Point a finger at pigs for inflation

PUBLISHED : Tuesday, 05 July, 2011, 12:00am
UPDATED : Tuesday, 05 July, 2011, 12:00am

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Although many people believe that soaring property prices are to blame for spiking inflation on the mainland, it appears that pork prices have played a role, too.

According to investment firm Nomura International, rising pork prices will contribute to inflation exceeding 6 per cent on the mainland in June, up from 5.5 per cent in May.

In May, pork prices in the mainland surged by 40 per cent from the same period a year ago. The National Bureau of Statistics said pork prices accounted for 2.7 per cent of the weighting in China's consumer price index (CPI) basket.

Nomura's China economist, Sun Chi, said rising pork prices in the mainland were a structural problem, and unless efforts were made to address that, prices would remain volatile.

To be sure, pork is a staple meat of Chinese cuisine - be it whole roasted pigs for wedding banquets, barbeque pork and rice, to dim sums. Indeed, China is the largest pork-consuming country globally.

In contrast to the West where pig farms produce thousands of pigs annually, the majority of pig farms in China are family-run, with two to three pigs being reared at a time. The animals are either slaughtered for the use of the farmers' family, or they are sold for extra cash.

Industry players believe that about 70 per cent of pork comes from these small family-run pig farms and that these farmers are extremely sensitive to price movements. When pork prices rise, the farmers raise one or two more pigs. But when prices fall, the farmers rear fewer pigs or they slaughter the pigs for their own consumption.

Because pork prices last year were lower than the cost of feeding grain to the hogs, small farmers chose to kill their pigs for food or to reduce the number reared.

The reduced supply of pork led to a sharp price rise this year. Consequently, farmers are now rearing more pigs, but it will be six more months before they are large enough to be sold.

Nomura's Sun said she expected further sharp increases in retail pork prices in June, which would lead to higher overall inflation.

There is a long history of volatility in the pork market. For instance, prices rose from 8 yuan (HK$9.60) per 500 grams at the end of 2006 to peak at 15 yuan in mid-2008. Prices subsequently fell to about 10 yuan in mid-2010. But they have risen to about 15 yuan currently.

For Beijing to keep inflation under control, it may not be enough to provide a sufficient supply of flats to stabilise property prices. The government needs to do more to ensure a stable and adequate supply of pigs for the nation's tables.