China’s pig industry will rise like a phoenix

08-04-2020 | | |
In the long run, the sun is shining for China's pig industry. Picture taken at a pig production project in Liaoning province. - Photo: Vincent ter Beek
In the long run, the sun is shining for China's pig industry. Picture taken at a pig production project in Liaoning province. - Photo: Vincent ter Beek

China was hit hard by the African Swine Fever (ASF) outbreaks in 2018 and 2019. Most estimates indicate a pig industry size reduction of more than 50%. What does that mean for the years to come? China will come back for sure, but how quickly, and what will the impact be? Richard A. Brown, a director of Gira, explains.

‘Unexpected’, ‘unprecedented’ and ‘having severe consequences’. That is what characterises a ‘black swan event’, and it is the phrase Richard Brown likes to use to describe the occurrence of ASF in China and Asia. Brown is a director of Gira Consultancy and Research, based in the United Kingdom and France. As such, he has been focusing on the virus and its tragic effects on the short and longer term for China and the rest of the world.

Short and long term effects of ASF

Rare as black swans may be, one black swan event has just been overtaken by another one: Covid-19, which is likely to have severe consequences for the international pig market as well. In this article we will zoom in on the short and longer term effects of ASF. Over the last 12 months, Brown has repeatedly been asked to share his views on ASF at congresses and other events across the globe, one of which Pig Progress attended. Brown has an excellent overview of the meat and pork trade, to what type of disruptions the ASF deficit in Asia will lead and how the markets will bounce back in the medium and longer term.

Drivers and brakes in the global meat market

In Brown’s view, an analyst must take into account a long list of drivers and brakes for the global meat market. Among drivers, he includes factors like population growth, income growth, urbanisation and better meat marketing. The brakes category includes price, the growth of vegetarianism as well as social pressure and negative publicity. It also includes animal diseases like ASF.

Before and after the supply shock

Before the ASF shock, Brown explains, further increases in per capita meat consumption were anticipated in 2019 for most world markets. Similarly, even without including ASF, a growth in meat trade volumes was forecast for all species in 2019. Taking into account the spread of ASF, the effects of the virus are massive, complex and highly variable (see Figure 1). Brown’s hypothesis about the short term effects is that ASF is decimating China’s pork production, predominantly by wiping out small backyard pig farmers. In 2019 he calculated a severe supply shock, with a production decline of 18 million tonnes carcass weight equivalent (CWE). For 2020, the market will feel an echo with a further production decline of 6 million tonnes CWE.

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Rapid recovery after 2021

For the years after 2021, however, the perspective changes, Brown says. For 2021 and beyond, he predicts a rapid recovery driven by strong investment in commercial farms. That in turn will be pulled by two factors, the first being record pig prices (and profit) and the second the fact that the Chinese government will make recovery of the pig business a priority. All in all, he says, the structure of China’s pig industry will be completely different post ASF.

China’s pig industry will rise like a phoenix

Chinese pork consumption

Now what will all these developments mean for the average per capita pork consumption in China? Brown says that before ASF, pork accounted for some 35% of Chinese protein consumption, but it has been in slow retreat since 2014, with mainly poultry and fish taking its place. The supply shock will most likely cause a demand shock as well, not in the least because prices for pork shot up at the end of 2019.

Chinese pork production

Zooming out, the ASF crisis comes on top of an ongoing modernisation trend, as the pork sector moves away from backyard farms towards more industrialised types of farms. Quoting data from the China Animal Husbandry Handbook, Brown says that in 2003, about 70% of China’s pig production came from farms that produced 1–49 animals per year and only 3% at the other end of the spectrum, on farms producing 10,000 head or more.

By 2022, on the other hand, the pre ASF estimates were that about 42% of all pig production would come from farms larger than 10,000 head and the backyard farm category (under 50 head) would have been reduced to constituting only 3% of the total.

