Current Price Situation of Non-staple Food

National Development and Reform Commission

September 4, 2007

Since last May, the price of non-staple food including pork has risen by a relatively large extent in China . By August 31, pork (lean meat) price has mounted to 6.53 RMB yuan per kilogram, up by 50.8 percent compared with that at the end of April and by 70.3 percent year-on-year. The rise of pork price, in the meantime, drove high the price of other non-staple food such as beef, mutton, meat, poultry and eggs as well as some food products and prices in the catering industry.

Price hike of agricultural produces like pig will on one hand help increase farmer's income, motivate their enthusiasm for production and is thus conducive for recovery and development of agricultural production, in particular, of pig production. On the other hand, pork is one major non-staple food for residents in the urban and rural areas in China . The pork price hike had a large impact on people' life and drove the CPI all the way up, which rose year-on-year 3.4 percent, 4.4 percent and 5.6 percent in May, June and July respectively. From January to July, CPI climbed by 3.5 percent. This caught vast attention from all walks of life in the society.

There are many reasons behind this round of pork price rise. From the international perspective, global grain production dropped for two consecutive years. Oil price lingering high led to increased corn consumption for industrial ethanol production. All these contributed to the grain price surge in the international market. The June figure indicated that the spot price of corn, wheat and soy bean in international market rose year-on-year by 53.2 percent, 45.8 percent and 29.3 percent respectively.

In China , the price of corn and soy bean also rose year-on-year by 17.1 percent and 26.5 percent respectively. This is the fundamental reason driving the price rise of non-staple food including pork. From the domestic perspective, by the 2nd quarter of last year, pig production dropped to the bottom of the latest cyclical fluctuation. The average pig price in May last year fell to 1.62 RMB yuan per kilogram. Farmers engaged in pig breeding suffered great loss and a large number of sows were slaughtered. In addition, an epidemic of highly pathogenic blue ear raged some regions, which directly led to high frequency of pregnant sow abortion and baby pig death. Data from the National Statistic Bureau show that by the end of last year sow inventory was down by 3.6 percent year-on-year and by the end of last June the figure was down by 7 percent year-on-year, and so the pig supply has shipped as a result. This is the direct reason behind the pork price hike. Besides that, the advancement of China's industrialization and urbanization drive, changes in pig production mode, increased number of migrant worker from the countryside and diversification of farmer's income in a whole made negative impacts on pig production. The surging demand on pork driven by the improving living standard and the migration of rural labors constitute the stress of pig supply and demand.

The Central committee of the Communist Party of China (CPC) and the State Council attach great importance to the problem of pork price rise. General Secretary Hu Jintao and Premier Wen Jiabao as well as other state leaders made several important instructions on this issue. Premier Wen took inspection visit on pig production, supply and market price in Shaanxi Province and Beijing on May 26 and August 2 respectively. On May 29, the General Office of the State Council issued the "Notice on doing well the work of pork and other non-staple food production and supply and maintaining the market stability". On July 30, the State Council issued "Proposals on promoting the development of pig production and stabilizing the market supply". On July 31, the State Council held a national video and telephone meeting on work of "food baskets" and made specific instructions. On August 13, the State Council issued the "Urgent notice on substantively implementing policies to guarantee market supply and maintain stable price of non-staple food”, in order to promote and urge the implementation of relative policies.

These documents, in short, constitute 10 measures. First, encourage sow breeding. Stabilizing the sow inventory is the fundamental way in protecting the pig productivity and easing its cyclical fluctuation. The State Council has decided to establish the subsidy and policy insurance system for prolific sows. For hoggeries raising prolific sows, each sow will be subsidized 50 RMB yuan. The state also subsidized 80 percent of the insurance premium for prolific sows, so as to encourage farmers to insure against epidemic diseases of pigs.

Second, promote well-bred pig production. The proportion of well-bred pigs will be increased, which has important implications for improving the economic gains of pig breeding and improving the pork quality. Specific measures including accelerating the building of original hoggeries for well-bred pigs on one hand, and promoting the technology of artificial fertilization for well-bred pigs on the other hand, in order to improve the varieties of live pigs. The state grants subsidies for purchasing sperm of well-bred pigs.

