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Introduction
Agricultural practices aimed at providing the population with necessary products are flexible and depend on several factors, including pricing policies, demand indicators, export market shares, and other criteria. In conditions of an excess of goods, the situation is complicated by the inability to sell in sufficient quantities, but in case of unforeseen situations, more significant problems may arise than the distribution of surplus products.
In the context of this topic, the example of China may be considered, and as a commodity with an ambiguous import and marketing policy, pork will be applied. This topic is relevant due to numerous challenges that agricultural enterprises have faced this year, which, in turn, has led to changes in the system of imports and the procurement of this food raw material.
Additional factors should also be taken into account, including Chinese market conflicts with individual exporters, as well as a dynamic pricing policy that determines supply and demand indicators. As a result, pork prices have grown significantly over the last year in the country, and the key goal of this work is to determine the reasons and potential outcomes of this increase.
As sources for analysis, relevant academic resources will be involved, as well as the official reports of agricultural committees in which accurate and the latest data are given regarding the share of pork in the Chinese market and import indicators. Detailed graphs will make it possible to compare the indicators of different years and prove the thesis that in 2019, the cost of pork in the country increased due to specific factors, including the disease of the local livestock and other related challenges.
Based on the outcomes of the assessment, relevant recommendations will be given, and acceptable economic and strategic steps will be considered. The key factors influencing the change in the share of pork and costs in the Chinese market are based on macroeconomic indicators, in particular, the characteristics of product imports and price volatility, but additional criteria should also be taken into account, including force majeure circumstances and investments in the agricultural livestock sector.
Significance of the Topic
One of the key reasons determining the significance of the topic is the unstable sanitary and epidemiological environment caused by the dangerous virus of African swine fever. According to Wang et al., in the summer of 2018, the country’s authorities announced an outbreak of the disease among livestock, which, according to experts, could get to Asia from Europe through pork smuggling (“African Swine Fever” 111).
As a result, more than 100 million hogs have been infected with the virus, which affected Chinese agriculture and forced the authorities to take measures to address the supply of this food raw material to the domestic market (Wang et al., “African Swine Fever” 111). A tense situation in the trading market with some Western competitors, particularly the USA and Canada, has entered a stage of open rivalry.
As Wu et al. remark, since the Chinese market is attentive to food quality and provides consumers with detailed information about the time of slaughtering livestock, delivery details, and other market conventions, the situation with the decline in the number of swine was threatening (303). Therefore, this topic is significant and relevant for discussing it comprehensively.
The loss of such a volume of pork is a significant threat to the Chinese market because this meat product is one of the main in the country. According to et al., Wang et al., since 2012, along with beef, the growth of pork in local livestock farms was extremely high and exceeded the market share of poultry (111).
However, even despite this trend, the importance of the problems of changing pricing policies and increasing the share of imports is high due to the current market situation. The swine fever epidemic that swept China left local authorities with a serious choice. On the one hand, the government could step over the fundamental conditions of partnership agreements and go to less favorable terms of transactions, thereby protecting the domestic market from a shortage of pork.
On the other hand, concessions and numerous compromises could upset the balance of power in the international market and make China dependent on exporters, thereby creating unfavorable conditions for the national economy. Therefore, adjusting the situation is a priority in the current situation complicated by livestock disease and the lack of raw meat.
Based on all the changes, the redistribution of the share of pork in the Chinese market was the outcome of numerous decisions aimed at restoring the disrupted agricultural industry. By analyzing available academic sources, the key issues and characteristics of recent market trends may be described, and the necessary justifications can be given in support of certain measures designed to control the pricing policy for pork and the share of the imports of this commodity.
The relevance of these measures about the impact on the economy is a valuable topic for the analysis and comparison of the main indicators that determine the characteristics of the country’s trade and partnership relations with other states. The significance of the problem for the Chinese market is high given the transformations that have taken place in the system of controlling the share of meat products in the local commercial space.
Literature Review
The topic of the share of pork in the Chinese market and the dynamics of changes in this indicator are discussed in various contexts. Wang et al. conduct a study aimed at analyzing the effects of African swine fever in the country and note that 114 cases of livestock infection were recorded during the reporting period from late 2018 to early 2019 (“Market Power” 1). As a result of this epidemic, a serious threat to the hog population was inevitable.
