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Decision by China to Allow Imported U.S. Pork Motivated by Inflation and Stability Concerns

09/26/2019

EGG-NEWS is entirely supportive of the contention by Capital Economics that authorities in China will not be able to control African swine fever even in the intermediate term. Julian Evans-Pritchard, Senior China economist for the consulting group, noted “The Chinese government measures to contain the fallout from the disease will only have a marginal impact.”

 It is fair to reiterate that the infection has become endemic with virtually all provinces reporting cases. It is also evident that the ability to monitor the progress of the disease is beyond the capacity of provincial governments. The reality that a high proportion of pork is derived from small family-operated units devoid of biosecurity and that the structure of the industry requires transport of large numbers of animals over the considerable distances has added to dissemination of the virus. Control of the disease will only be initiated when a reliable, effective and safe vaccine becomes available and the industry restructures to produce from biosecure complexes. These improvements have yet to be accomplished.

The shortage of pork will have an impact on consumer prices and the national level of inflation. Consumers in China consume 65 percent of their meat as pork. With at least a third and possibly as much as 45 percent of the hog population culled or dead as a result of infection, prices will soar as frozen pork inventory is depleted. August prices of pork were up 47 percent year-on-year according to the National Bureau of Statistics. Consumer prices rose 2.3 percent in August suggesting a 2019 inflation rate of over 3 percent.

Government initiatives to provide subsidies to restock farms are akin to pouring water into a bucket with a large hole. Restoration of production will take at least four years given that the breeding herd has been severely impacted. The central government realizing that they are faced with a serious long-term problem have eliminated the tariff on U.S. pork. This is more an initiative to ensure supplies through the October celebrations marking the Centennial of the founding of the Communist Party of China and an attempt to restrain inflation.

Pitched as concession to the U.S. in anticipation of Ministerial-level trade negotiations in October, the move by China appears self-serving, given the realization that there is a wide disparity between available pork and domestic demand. The advent of African swine fever is an obvious boon for the domestic chicken industry in China and for exporters of animal protein in the E.U., Brazil and now potentially the U.S.