Cheng Xiaonong: The Trouble with Eating Meat

The Chinese Communist Party has a lot of economic troubles, and meat is just one of them. 2019 national meat prices soared, and 2021 national meat prices plummeted, a similar phenomenon occurred after the rural reform in the last century, the Chinese Communist Party was very troubled by it. 40 years later, the same troubles still exist. The National Development and Reform Commission (NDRC) said on July 19 that it will work with relevant departments to increase regulation and adjustment if necessary to prevent the price of pigs from fluctuating. Although the Chinese Communist Party authorities now claim to be “omnipotent” and want to dominate even the rules of the international community, they cannot even solve a small, uncomplicated problem of eating meat; on the contrary, because they are fighting a soybean war with the United States, the people are paying a big price for eating meat.

I. From a surge in meat prices to a plunge in meat prices

In 2018, China and the United States began economic and trade negotiations. In order to put pressure on President Trump, the Chinese Communist Party announced that it would stop importing U.S. pork and then stop importing Canadian pork due to the Meng Wanzhou case. To supplement domestic pork supplies, the CCP decided to import from Russia instead, only to bring in African swine fever with the high-priced pork imports from Russia. After the outbreak of African swine fever in China, a large number of pigs died; at the same time, pig farmers slaughtered a large number of pigs in stock in advance to avoid losses due to swine fever, thus reducing the national pig stock by 60%.

The decline in the number of hogs in stock naturally caused a decrease in the supply of hogs in the second year. Sure enough, the national pig price began to soar in 2019. in August 2019, news from the National Bureau of Statistics said that pork prices rose by 50% in the first half of that month compared to the same period last year; within ten days in mid-August, pork prices surged by another 16%. The public cried out that the price of meat was too expensive and they could not afford pork, and people everywhere were snapping up pork. So the governments around the world were ordered to start a “meat price defense war”, with a total of 29 provinces issuing more than 2 billion “meat money” to subsidize urban consumers. Nevertheless, by September of that year, the hog slaughter price had doubled compared to the same period last year. After the price of pigs rose, pig farmers gradually expanded their breeding capacity, but the price of meat rose faster than the growth rate of pigs. According to monitoring data from the Ministry of Agriculture and Rural Affairs, in July 2020, the national average pork price rose to a peak of 56 yuan per kilogram.

Immediately after that, in early 2021, the national meat price began to fall continuously, which meant that a period of pig-farming losses was coming. Sure enough, according to the data released by the Price Monitoring Center of the Development and Reform Commission, on June 21, 2021, the national pig price fell to 14 yuan per kilogram, only a quarter of the peak meat price in July 2020. At this point, it became the pig farmers who shouted that they could not afford to eat. As meat is cheap and feed is expensive, many pig farmers and pig companies rushed to slaughter and list their stock of pigs to reduce losses. According to the analysis of the Development and Reform Commission, according to the current price of pigs and feed, the average loss of pig breeding will be 804 yuan per head in the future.

At present, China’s pig stock is decreasing sharply, and the shortage of pork will become a certainty from next year, and then meat prices will start another round of surge. Why is China’s meat price like a “roller coaster”, high when it is so high that consumers are staggering, and low when it is so low that pig farmers are “spitting blood”?

Second, the pig grain ratio determines the cyclical fluctuation of pig supply

In the process of pig feeding, the cyclical fluctuation of slaughter volume will occur, and the amount of pigs raised by pig farmers is directly affected by the feeding cost. The general feed-to-meat ratio of pig farmers is 3.2 to 1. A pig eats 3.2 kg of feed to grow 1 kg of meat. If the feed is expensive and the meat price is low, they will lose money and naturally reduce the amount of feeding; on the other hand, if the feed is cheap and the meat price is high, they will increase the number of pigs. On the other hand, if more pigs are slaughtered, the meat price will fall; if less pigs are slaughtered, the meat price will rise. Therefore, pig farmers must care about both feed price and meat price, so as to judge whether they should increase feeding quantity to expand their income or reduce feeding quantity to prevent losses.

The market signal that directs pig farmers to increase or decrease production is the pig-grain ratio, which is the ratio between the slaughter price of pigs and the feed price. The reason for the change of this ratio is complicated: the feed price is influenced by the high or low domestic feed production, but also by the quantity and price of imported feed; while the price of hogs is related to both the feeding quantity and slaughtering intensity, and also the quantity of imported pork. If a large number of pig farmers increase the number of pigs at the same time, the feed demand will increase greatly and the feed price will rise; on the contrary, if a large number of pig farmers reduce the feeding quantity at the same time and empty the stock of pigs to market, the feed price and the meat price will fall at the same time.