In Figure 1, the ratio of monthly pork inventory in China is displayed, which clearly shows that by the beginning of 2019, the situation had worsened significantly (Zhang et al. 3).
This result was the reason for the increased imports of pork from other countries, in particular, the United States since the Chinese market experienced a severe shortage of this product. As Zhang et al. state, swine fever had a greater impact on economic development than the standard problem of pestilence (5). In the context of the national financial system, the redistribution of import purchases led to the refinancing of budget funds and changes in Chinese trade relations.
The prerequisites for the development of the pork market in China are an important topic when discussing the current issues of the share of this commodity in the country. Liang and Wang conduct a detailed analysis of the state of this agricultural industry before the explosion of swine fever.
They examine the particularities of competition and collaboration of individual farms in this field, noting that the practice of cooperation had a positive effect on farm prices and the indicators of demand (Liang and Wang 1). The authors also note that industrialization in the field of hog production began in 2007; at that time, China became the world leader in this product, and an eight times higher production rate than that of the US was achieved (Liang and Wang 3).
These figures prove how much local agriculture focused on hog manufacturing. As drivers of this success, Liang and Wang consider cooperatives that stimulated competition and contributed to the ever-growing demand for this commodity (4). Before the onset of the crisis caused by swine fever, the number of these associations increased steadily, which may be observed in Figure 2 (Liang and Wang 4).
The quality of pork in the Chinese market is the topic that is discussed by many authors since this indicator largely affects the parameters of demand and farm incomes. Wang et al. evaluate this criterion in the context of the impact on individual farms and note positive shifts under the influence of government boards regulating the safety of food products entering the domestic market (“Market Power” 1).
Risk reduction in the production of food raw materials is encouraged and supported, and the swine fever that swept China in 2018 may be considered an unexpected outcome because close attention has always been paid to control. Liu et al. assess the quality of chilled pork in the local market and note that the safety of this commodity purchased directly through farmers is higher than that sold online due to the risks of infections and harmful bacteria (244).
For such a large market, these issues are significant and largely determine the supply and demand indicators, which explains the attention to this topic in the academic environment.
In the context of the proposed research topics and objectives, the peculiarities of pricing policies for pork in China are an important area for analysis, which is also addressed in scholarly studies. Tan and Zeng consider the volatility of prices for the given commodity and note that excessive government interventions in this issue could be fraught with a worsening market situation (355). According to the authors, the authorities should give farmers more freedom to regulate supply and demand, thereby promoting healthy competition and preventing monopolization (Tan and Zeng 369).
At the same time, any price fluctuations that are the result of external interventions affect different stakeholders adversely and entail market instability. Tan and Zeng give an example of the Chinese practice in which the government issued a decree to procure pork at a low cost to sell it in retail chains more expensively (355).
This mediation between farmers and consumers was fraught with severe price volatility; therefore, to avoid this outcome, food producers should have more freedom in setting prices and controlling demand indicators. Otherwise, instability can lead to the loss of consumer confidence, which is unacceptable.
Theoretical Model and Methodological Approach
To assess the reason for the increase of pork prices in China in the conditions of market instability and problems caused by macroeconomic parameters, a systematic review will be used to obtain the most accurate data on the causes and consequences of these problems based on available information from reliable sources.
As a theoretical model to interpret the information on prices and the share of imports of the commodity under consideration, the Verhulst model may be applied, which, as Zhou and Pei state, is a convenient concept that allows predicting the costs of goods, particularly pork (1).
The authors note that such a conceptual model is a valuable tool for such research since pork is the most consumed meat in China, and any price fluctuations can affect the demand and activities of hog-breeding enterprises negatively (Zhou and Pei 1). Therefore, this theory is relevant and can be utilized for the interpretation and analysis of all the received data.
The information on the current pricing policy and the share of pork consumption in the Chinese market may be obtained from reliable sources, for instance, the United States Department of Agriculture. In their research, Ling et al. use empirically collected data reflecting forecasts regarding the value of the commodity in question and note that such a methodology may be relevant for identifying potential errors in regulatory work (14).
