* 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 The long,
red-brick structures in this village on the outskirts of Beijing
contain some of this year's fastest appreciating Chinese assets:
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
"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
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.
Graphic on China pork price rises
For more on China inflation
For a preview on China June inflation
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
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
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
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
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
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
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
($1 = 6.466 yuan)
(Reporting Wang Lan, K.J. Kwon and the Beijing Newsroom;
Editing by Don Durfee)