ASF will boost the modern sector and wipe out farms that cannot afford good biosecurity

Richard Brown, director of Gira Consultancy and Research

‘Many small growers will abandon pig farming’

That development, Brown says, is simply catalysed by ASF. Estimating that at least 70% of pig production is compromised, he says that many small growers will simply abandon pig farming. He adds, “ASF will boost the modern sector and wipe out farms that cannot afford good biosecurity. Record pig prices encourage major investments in large, modern farms.” To that, he adds that slaughtering will be moved closer to new farming regions.

Meat imports into China

In terms of meat imports, the effects of ASF were already felt in the first half of 2019, Brown says. Beef and poultry imports especially, were rising. From May 2019, pork imports also started rising. At the time a year-on-year growth of 63% was observed. That trend, he says, continued in the second half of the year, with pork performing a lot stronger. The Chinese have eased tariff and other restrictions on pork imports, especially from the United States and Canada, in order to expand their sources of supply.

An iconic shot by now, of the multi-storey pig farms in Guiyou province. Chinese pig companies are now being encouraged to also invest in projects abroad. - Photo: Henk Riswick

An iconic shot by now, of the multi-storey pig farms in Guiyou province. Chinese pig companies are now being encouraged to also invest in projects abroad. – Photo: Henk Riswick

Potential for pork imports

Even before the ASF crisis, Brown continues, China had been the world’s largest pork importer for a few years, having overtaken Japan. The potential for pork imports could grow from 1.2 million tonnes per annum in 2018 to 3.4 million tonnes in 2020, he says, constituting a growth of 2.2 million tonnes per year. That volume could come mostly from Spain and Brazil and potentially the United States. Interestingly, he adds: “The majority of the supply gain comes from robbing/diverting pork from domestic markets and from other export markets, not from production growth.” Chinese pig meat prices went up strongly during 2019, Brown adds. That occurred in combination with increased import volumes. So there is a strong ‘buy’ signal to the rest of the world (see also Box).

Six planes full of breeding pigs to China

The replenishing of the Chinese breeding herd is already in full swing, press agency Reuters reported. 6 planes in total carrying more than 4,000 French breeding pigs arrived in China so far this year. Soaring pork prices and a government drive to rebuild have prompted farmers who had halted buying to resume orders. The French company Axiom sent 2 planes in January, followed by another 2 in March, totalling about 3,400 pigs. It has signed deals for a further 6 plane loads later in the year. Another 500 boars bred by Dutch firm Topigs Norsvin arrived from France in southwestern Guizhou last week, said China’s Dekang Group, which will use the pigs in a nucleus breeding farm to produce 20 million pigs for slaughter.

Covid-19 and conclusions

It is still early, but what are Gira’s expectations of the effect of Covid-19 on the global pig and agriculture business and their attempts to overcome the previous ASF crisis? The outbreak of Covid-19 in China has had a severe impact on the Chinese meat market, but it will probably be temporary, according to Gira’s analysis.

Demand fell as restaurants closed, since people eat more meat in restaurants. Wet markets that sell fresh ‘hot’ pork to consumers were closed for the duration, striking another blow to the traditional pork value chain and boosting chilled pork in modern retail and e-commerce. Seaports clogged up as China’s domestic logistics froze, and that hampered imports for a time. However, it appears that China is bouncing back and a strong recovery is expected in the second half of the year.

Rebuilding process

As far as ASF is concerned, Brown concludes that ASF has caused a shortfall in pork supply which could not be met by the domestic industry, leading to skyrocketing prices. In 2020 the rebuilding process started, with high biosecurity and improved technology and, as a consequence, a modernisation of the chilled chain. The high pork prices will create a strong demand for pork and all kinds of substitute meat from the rest of the world, which will rob meat from other markets worldwide. There will be some growth in the rest of the world, but that will be limited due to uncertainty about the duration of the China import bulge.

Eventually, the Chinese pig industry will come back in a more modern and efficient form, which will be more productive. Last but not least, Brown does not expect China to reach the old peak of pork consumption in 2014 again, simply because consumers will retain a taste for other proteins once they have tried them.

* This article is an approved and updated summary of the Gira message shared at various events worldwide over the last few months.

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ter Beek
Vincent ter Beek Editor of Pig Progress / Topic: Pigs around the world