from South America.

China cannot easily find competitively priced pork to replace the shortfall at home, because of its own health-related restrictions on imports from South America, where prices are relatively low. US and European pork is relatively expensive.

The government has a “strategic pork reserve”, established in the late nineties, including both frozen stocks and access to pig farms, which could provide a buffer.

“We are considering releasing some of these reserves into the market in certain targeted areas in order to reduce soaring prices,” said Li Xizhen of the Ministry of Commerce.

“We will not be giving free meat to people, but will sell pork and use market mechanisms to bring down volatility.”

Mr Wen, in his visit to the market, said the government “is going all out to ensure the supply of pork and keep it affordable.”

Soaring pork prices are also expected to add to inflation, already under pressure from rising food prices in other areas.

“The surge in pork prices will likely push year-on-year CPI inflation to above 4 per cent very soon,” said Hong Liang, of Goldman Sachs, in Hong Kong, in a research note.

“Meat constitutes about 7 per cent of the CPI basket, and its price pressures are likely to spread to eggs, fish and other food products.”

Although 4 per cent is above the central bank’s unofficial “tolerance rate” of three, core inflation remains low.

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