Nevertheless, about this research, where the causes of high pork prices in the domestic market and import issues are considered, the information obtained in this way is not sufficiently reliable and credible to base forecasts and hypotheses on unverified data. Therefore, more truthful sources should be brought in, and reports from official reporting agencies may be relevant to utilize verified data and discuss the outcomes of the review.
As a result, by reviewing the available information and comparing individual indicators, a comprehensive answer can be obtained to the question about the reasons for the pork prices increase in China in the context of the crisis associated with the swine fever and internecine bickering with other major participants in this market segment. According to Zhou and Pei, price fluctuations for this commodity are a particularly important topic in this country since the high level of pork consumption is reflected in the supplied parameter that, in turn, may decrease due to high tariffs on products (2).
The use of a clearly defined research methodology makes it possible to avoid unnecessary evaluations and comparisons and contributes to better and more efficient analytical work. For Chinese agriculture, the results of these assessments can be utilized to good effect due to current changes and the possible revision of the pork import policy.
Necessary Data and Current Situation in the Market
One of the important factors that should be taken into account when analyzing the pricing policy for Chinese pork is the relationships with major market participants, in particular, the USA, Canada, and countries of the European Union. Hejazi et al. state that from these regions, about 98% of this imported product has always come (117).
However, in June 2019, the authorities imposed a temporary ban on pork imports from Canada, the country that supplied most meat products (Hejazi et al. 117). The frequent falsification of veterinary certificates took place, which became the reason for the termination of the partnership. Despite encouraging the vigorous activity of local farmers, imports of pork increased.
Xijian notes that Chinese cooperation with the US-based on soybean supply as an important food component for livestock has worsened as a result of a decrease in swine during the fever (22). The author argues that before, the share of US exports of soybeans to China was 60%, but today, it has dropped to approximately 20% (Xijian 5). A trade war broke out between the US and China, and an increase in export tariffs has led to feuds.
As already mentioned, swine fever influenced the pricing policy of the Chinese market significantly, which is confirmed in official reports. As Wang et al. note, when national authorities first reported the cases of the epidemic in August 2018, the cost increase for this product went up significantly (“African Swine Fever” 111).
This outcome was natural because to cover the expenses caused by the pestilence of livestock, both farmers and meat distributors needed to compensate for the losses due to higher commodity prices. The consequences of this increase led to additional difficulties, in particular, a decrease in demand, which was logical in the face of growing costs.
As a result, by the end of 2019, the situation did not change but, on the contrary, became even more critical. In Figure 3, a key ratio of pork prices is shown, where two axes show the value of goods throughout the weeks of 2018 and 2019 (United States Department of Agriculture, “Livestock” 12). This visual graph demonstrates when exactly the price of pork began to rise sharply and reached the highest level calculated in yuan/kg.
Based on these data, one can note a price spike at week 32, 2019, is not directly associated with the announcement of the swine fever epidemic in the country. In 2018, the dynamics were relatively flat, but the spread of the virus among livestock led to a significant increase in pork costs.
As a result of these fluctuations, the country’s authorities were forced to increase imports, and the United States became the main exporter of pork, despite market differences between the two powers. This measure was forced because, as Hao argues, the trade war with America started in 2018 when both sides began to accuse each other of violating the WTO rules and raising tariffs on imported products (7).
However, in the face of a shortage of pork in the domestic market, China had to continue cooperating with the US. In less than one year, the growth in imports of the commodity in question grew by 73.3%, as shown in Figure 4 (United States Department of Agriculture, “Livestock” 12). This figure is extremely high and confirms the seriousness of the situation in the pork market in China and the authorities’ fears.
To compensate for the enormous costs of imported pork, the country’s authorities decided to abolish the 2016 policy that limited the cultivation of hogs in eight southern provinces and led to the closure of more than 150 thousand small farms to increase efficiency and protect the environment (Pan and Li 357).
The demolition of small pig farms was banned, and all restrictions on small-scale swine farming in rural areas were removed to stimulate the activity of livestock breeders. In addition, as Pan and Li note, the government also instructed local authorities to provide subsidies to large hog farms to increase livestock populations effectively (357).
Earlier, China exported a significant amount of the commodity in question, and even in early 2019, this figure reached 18,000 metric tons, but later, the volume began to fall, demonstrating problems in this market segment, as shown in Figure 5 (United States Department of Agriculture, “Weekly Reports”). Thus, import dependence is a significant weakness in the Chinese pork market.