Feed planting and hog breeding are bound by the natural cycle of agriculture, feed cannot be planted today and harvested tomorrow, while hogs can only grow slowly day by day. Although the increase in the area of feed planting and the number of pigs in the pen will be adjusted according to the price change, the feed supply and the number of pigs in the pen will usually be delayed for six months to a year before the change. This results in a time lag where price changes come first and hog supply changes lag behind. This time lag will lead to cyclical fluctuations in the number of hogs in stock, which is called “hog cycle”.

The “hog to grain ratio – hog cycle” is an old topic in economic research, as A. Hanau from Germany and S. Schmidt and S. Mandecki from Poland published books analyzing hog prices and hog cycles a hundred years ago. But those were the results of studies in a market economy, not applicable to China, which had a planned economy for more than 30 years. As a result, the Chinese Communist authorities and Chinese consumers had no such concept for a long time. The political economy textbooks in Chinese universities are only about Marx’s theories, which do not help to understand the functioning of the real economy.

III. China: From price stability to meat price volatility

The main meat consumption of the Chinese population is pork and poultry, so meat prices are directly related to people’s livelihoods, especially the food on the tables of ordinary people. As you can imagine, the volatility of pork prices has a significant impact on the rise and fall of prices, and stable meat prices are stable prices. Since this year, China’s pig prices have plummeted, although the price of industrial products soared, but the price of food for consumers because of the decline in meat prices and limited increase, so the plunge in meat prices for a short period of time to offset inflation. However, in the second half of this year, the price of meat may start to rise rapidly, so meat prices to drive inflation will become the most difficult problem for the authorities next year.

Such a problem is not so serious in market economy countries, because meat prices are always volatile. But in China, the pig cycle has become a big problem. The root of this problem is the residual effects of the planned economy era and the adverse consequences of the government’s blind response. Under the planned economy, the Chinese Communist Party froze wages and prices for a long time, and from the 1960s to 1977, the wages of all institutions and enterprises in the country, which were centrally controlled by the government, did not increase by one cent; although the price of pork remained unchanged for many years, it was limited through the supply of tickets, so that many low-income families who bought meat with tickets preferred to buy only fatty meat, so that they could fry some lard to improve the taste of vegetables and make up a little for their families who lacked meat The oil is fishy. This strict control also fostered the public’s impression that meat prices were stable over time, and the authorities had to promise to stabilize prices.

In the early years of economic reform, in the 1980s, rural reforms gradually dismantled the cold exploitation of farmers in the planned economy, and agricultural products began to be traded freely under the market economy, with farmers going to the cities to sell their own produce directly, so that market prices shaped agricultural production. In 1985, for the first time since the founding of the Chinese Communist Party, there was a “pig-grain ratio – pig cycle”, and the price of pork rose with the pig cycle, and by the end of 1987, the increase was more and more significant.

At that time, Chen Yun, a conservative “big brother” who had a say in economic issues, and the State Planning Commission, which followed him, knew nothing about the “pig-grain ratio-pig cycle”. They believe that rising prices are economic overheating and that tough austerity measures must be taken to stabilize prices. This approach catered to the public’s perception that prices should be stable and unchanged. At that time, when I wrote the 1987 China Economic Development Report for the National Institute of Physical Reform, I specifically analyzed the pig-grain ratio and used data to prove that fluctuations in meat prices were a normal economic phenomenon and should not be panicked. After reading it, Zhao Ziyang, who was very familiar with agriculture and understood the laws of market economy, immediately approved it for publication in Xinhua News Agency’s “Domestic Dynamics”. Subsequently, in early 1988, I was interviewed by a reporter from Xinhua News Agency and my analysis was reported in the People’s Daily. This was the first discussion of the hog cycle in China since 1949.

IV. Dependence on American soybeans, import prices affect China’s hog cycle

As the century progressed, the export boom brought by WTO accession led to an economic boom that raised Chinese living standards and greatly increased demand for meat. in 2018, the country’s pork consumption reached 55.4 million tons, seven times more than in 1978. Such rapidly rising demand for pork naturally created a feed crunch, but the CCP found a way to increase feed supply. After China’s foreign exchange reserves increased, it began importing large quantities of feed. Soybeans were first used to refine cooking oil, which accounted for 20% of the weight of the soybeans, and the remaining 80% of the soybean meal was used to make pig feed. Soybean meal is a high-quality, high-protein feed, and the feed-to-meat ratio for hog farmers is the lowest.

In the 2003-2004 grain year, China’s soybean imports exceeded domestic production for the first time, reaching 20.74 million tons; in the 2007-2008 grain year, soybean imports increased to 37.82 million tons; and in the 2017-2018 grain year, soybean imports jumped to 93.5 million tons, a 1.5-fold increase in 10 years. Just like that, China became the world’s largest importer of soybeans in just 20 years. More than 60 percent of global soybean exports are bought by China, requiring imports of 100 million tons or less per year. Even so, from 2007 to now, Chinese hog farmers still can’t escape the hog cycle. 2008, 2013 and 2017 saw 3 industry-type losses, and if we don’t count the accident caused by African swine fever in 2018, this year is the 4th and the worst one.

