(Adds report on food poisoning, paragraph 12)
By Lucy Hornby
BEIJING, May 28 (Reuters) - Chinese Premier Wen Jiabao has visited a market and pig farm in the ancient capital of Xian to highlight government concern over rising pork prices, which planners fear could spark inflation.
The cost of pork has soared in China -- the world’s largest consumer of the meat -- due to higher grain prices, a widespread disease outbreak and a previous surplus, which discouraged farmers from raising more hogs.
Beijing is touchy about inflation since the government’s legitimacy rests on maintaining economic stability and a rapidly rising standard of living. Inflation was one of the grievances of demonstrators occupying Tiananmen Square in Beijing before the crackdown on June 4, 1989.
Food and grain prices could stay high well into autumn, economists believe, pushing consumer price inflation during the summer months beyond the central bank’s 3 percent target.
The annual inflation rate in April was 3 percent after a 3.3 percent rise in March.
"We have noticed the recent rise in pork prices, and the government is going all out to ensure the supply of pork and keep it affordable," Wen told a crowd in a Xian market on Saturday, according to the official Xinhua news agency.
Wen and President Hu Jintao, under the slogan of promoting a "harmonious society", are champions of policies to offset a widening gap between rich and poor, and between prosperous coastal cities and the countryside.
"Inflation could exceed 3 percent in June, July and August, which makes it hard to implement other price reforms," said Zhu Baoliang, head of the economic forecasting unit of the State Information Centre, a leading think-tank. He was referring to plans to make fuel and water prices more market-oriented.
"I‘m not too worried about manufacturing products, since as soon as the price goes up China’s overcapacity makes it easy to bring on more supply. But grains and meat can take up to a year to respond to higher prices."
The State Council, China’s cabinet, had sent a fact-finding team to Guangdong province to investigate pork prices and pig farms, Xinhua said.
PIG PRICES HAVE WINGS
A widespread outbreak of blue ear disease, also known as Porcine Reproductive and Respiratory Syndrome (PRRS), since last May has killed up to 1 million animals in China and discouraged farmers from breeding more.
Adding to those woes, 56 people in Guangdong province were taken to hospital at the weekend after eating tainted pork, Xinhua said.
The cost of raising pigs has also risen, on the back of higher grain prices. Despite a bumper harvest last year, grain supplies have tightened as the food-processing industry expands and as more prosperous Chinese eat more meat and poultry, raising feed demand.
In April, the price of live pigs nationwide rose 71 percent compared with depressed prices the year before, and pork rose 29 percent, largely due to tightened supply, according to Agriculture Ministry data. Pork prices slid slightly from March, it said.
The price of pork in Chinese cities has risen sharply in recent weeks, to 17 yuan ($2.20) a kg in Xian, Xinhua said. In the southern border city of Shenzhen, it jumped to 30 yuan a kg, up 30 percent in two weeks, newspapers said.
Higher pork prices could lift the prices of competing meats, like poultry, beef or lamb, Zhu said.
Although China maintains a meat reserve -- essentially paying large breeders to set aside some pork for the government to release when needed -- it may be unwilling or unable to dampen prices too much.
Higher grain and meat prices help support the income of millions of farmers who have been left out of China’s boom. They also benefit the industrial livestock ventures that Beijing is encouraging to help create jobs in the countryside.
Wen said that the government would try to offset the impact of higher prices, without hitting farmers’ income, by increasing feed supply and giving financial aid to poor families. He called for subsidies for pig farmers.
"Price increases can spur farmers to raise pigs, but we must maintain stability after they reach a certain level," the premier said.
"Through market adjustments, we need to allow farmers to make money raising pigs and at the same time make sure that city people, especially those on low incomes, can still eat meat," he added.