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Sour time for China's hog farmers swells pork imports

BEIJING/SINGAPORE - An exodus of small pig farmers in China is prolonging an industry downturn that will see the world's biggest pork producer and consumer challenge Japan as the top importer in 2016 for the first time.

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A butcher cuts a piece of pork at a market in Beijing. REUTERS/Jason Lee

BEIJING/SINGAPORE - An exodus of small pig farmers in China is prolonging an industry downturn that will see the world's biggest pork producer and consumer challenge Japan as the top importer in 2016 for the first time.

Despite a recent surge in pork prices, millions of small farmers quit the industry last year after two years of low prices and the introduction of tough new environmental rules. Their exit has reduced the number of breeding sows and curbed China's ability to quickly rebuild its herd.

Imports by China, which consumes about half of global pork supplies, may top 1 million metric tons for the first time in 2016, industry sources said, up at least 28 percent from 777,000 metric tons last year. China also imports roughly the same amount of snouts, ears and trotters, which are considered delicacies.

The surge in exports will benefit farmers in major exporting countries such as Germany, the United States and Brazil.

"We are not expanding. We have lost all our money. Some of our members plan to quit breeding after they get their money back from the high price," said Zhao Xuyou, a small hog farmer with a swine cooperative in the north province of Shandong.

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"It is not a business for our size, it is a business for big players."

China's pork industry regularly experiences boom-and-bust periods, with smallholder farmers who account for half of the country's 54 million metric tons of annual output traditionally quick to respond to any price changes.

But despite a rebound in pork prices late last year, herd rebuilding will be held back by a steep fall in the number of breeding sows after some 5 million mainly small pig farms closed in 2015, according to agriculture ministry figures.

Analysts said the current round of restocking could take another year, keeping prices of China's staple protein high throughout 2016 and boosting imports.

 

INDUSTRY CHANGES

Chinese hog farmers have been hit by new environmental rules forcing farms to move away from urban centres and implement costly systems to manage waste products.

The number of breeding sows fell for a 30th month in a row in February to 37.6 million, a record low and down 7.9 percent on a year earlier, agriculture ministry data showed.

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The ministry said last week the slaughtering of breeding sows was continuing after swine breeders lost 100 yuan ($15.36) per head in 2014 and 2015 after breaking even in 2012 and 2013.

 

"Hog farms are eager to restock, but piglet supplies are in shortage following the reduction in the numbers of breeding sows," said Xiong Kuan, an analyst with Beijing Orient Agri-business Consultant Co. Ltd.

An outbreak of disease earlier this year also cut pig supplies, he said.

Prices for a 30 kg (66 lb) piglet have more than doubled from a year ago to a record 1,000 yuan ($154.13) per metric ton, deterring farmers from aggressive restocking, said Pan Chenjun, a livestock analyst with Rabobank in Hong Kong.

"China's swine sector has changed dramatically," said Jy Chow, food and agriculture expert at Mizuho Bank in Singapore.

"Many small holder farmers with less than 50 pigs left the business and are not prepared to come back. Response to supplies shortage from large farmers is much slower, it is not easy for them to double their capacity."

 

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IMPORTS TO GROW

The shortage of stock pushed up domestic retail hog prices in mid-March to near a record high of 29 yuan ($4.45) a kg, up 35 percent on a year earlier.

Pork imports, excluding offal, surged 111 percent in February on a year ago to 74,371 metric tons after January's imports grew 56 percent to 97,033 metric tons, customs data showed.

"High prices could stay high until the end of the year. It is possible that China could exceed Japan and becomes the world's largest importer of pork this year," said Feng Yonghui, chief analyst with industry portal www.soozhu.com .

Japan imported 1.03 million metric tons of pork cuts, according to the U.S. Department ofAgriculture (USDA).

China's total pork imports are forecast to rise to about 1.8 million metric tons in 2016, up from about 1.5 million metric tons a year ago, according to Rabobank estimates.

"We expect imports will keep climbing this year. Domestic hog supplies will still be tight, tighter than last year," said Beijing Orient's Xiong.

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