Why doesn’t China grow its own soybeans and solve its feed shortage? Soybeans are a low-yielding crop that grows only close to the ground and does not yield much, so growing them is not very profitable. What would happen if China stopped importing feed and instead grew soybeans domestically on a large scale? I’ve done the math: If China were to rely on domestic soybean cultivation to preserve feed grains, it would need to take up at least one-third to one-half of its arable land, and that would result in a severe shortage of food rations. Therefore, given the limited total arable land, it would be impossible to grow soybeans on a large scale to preserve food rations, and soybeans could only be imported for feed.

The amount of imported soybeans is so large that China’s meat prices are affected by fluctuations in international soybean prices. The source of soybean imports is highly concentrated, with the United States, Brazil and Argentina accounting for more than 90 percent. China wants to relatively stable meat prices, it looks forward to both the absence of disasters in these major soybean exporting countries, and hopes that the soybean import trade goes smoothly. If one of these two conditions changes, the price of soybean imports will rise and fall significantly, while feed prices will go up and down, and the price of meat for the Chinese will jump up and down.

V. Pork Held Hostage by the Chinese Communist Party

Why did China’s hog prices skyrocket last year, plummet so much this year, and then definitely skyrocket next year? The reason is that pork is being held hostage by the Chinese Communist Party. Since the Chinese Communist Party is fighting a soybean war against the United States, the result is bound to seriously affect the normal pig-grain ratio. After the pig-grain ratio is manipulated by the CCP in disguise, of course, it will change the normal fluctuation of the pig cycle, causing the pig stock to fluctuate greatly. This is equivalent to the Chinese Communist Party holding the pork supply hostage, and the people’s daily life is thus coerced. But until now, almost no international media has analyzed this issue, and Chinese consumers are not even aware of it, but only complain about the high price of meat.

In the past year and a half, there was no plague or other unexpected factors in China’s hog industry. The main reason for the plunge in meat prices was the sharp drop in the hog to grain ratio, which led to serious losses in hog farming, so hog farmers emptied their hog stock to market. In the short term, the oversupply of pork will naturally cause the price of meat to plummet. Then why did the pig grain ratio suddenly fall?

As described in the previous article, in 2019, China’s hog stock was reduced by 60% due to the importation of African swine fever. In this case, if the authorities wanted to use market signals to incentivize pig farmers to expand their breeding to restore pig stock, they should have increased imported soybeans to make feed prices fall, thus increasing the pig-grain ratio. However, the fact is that at the end of 2020, the national pig stock will only recover to 90% of the pre-African swine fever outbreak level. Hog farmers are less active in expanding their breeding, which is related to the low pig-grain ratio. The low pig-grain ratio, in turn, is the result of the Chinese Communist Party’s soybean war against the United States.

The Chinese Communist Party has been stealing U.S. technology secrets and intellectual property on a massive scale for a long time, and using trade barriers to maintain an annual trade surplus of hundreds of billions of dollars, causing great harm to the United States. President Trump signed a memorandum on March 22, 2018, accusing “China of stealing U.S. intellectual property and trade secrets” and imposing tariffs on imports from China under Section 301 of the Trade Act in an attempt to force the Chinese Communist Party to change its “unfair trade practices “The Chinese Communist Party has refused to acknowledge the theft of technology secrets and other issues. The Chinese Communist Party has refused to acknowledge the theft of technology secrets and other facts, and on April 5 announced a 25 percent tariff on U.S. soybeans and other goods; in retaliation, it is importing more soybeans from Brazil instead.

In 2019, U.S. soybean exports to China fell 44 percent from 2017, bringing China’s total soybean imports from the countries down 7 percent in the same year. The reduction in soybean imports is enough to lift feed prices in China in 2019 and 2020, which in turn depresses the hog-to-food ratio. More importantly, Brazilian soybeans are $40 to $60 per ton more expensive than U.S. soybeans. Since the CCP purposely imported more soybeans from Brazil in 2019, this resulted in Brazilian soybeans accounting for 65% of China’s total soybean imports. Buying soybeans this way is abandoning the low price for the high price, so the price of imported feed inevitably rises step by step.

From 2019 to 2020, although meat prices soared but feed prices also soared, the pig grain ratio was artificially depressed by Zhongnanhai to the extent that pig farmers are bound to lose money. This is the main reason why pig farmers have emptied their stock of pigs in advance in the first half of 2021. The consequences of the CCP’s disruption of the normal pig cycle in order to deal with the US are threefold: first, it makes people pay for extremely expensive pork; then it makes pig farmers lose money and vomit blood; and in 2022, it will make people pay for expensive pork again. This is the panorama of pork that the Chinese Communist Party has been holding hostage for several years in order to implement its approach to the United States. This picture depicts the “trouble of eating meat” which is a headache for the Chinese Communist Party.