China's pig farming industry has returned to normal profitability, however, the national swine inventory has increased for 3 consecutive months

On March 1st, 2024, China's Ministry of Agriculture and Rural Affairs released the revised "Plan for Regulating Swine Production Capacity (Revised in 2024)." The updated plan adjusts the national standard retention level of sows from 41 million to 39 million. Since its announcement, the Ministry has been urging localities to implement related control measures and guide an orderly reduction in swine production capacity.

Currently, the adjustment of swine production capacity nationwide is essentially complete. Monitoring data shows that in the second week of June, the national average price for live pigs was 18.41 yuan per kilogram, marking a 3.7% increase from the previous week and a significant 27.9% year-over-year rise. Livestock farming has thus returned to normal profitability.

Why Lower the Production Capacity?

To ease the volatility of the "pig cycle," stabilize pork production, and secure market supply, in September 2021, China's Ministry of Agriculture and Rural Affairs issued the "Interim Plan for Regulating Swine Production Capacity." This effectively stabilized both production capacity and market supply. Thereafter, fluctuations in hog market prices became more moderate, with the national average price for live pigs in 2023 reaching 15.4 yuan per kilogram, and the monthly price gap narrowing to just 2.7 yuan, down from a 20-yuan difference in 2021.

Recent practices have demonstrated that through early warning and proactive intervention in capacity control, the cyclical volatility of pork prices can be effectively mitigated.

Considering the ongoing improvements in pig production efficiency and the stabilization of pork consumption, the Ministry revised the control plan, implementing it on March 1st of this year. The revised plan adjusts the national standard retention level of sows from 41 million to 39 million, with the capability to produce over 55 million tons of pork annually remaining intact even after the adjustment.

Why reduce the capacity? And why hasn't production capacity decreased after the adjustment? This leads us to discuss the transformations in China's hog industry.

"There have been significant structural changes throughout the hog industry. By the end of 2023, large-scale hog farming accounted for about 68% of total production, up 21% from 2017. Large-scale farms have become the main force for stable production and supply security. The top 20 large pig farming enterprises in the country collectively marketed nearly 200 million pigs," explained Wang Zuli, the Ministry of Agriculture and Rural Affairs' chief expert on pig industry monitoring and early warning.

As the scale of operations has increased, the efficiency of hog farming has also rapidly improved. In recent years, pig farming has seen rapid development in facilities, standardization, and smart farming, with pigs being raised in multi-story buildings with air conditioning. Monitoring data shows that in 2023, the national average number of weaned piglets per sow (PSY) reached 20.4, with some farms achieving close to 30; and the feed conversion ratio dropped below 3:1. The enhancement in breeding technology has enabled the efficient use of production resources, explaining why reducing the number of breeding sows can still ensure ample pork supply.

In recent years, influenced by factors such as slowing population growth, a decline in the main consumer demographic, and substitution with other meats, pork consumption has shown a steady decline. In 2023, per capita pork consumption was 42.2 kilograms, down 0.4 kilograms from the historical peak of 42.6 kilograms in 2014.

"Taking Japan and Taiwan as examples, when per capita GDP reaches 14,000−14,000−15,000, a turning point in per capita pork consumption typically emerges. Although China's per capita GDP has not yet reached this benchmark, the turning point for per capita pork consumption in China has already arrived. Meanwhile, the increase in supplies of alternative meats has, to some extent, hastened the arrival of this turning point," said Zhu Zengyong, the Ministry of Agriculture and Rural Affairs' chief analyst for the pork industry's full-chain monitoring and early warning.

Predictions suggest that annual pork demand may decrease by 500,000 to 1 million tons in the coming years. By around 2030, per capita pork demand could fall to 35 kilograms, with pork's share in meat consumption declining to 50%, and the total national demand for pork stabilizing at around 50 million tons.

In summary, the reduction of 2 million breeding sows is a reasonable adjustment made in response to the improved efficiency of hog production and the stabilizing trend in pork consumption demands.

