July 8, 2011 / 12:05 PM / 6 years ago

FEATURE-China's costly pigs irk consumers, help producers

6 Min Read

* Pork prices up 65 pct year-on-year

* 50 pct price rise can yield 1.5 pct CPI increase

* Consumers avoiding pig meat

* Small producers also hit

JINGEZHAI VILLAGE, China July 8 (Reuters) - The long, red-brick structures in this village on the outskirts of Beijing contain some of this year's fastest appreciating Chinese assets: pigs.

Their owner Ma Shihong is in no rush to sell. Her fleshy, pale-downed porkers are worth 70 percent more than last year on the market, with live pig prices, and their girth, growing daily.

"Each pig can grow about a half-kilogram a day, which means 10 yuan," said Ma, 43. "For 100 pigs, that's 1,000 yuan more for each day I don't sell them."

Outside Ma's tidy, air-conditioned office, 3,000 pigs sprawled in pungent rows of concrete pens, snuffling in anticipation of their evening corn-and-soybean meal.

The reluctance of pork producers like Ma to sell only accentuates this year's pig shortage and high feed costs, which have led to record pork prices -- the average pork price in China has shot up 65 percent from a year ago, according to official figures.

Chinese policymakers are struggling to contain inflation, which has been running at nearly three-year highs and is expected to reach 6.3 percent in June, according to a Reuters' poll of economists.

Food prices -- and pork, especially -- have played an outsized role in that rise.

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Graphic on China pork price rises

link.reuters.com/gys52s

For more on China inflation

For a preview on China June inflation

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Pork prices account for only 3 percent in the weightings of the consumer price index, but a 40-to-50 percent spike in pork prices can haul inflation rate up by 1.2-1.5 percentage points.

"Although pork prices represent a tiny proportion of the CPI basket, it is the most volatile component affecting consumer inflation," said Ma Dongfan, a farm product analyst at CEBM, a research firm in Shanghai.

Pork is the most popular meat in China and its price has a big impact on the public's inflationary expectations.

Economists generally believe monetary policy won't hold down pork prices, but Chinese policy makers must be wary about recent signs that price rises are spreading from food items to services.

Price rises have been a source of social unrest in China before, and Chinese authorities are determined to bring it under control. Earlier this week, Chinese Premier Wen Jiabao assured consumers that pork prices would fall in the coming months.

So far, Beijing has not taken direct action on pork prices, but some researchers and market traders have urged the government to release some of its reserves if prices keep rising.

Approaching a Peak?

Several forces are behind the striking surge in pig prices.

One is reduced supply, stemming first from an outbreak at the start of the year of a disease affecting pigs, as well as a scandal involving dangerous additives found in hog feed, which forced some farmers to slaughter their herds.

Farmers have also been squeezed by rising corn prices and labour costs, which have flowed through to the price of meat.

Analysts expect prices to continue rising through the fourth quarter of this year and possibly into next year.

"It takes time for farmers to increase their hog stocks, so it is unlikely we will see a price drop any time soon," said Ma at CEBM.

But some analysts also said that with the hog disease no longer affecting livestock and feed prices starting to fall, pork prices may ease earlier.

"Pork prices are still on the upswing, but we reckon the rise will be shorter than that in the previous cycle of 2007-2008. Pork prices could peak sooner than the market expects," said Ting Lu, an analyst at Bank of America Merrill Lynch in Hong Kong, in a recent report.

Ma Shihong has prospered along with the soaring prices.

Ma, who saves costs by raising her own piglets and immunizing them herself, and gets economies of scale from her large operation, is reaping the full benefits of the price rises -- grossing some 2,300 yuan ($355) or more per pig on an 1,000 yuan outlay.

Not everyone has fared so well.

In particular, small-scale farmers who don't breed their own pigs have seen the price of piglets nearly double this year, squeezing their profit margins and putting some out of business.

Price volatility hasn't helped. Pork prices touched a 34-month-low in June of last year, before climbing up since then.

Many small farmers were forced to exit the market last year when prices plunged, exacerbating the current supply problems.

"A lot of them lost money, so they stopped raising pigs because they couldn't take it anymore," said Feng Yonghui, chief analyst with the pig market website Soozhu.com.

Indeed, phone calls to the numbers listed for dozens of pork producers in the metro Beijing area revealed disconnected lines or reached former pig farmers who said they had left the business.

City Dwellers Feel the Pinch

In Beijing, soaring pork prices have left pork peddlers like Wang Qiang despondent. Sitting in the quiet butcher's corner of an otherwise bustling market, he said his sales have dropped by a third since prices started rising in May.

Two of his three competitors at the market closed shop in June, discouraged by sluggish sales.

"I'm losing money every day," said Wang, 28, as he rearranged the meat in his refrigerated display case in an effort to catch shoppers' eyes. "People are buying less because they think it's too expensive."

Individual shoppers and restaurateurs alike said they had cut back. Many mumbled to themselves at the markets about the rising pork prices.

"It was 11 yuan a jin (half-kilogram) here a few weeks ago. Then 13. Now 15!" exclaimed one shopper, Shu Ying, before she left empty-handed.

$1 = 6.466 yuan Reporting Wang Lan, K.J. Kwon and the Beijing Newsroom; Editing by Don Durfee

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