The spot pork price reached 20.3 yuan per kilogram on May 19. That was a rise of over 20 per cent for this year due to a supply shortage. The last time there was such a rally was in 2011.

“Not only did the number of slaughtered pigs fall, but the number of hog farms and sows decreased. Sellers are not manipulating the price by slowing slaughtering. There are not enough pigs for slaughter,” Lu Zhengwei, chief economist at Industrial Bank, said.

In the past, small-scale individual operators — who contribute 55 per cent of domestic supply — would buy piglets for eventual breeding when they saw market demand exceed supply and pork prices were rising. The piglet would grow over six to nine months and then there would be a surge in supply.

But now individual operators are not expanding because of urbanisation and competition from larger enterprises, Zhou from CMS said.

“The opportunity cost for young workers in rural areas breeding pigs has increased a lot, because the salary on offer by working in cities has risen and that is more stable than raising pigs. So we haven’t seen many small operators increase supply at the moment, as they don’t have enough young workers at home,” Zhou said.

In the past three years, the salaries of people who maintain homes in rural areas but work in cities have grown 10 per cent. Meanwhile the pig-to-corn price ratio was volatile, Zhou wrote in a report.

The pig-to-corn price ratio measures the profitability of breeding pigs for the mainland market by comparing the cost of buying pigs to the price of corn — their major fodder. A reading lower than 6 to 1 shows it is unprofitable.

The pig-to-corn price ratio climbed above 6 to 1 in the second half of 2015. The last time it was at that level was at the end of 2013.It rose to a record 10 to 1 in May because of supply shortages, according to a research report by Industrial Bank.

“Pig breeding is an industry with scale economy and the labour cost for small operators is comparatively higher than that for enterprises,” Zhou said.

There is a trend of more small-scale pig breeders leaving the industry. The market share of large operators — those with 500 pigs or more — was 45 per cent last year compared with just 20 per cent in 2007, the report by Industrial Bank showed.

However, the launch of a new environmental law last year hindered large companies from expanding quickly.

China started implementing the New Environmental Protection Law at the beginning of 2015. It banned pig breeding in densely populated regions in the Pearl River Delta and Yangtze River Delta, and set a production quota for some regions close to rivers and lakes.

Despite the surge of pork prices, farms are still closing and operators are seeking new locations. That has helped fuel a longer-than-usual upward cycle for pork prices.

The prolonged shortage of domestic pork has spurred imports. Product from the US to China in the first quarter jumped 283 per cent year-on-year, according to the US Meat Export Federation. And that was at a price of only 12 yuan per kilogram.

Beijing’s municipal government has said it will release some of its pork reserves to local supermarkets from May 5 to July 4 and provide subsidies for slaughter houses.

The Ministry of Commerce said 150,000 tonnes of pork had been released by regional governments this year. It said the pork price will remain high but is controllable.

In a country that consumes over 60 million tonnes of pork a year, increasing imports or releasing pork reserves may be too little to cool prices.

The global trading volume of pork in 2015 was 7 million tonnes.

China imported 780,000 tonnes of pork last year, which accounted for just 1.5 per cent of domestic consumption, a report from Haitong Securities said.

“Our observation is that the government intends to let the market decide the price as long as it will not make inflation soar to quickly. The government’s intent to control the pork price is weaker now than in the past,” Zhou said, “The fact is that pork reserves are too few to influence the market price.”

The price continues to rise, but the pace has slowed, Lu from Industrial Bank said.

He said he expects the upward cycle to end this year with the gradual increase of supply.