Revamp pork in­dus­try to end price volatil­ity

China Daily (Canada) - - LIFE -

The ris­ing price of pork is sound­ing alarm bells in China. Cur­rently, pork costs about 26 yuan ($4) per kilo­gram— an in­crease of about 48 per­cent since last year, ac­cord­ing to theM­i­nistry of Agri­cul­ture. China, the world’s largest pro­ducer and consumer of pork, is again see­ing wor­ry­ing im­pacts of ris­ing pork prices on the over­all price of food.

Nowis the time to trans­form China’s pork in­dus­try us­ing a mar­ket-based ap­proach to en­sure stable sup­ply at af­ford­able prices. Do­ing so can re­duce food price volatil­ity, as well as fur­ther pro­mote di­verse and nu­tri­tious di­ets among con­sumers.

In re­cent years, pork prices have been largely volatile in China. In March 2014, prices fell close to 7 per­cent from the pre­vi­ous year, ac­cord­ing to statis­tics from the Na­tional Bureau of Statis­tics of China. Now, hikes in pork and veg­etable prices have led to an in­crease in over­all food prices by 7.6 per­cent. While plans are in place to re­duce do­mes­tic veg­etable prices, Chi­nese con­sumers cur­rently face with high pork prices.

What is driv­ing pork price volatil­ity and the re­cent price spike? More than a colder-than-nor­mal win­ter and binge eat­ing dur­ing the Lu­nar NewYear, it has to do with poli­cies that off­set the bal­ance be­tween sup­ply and de­mand of pork.

The mar­ket for pork is dis­torted due to un­in­tended con­se­quences of sec­tor-wide re­forms. Pig farm­ing in China has evolved as a part of larger trans­for­ma­tions in Chi­nese agri­cul­ture from smallscale farm­ing to spe­cial­ized, large-scale com­mer­cial farm­ing. Govern­ment in­cen­tives have pro­moted large-scale pig pro­duc­tion since 2007, re­sult­ing in rapid in­crease in pork pro­duc­tion. Na­tional pig in­ven­tory peaked around 2013. Mean­while, many small pig farm­ers ex­ited the busi­ness due to low prices from over­sup­ply and costly re­quire­ments to ad­dress food safety and en­vi­ron­men­tal is­sues.

As a con­se­quence, the in­ven­tory of pigs be­gan to shrink. Be­tween Novem­ber 2013 and Au­gust 2015, the cu­mu­la­tive loss was an es­ti­mated 100 mil­lion boars and 10 mil­lion sows— roughly the size of the com­bined pork pro­duc­tion of the US, Canada, andMex­ico.

De­mand for pork in China is go­ing nowhere but up. Pork con­sump­tion in the country is pro­jected to in­crease 20 per­cent from 2011 to 2021. Greater de­mand, in ad­di­tion to shrink­ing sup­ply, can lead to higher prices. So­lu­tions to price spikes and volatil­ity must come from sup­ply­side re­forms and de­mand-side be­hav­ioral changes.

More than two-thirds of meat con­sump­tion in China is pork. Re­search has shown that a more di­verse diet will help re­duce heart dis­eases and many other ill­nesses.

Let’s not for­get the peo­ple who suf­fer the most: ris­ing food prices hurt low- and mid­dle-in­come fam­i­lies the most. De­spite China’s im­pres­sive progress to­ward food se­cu­rity and nu­tri­tion, it still has mil­lions of peo­ple suf­fer­ing from chronic hunger and un­der­nu­tri­tion, par­tic­u­larly the poor. Foods from an­i­mal sources can help the poor and un­der­nour­ished to ad­dress their de­fi­ciency of pro­tein and mi­cro-nu­tri­ents. High pork and veg­etable prices make it harder for th­ese citizens to ac­cess and main­tain di­verse, nu­tri­tious di­ets.

From the sup­ply side, small and medium pig farm­ers should be bet­ter sup­ported or at least not dis­crim­i­nated against by the cur­rent pol­icy, as they have a key role to play in sta­bi­liz­ing pork pro­duc­tion and prices— they have greater flex­i­bil­ity in la­bor al­lo­ca­tion and use in­ex­pen­sive, lo­cally avail­able in­puts.

In­ef­fi­cient price sup­port mea­sures, such as the grants and sub­si­dies of­fered to large oper­a­tions, dis­tort the pork mar­ket and con­trib­ute heav­ily to volatil­ity in pork sup­ply and prices seen in re­cent years. Such mar­ket dis­tor­tions should be elim­i­nated. In­stead, the govern­ment should move to­ward a sys­tem whereby the mar­ket de­cides the op­ti­mal level of pro­duc­tion— where sup­ply meets de­mand.

In­the case that gaps in sup­ply and­de­man­darise, the in­ter­na­tional mar­ket should be used to fill do­mes­tic­mar­ket gaps. The govern­mentshould also re­lease its strate­gic pork re­serves. In­the long run, mar­ket-based price sta­bi­liza­tion should also be in­tro­duced af­ter a care­ful studyan­d­anal­y­sis.

The author is di­rec­tor gen­eral of the In­ter­na­tional Food Pol­icy Re­search In­sti­tute.


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