The Effects of Regulation Are Gradually Emerging

To accelerate the implementation of the plan, the Ministry of Agriculture and Rural Affairs convened a special meeting to advance its deployment, employing measures such as enhanced early warning guidance, risk assessment, and policy safeguards to promote an orderly reduction in production capacity and expedite the return to a balanced supply and demand.

By mid-June, the majority of provinces had revised their provincial control plans. Guizhou, Tibet, and other regions implemented differentiated control measures for their local specialty pig breeds, while Xinjiang applied tailored strategies to its areas of pig production advantage, export backup zones, and moderate development regions.

The Ministry also intensified monitoring and early warning of operational risks for large pig enterprises, assessing risks within the industry and key companies. It strengthened communication and consultation with financial and market regulatory authorities and collaborated with banking institutions to provide guidance to leading pig enterprises. Currently, the overall operating conditions of major pig enterprises have improved, with companies such as Muyuan and Wens reporting profits.

As market forces guide production capacity adjustments and various control measures take effect, the reduction in swine production capacity is now largely complete, and farming operations have resumed normal profitability.

"In terms of breeding sows, by the end of May, the national sow inventory stood at 39.96 million, equivalent to 102.5% of the 39 million target, falling within the 'green reasonable range' for production capacity regulation (92%-105%). Pig farming turned profitable around mid-May," said Wang Zuli.

Observing mid-to-large pigs, the inventory in national large-scale farms in April decreased by 2.8% year-over-year, indicating reduced marketable hog output in the upcoming two months. Regarding new piglets, the number from November 2023 to April 2024 was down 6.5% compared to the same period last year. Following the six-month fattening cycle, the effects of earlier production cuts will gradually manifest in the second and third quarters of this year.

Moreover, cumulative pork imports from January to April this year amounted to 430,000 tons, a decline of 47% year-over-year. Coupled with a seasonally stronger demand for pork in the second half of the year, this provides a fundamental boost to rising pork prices.

Recently, during a specialized seminar on the pig production situation organized by the Ministry of Agriculture and Rural Affairs, experts, pig enterprises, and industry associations concurred that the third quarter's hog marketing volume would decrease year-over-year, alleviating the issue of periodic oversupply. They expect pork prices to rise further, with profits from pig farming continuing to grow.

Of note, with the recent rebound in pork prices, farms have shown a high enthusiasm for restocking, leading to more holding back of pigs for sale and secondary fattening. As a result, the national pig inventory has increased for three consecutive months from March to May. Statistics indicate that approximately 60% of large-scale farms have yet to reach full production capacity, holding a potential output of around 200 million pigs per year, equivalent to 30% of the nation's annual output. Excessive capacity expansion risks causing a sharp drop in pork prices during the low-demand season following next year's Spring Festival.

Looking ahead, as China's population size and structure evolve and pig farming efficiency improves, the contradiction between stable pork consumption and growing supply capacity becomes more pronounced. Adapting to changes in consumer demand and guiding appropriate adjustments in production will be crucial.

Continuing to Advance the Implementation of the Plan

The head of the Veterinary Bureau of the Ministry of Agriculture and Rural Affairs stated that the next steps involve closely monitoring and urging the implementation of the plan, guiding localities to accurately understand the revised goals and requirements, and implementing matching measures such as monitoring and early warning, production capacity control, and policy guarantees. These measures aim to guide farms in timely adjusting their capacity, fostering a basic equilibrium between supply and demand, and preventing extreme scenarios of either excessive capacity reduction or augmentation.

Furthermore, efforts will continue to reinforce monitoring and early warning systems. In response to the current rebound in live pig prices, a comprehensive analysis of data on breeding sows, newborn piglets, mid-to-large pigs, feed, and slaughter will be conducted to precisely assess production capacity and market supply. Accurate and targeted early warnings will be issued to guide farms, avoiding blind expansion of capacity, withholding pigs from market, and conducting secondary fattening.

(Source: Farmers' Daily)