Third, give incentives for counties which raise a large number of pigs. The central budget will give incentives for counties export a large amount of live pigs to other areas. Such incentives will be specifically designed for promoting pig production and encouraging local government for developing pig raising industry.

Four, develop scale breeding of pigs. The fundamental way out for pig production is to develop scale breeding of pigs. The State Council requests governments at all levels to take measures to encourage the building of large scale hoggeries, guide farmers to set up pig raising quarters, with an aim to reducing raising costs, improving quarantine conditions and increasing productivity. The state will grant necessary subsidies for standardized scale breeding.

Five, solve the difficult problem in securing loans. Encourage credit guarantee and insurance institutions to expand business scope, and adopt ways such as the joint households guarantee and guarantee by specialized cooperatives to provide credit guarantee and insurance services to scale hoggeries and their owners when they are applying for loans, so that securing loans will no longer be a difficult problem. Financial institutions in the banking sector should provide key support for standardized scale hoggeries in the loan-application process. And the local budget should grant necessary subsidies for guarantee institutions against risks arising from such loans. Meanwhile, we would rectify those regulations which forbid or limit pig-breeding, and properly settle the problem of land-securing for raising pigs.

Six, perfect the public quarantine system. Quarantine for live pigs constitutes one important component of the public service. The State Council has decided to provide free and compulsory quarantine against national first-class animal diseases and highly pathogenic blue ear. The cost for needed bacterin will be shared jointly by the central and local budgets. Subsidies will be granted to hoggeries owners when their pigs need to be slaughtered for epidemic prevention. Meanwhile, we would strengthen the monitoring of epidemic diseases and well organize the production of bacterin.

Seven, improve the reserve system. Reserving is one important way to regulate the supply and demand relations and maintain the live pig production. The State Council has explicitly stated that we would improve the regulative function of pork reserve. When the market supply surpass the demand and pork price goes too low, we will increase reserve and mitigate farmers' difficulties in selling pigs. When the market supply falls short of the demand and pork price jumps high, we will release the reserve.

Eight, ensure market supply. The State Council has requested all localities to earnestly implement the mayor (or executive leader) responsible system for food supply, and improve the contingency plan for stabilizing non-staple food supply, so as to ensure non-staple food supply without sold out or broken-down. We will further implement the “green pass” policy for live or fresh produce and reduce transportation cost. We will develop cold chain logistics for pigs.

Nine, strengthen market supervision. We should enhance the supervision over live pig slaughtering according to the law, strengthen test and quarantine, and prevent water-injected pork, ill pork, pork without test and quarantine or under-standard pork selling in the market. We would strictly implement price policies and crack down on all types of illegal pricing behavior, especially misconducts such as collusive pricing, conspired price hikes, making-up and disseminating price hike information, hoarding for profiteering purposes, price-jacking as well as other deceitful behaviors in disguised forms such as jerry-build, selling fake and shoddy products, ect..

Ten, stabilize people's livelihood. The State Council requested all localities to pay due attention to low-income population and students in collages and polytechnic schools. Measures such as raising the subsidy standards for low-income population and minimum wage, as well as granting temporary subsidies should be taken, in order to ensure the previous living standards will not be affected. We would ensure the non-staple food supply for tertiary educational institutions and stabilize food prices in their cafeterias.

All regions and relative departments are implementing the various policies issued and measures taken by the CPC's Central Committee and the State Council, with initial achievements witnessed. Currently the pig production is gradually recovering. According to the survey by the Ministry of Agriculture, by this July, pigs inventory in scale hoggeries have increased by 7.3 percent year on year, with prolific sow inventory increased by 2.1 percent. The pork market has experienced overall stable supply without sold out or broken-down. Recently the pork price has fallen. By August 31, pork (lean meat) price in 36 big and middle-sized cities stood at 6.53 yuan RMB per kilogram, a fall of 6.4 percent compared with the high of 6.97 yuan RMB on August 9.