Based on these data, one can argue that demand for pork remains, although fewer consumers are willing to spend money on this expensive commodity. The state cannot derive substantial profit from sales, and searching for alternative ways of replenishing the budget is an important aspect of maintaining market authority and the industry in question.
When comparing the revenue from the sales of pork in the domestic market of China, a big difference is observed. In Figure 6, the profit ratio is shown in 2016, 2017, 2018, and 2019 (Inouye 8). The analysis of these indicators demonstrates how deplorable the situation today is. Even though the latest data are for May 2019, the state of the market has not changed significantly.
According to the official data, after prices spike in the summer of 2018, in the fourth quarter of 2019, the average cost per cwt of pork will be $44, which is about three percent higher than last year’s figure at this time (United States Department of Agriculture, “Livestock” 2). Thus, difficulties do not stop, and new ways of enhancing the market strength need to be developed.
The information presented is taken from the official reports, which allows asserting their reliability and the accuracy of numerical indicators. As a result of the systematic review, the key information has been obtained, which is consistent with the stated objectives and can assist in the interpretation procedure.
The aforementioned Verhulst model may be utilized to assess the subsequent development of the Chinese pork market and make predictions about a possible rise or fall in prices for this commodity. The presence of facts about profits, expenses, prices, import, and export indicators makes it possible to compare them and determine whether domestic agriculture can cope with current problems that entail difficulties in the sales of pork products and their production.
Results Discussion
Since any price fluctuations in the Chinese pork market will inevitably affect many stakeholders, the analysis of the available data and assessment of possible subsequent events are significant tasks. Although the Verhulst model proposed by Zhou and Pei contains many variables, its main purpose is to determine whether regression or progress is sustainable and understand whether a particular intervention can affect the time frame for changing the situation (2).
When looking at the available data in the given figures, one can see that the negative trend is stable, although compared with the spring of 2019, in the fall of the same year, the export performance of Chinese pork increased. In addition, a sharp increase in meat imports to China leads to higher prices for meat products in the domestic markets of exporting countries, restricts global supplies, and destabilizes economies.
As a result, the intention to capitalize on the sale of a scarce product may result in the threat of an interruption in the trading partnership. Therefore, by using the simplest analytical mechanisms, one can assume that the consequences of the current Chinese collapse may be severe for different market participants.
If no positive changes follow, for instance, an increase in the number of pigs due to the cessation of African swine fever, there is a high probability of a crisis not only in China but also in other states in which the sales of pork abroad are of great importance for maintaining their economic equilibrium.
It is easy to notice that the increase in prices for Chinese pork is associated with the current epidemic among livestock, which, in turn, prompts the government to seek new ways of providing consumers with the necessary commodity at the expense of additional import costs. For instance, the US economy can benefit significantly from such a partnership, but if China refuses to cooperate, there is a possibility of the saturation of the American market with pork and the inability to sell it.
Therefore, strengthening the position of Chinese agriculture may be beneficial not only to the domestic agricultural industry but also to other interested parties for whom the possibility of trading with such a major power creates unique opportunities for replenishing the budget.
As a result, the efforts of the government to subsidize small livestock farms are objective. Investing in this industry is a prerequisite for gradual progress. According to the United States Department of Agriculture, total pork production is expected to be around 27.6 billion pounds in 2019, which is about 5% higher than in 2018 (“Livestock” 10).
Even though the situation is still alarming, an increase in the local share of production can help reduce imports and, consequently, minimize budget costs. Thus, when analyzing the results of the review of the Chinese pork market, one can note that the work on the improvement of the current pricing policy is a prerequisite, and investing in local livestock farms is a logical solution.
Recommendations
An opportunity to influence the pricing policy maintained in the Chinese pork market may be achieved not only by investing in the development of this industry, which the government implements today but also by stimulating associations and mergers of individual farms. As Wang et al. state, this practice can help strengthen a specific area and create additional possibilities for developing relevant and productive growth strategies (“Market Power” 2).
About the Chinese market, the integration of small livestock farms into large enterprises with a common budget and labor resources may contribute to achieving higher goals than breeding pigs. As a result, the industry can be enhanced through this type of partnership.
