China's Pork Production Evolving Dramatically

China has long been known as the world’s largest pork-producing country, and while that position likely won’t change, the way producers there raise their pigs is evolving dramatically to a U.S. model.

“Large and vertically integrated companies are expanding at extraordinary rates, mostly through the adoption of contract farming arrangements (termed ‘company plus farmer’),” says USDA’s Foreign Agricultural Service in a report on global production.

Integrators are building farrowing facilities, but – like in the U.S. – many of them are outsourcing the grow-finish phase to small farmers who own the land and facilities. The model is similar to contract agreement in the U.S., where farmers are provided the animals and all inputs and guaranteed a minimum price for finished hogs.

“While the largest producers still control a minority of hog supplies, growth in this part of the sector now appears to exceed the exit of small producers, a trend which will drive hog supplies during 2017 and 2018,” USDA says.

China's hog herd, which has shrunk by some 55 million head to 420 million head over the past five years, will rise by more than 27 million head in 2018, the USDA said in its first forecasts for 2018.

Better Production, Too
With better technology and facilities, the trend to increased litter size also mirrors that of the U.S. The report states, “Production per sow per year (PSY) rose from an average 14.2 in 2013 to 14.9 in 2016, with the most efficient producers reporting PSYs of over 25, closing in on rates in the U.S.”

China's pig crop USDA

Source: USDA Foreign Agricultural Service

Chinese producers and pork companies are using better genetics, and improved management practices are helping animals grow faster and stay healthier. Besides expanding barn space, producers are also investing in technology like automatic feeding and monitoring systems, which boost animal health and lower costs. USDA believes these factors will likely support growth in average carcass weights over the next year.

Exports Will Be Lower Than Last Year
The scenario doesn’t bode well for pork export partners, according to Lindsay Kuberka, agricultural economist with USDA’s Foreign Agricultural Services.

“Buoyed by strong returns over the past few years, Chinese hog producers entered an expansionary period during 2017, which is forecast to continue during 2018,” Kuberka says. “The industry continues to undergo significant consolidation, hastened by new and stepped-up enforcement of environmental regulations aimed at curbing pollution from swine farms.”

She says producers reaped profits of $100 per head last year and most producers will at least break even during 2017, despite a substantial decline in finished hog prices.

There are fewer producers but operations are larger, to better achieve economies of scale. Expansion is expected to drive pork production up during 2017 and 2018 after 2 consecutive years of declining output, Kuberka notes. That means China’s pork imports will likely decline over the same period, but still remain far above historical levels.

“Imports are forecast to decline for the second consecutive year in 2018, as production gains reduce demand for imported pork,” Kuberka says. “Although pork production is expected to recover in 2018, demand strength will support increased imports. However, imports are expected to fall short of the peak reached in 2014.

Chinas meat imports

Source: USDA Foreign Agricultural Service

“With production growing in most major exporting countries, declines in international pork prices will keep imports relatively competitive,” she adds. “The EU, U.S., and Canada will remain the principal suppliers, competing primarily on price. With relatively strong demand for processing, imports are unlikely to retreat to past levels, maintaining China as the top importer of pork.”