The nature of Chinese pig production and the low degree of China's integration with world agricultural markets have hidden this fact from many. But that is destined to change in the new century.
A complicated set of forces influencing the direction of China's pork industry is already in action and they are generating much debate. What will the outcome mean to China, to the world?
China's pork is produced under conditions that vary considerably, both within and between regions. Market conditions favorable to one segment of the swine economy may hurt another - a serendipitous hedging function.
China's traditional production systems enjoy low fixed costs, low feed costs and family labor at little or no cost. Quality is low. Output per farm household is limited to several dozen pigs per year. But this system is resilient in providing positive returns, evidenced by the fact that roughly 85% of Chinese hogs are still raised in this manner.
Commercialized operations are faced with the difficult task of competing against a time-tested, low-cost production system. Even within the commercial swine sector, there is considerable variation of inputs and outputs.
Issues To Watch In China Production technology: China has gained considerably in their efforts to achieve higher production efficiency, measured as a ratio of slaughter hogs to total inventory. However, there is a significant gap between Chinese commercial production technology and the technology frontier of the world. This weakens the Chinese commercial producer's ability to compete in a global market and, more importantly, their ability to compete with the household production sector. Deficiencies in nutrition, housing, disease control and sow productivity contribute to a commercial pork producing sector ill equipped to meet its challenges.
Policy: Domestic agricultural policy and international trade policy also weigh heavy on pork's future. Support of grain prices above the international market price has an enormous impact. Even the most efficient producers struggle when the corn price is well above the world market, as it was much of the late '90s.
China's commitment under the November trade agreement signed with the U.S. would eventually guarantee market access for up to 7.2 million tons of corn. Domestic policies towards wheat and rice also influence the volume of these grains diverted to the feed channel.
World Trade Organization (WTO) accession and China's grain industry reforms will be critical forces to watch. WTO accession will also exert new forces on China's import and export meat trade. There is considerable debate on the outcome of liberalized trade. In the short term, the move will likely legitimize current illegal imports with some marginal increases in both imports and exports. Long-term outcomes are more difficult to predict.
Overall economic growth: The ultimate driver of pork consumption - volume and quality - will be steady economic growth in China. A huge rural population lags far behind the urban areas in meat consumption. As income levels are more evenly distributed, the demand for meat will broaden and new opportunities will surface. Economic growth will accelerate consolidation of pork production. Job opportunities in the industrial or service sectors will encourage households to abandon hog production.
Consumer preferences and pork processing: The majority of China's pork is marketed fresh in traditional wet markets. Chilled, frozen or processed meats are still the exception.
Unique Supply Patterns The present marketing system exerts unique forces on producers located around the urban areas. Pork deficit regions, such as the southern coastal urban centers, develop unique supply patterns based on complex forces and interactions, including production costs, farm-gate price, quality and transportation costs. Local producers receive a degree of protection due to the prohibitive nature of moving large numbers of live animals to higher consumption areas. As a result, low-cost producers (household farms) are often the only ones that can supply urban markets from afar.
Low-cost, live hogs also mean low lean content, which is increasingly shunned by some Chinese consumers. Continued urbanization will pressure producers to supply more, better quality pork to a more affluent urban consumer.
There is much riding on the development of the Chinese pork industry. Napoleon once described China as a sleeping giant who will astonish the world when she awakens. The giant is stirring.