Another potentially valuable recommendation to improve the current situation is to weaken tariff laws governing imported products. Due to the trade war with the United States, China cannot establish a mutually beneficial partnership with the major market participant. As a result, this intense interaction affects cooperation negatively and creates much inconvenience not only for governments but also for members of the agricultural industry since productive trade is impossible in the context of discriminatory practices and uncompromising decisions.
As a possible way of establishing relations, the creation of a single trading system can be started, which may help eliminate the likelihood of sanctions and claims on both sides and increase the efficiency of cooperation. In addition, formal agreements should be signed, which could clearly define the spheres of influence of the states and establish a specific framework for trade. These solutions can be valuable in maintaining productive cooperation and, in particular, strengthening the Chinese pork market, which is an urgent task due to the existing challenges.
Conclusion
The systematic review of the official data on the cost and production of pork in China makes it possible to determine what factors play the key roles in regulating the current pricing and import policies that characterize the development dynamics of this agricultural industry. Due to detailed analysis, the key problems of this industry have been identified, including the outbreak of the African swine fever epidemic, trade conflicts with major market participants, and the lack of local livestock enterprises.
The government’s efforts to improve the situation are ineffective at the moment because, judging by the statistics, there is no tendency to improve the situation. By using an appropriate evaluative model, one can predict that if more effective measures are not taken concerning import and pricing policies, the Chinese pork market will become more vulnerable and dependent on foreign food raw materials.
As for recommendations that can be valuable for solving the existing challenges, additional investments in the industry in question are necessary, promoting the strategy of mergers and acquisitions, as well as establishing partnerships with major market participants, in particular, the United States by signing mutually beneficial trade agreements.
Works Cited
Hao, Xijian. The US-China Trade War: The Effects on the Soybean Industry. Thesis, Kansas State University, 2017. MS.
Hejazi, Mina, et al. “The Decline of US Export Competitiveness in the Chinese Meat Import Market.” Agribusiness, vol. 35, no. 1, 2019, pp. 114-126.
Inouye, Abraham. “China – Peoples Republic of Livestock and Products Annual: Chinese Hog Farmers Take Risks to Restock Despite Widespread African Swine Fever.” USDA Foreign Agricultural Service, 2019. Web.
Liang, Qiao, and Xinxin Wang. “Cooperatives as Competitive Yardstick in the Hog Industry? – Evidence from China.” Agribusiness, 2019, pp. 1-19.
Ling, Liwen, et al. “An Ensemble Model with Grey Clustering for Hog Price Prediction.” Journal of Grey System, vol. 31, no. 3, 2019, pp. 14-28.
Liu, Chen-Xing, et al. “The Safety Evaluation of Chilled Pork from Online Platform in China.” Food Control, vol. 96, 2019, pp. 244-250.
Pan, Fanghui, and Cuixia Li. “Evolution of Agricultural Spatial Market Integration: Evidence from the Hog Market in China.” Journal of Agricultural and Applied Economics, 2019, pp. 1-19.
Tan, Yanwen, and Huasheng Zeng. “Price Transmission, Reserve Regulation and Price Volatility.” China Agricultural Economic Review, vol. 11, no. 2, 2019, pp. 355-372.
United States Department of Agriculture. “Livestock, Dairy, and Poultry Outlook.” USDA. 2019. Web.
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Wang, Tao, et al. “African Swine Fever: An Unprecedented Disaster and Challenge to China.” Infectious Diseases of Poverty, vol. 7, no. 1, 2018, p. 111.
Wang, Huashu, et al. “Market Power and Food Safety in the China Pork Industry.” Agribusiness, vol. 35, no. 1, 2018, pp. 1-17.
Wu, Linhai, et al. “Analysis of Consumer Demand for Traceable Pork in China Based on a Real Choice Experiment.” China Agricultural Economic Review, vol. 7, no. 2, 2015, pp. 303-321.
Zhang, Wendong, et al. “African Swine Fever in China: An Update.” Agricultural Policy Review, vol. 2019, no. 1, 2019, pp. 3-5.
Zhou, Weijie, and Lingling Pei. “The Grey Generalized Verhulst Model and Its Application for Forecasting Chinese Pig Price Index.” Soft Computing, 2019, pp. 1-14.
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