Final Thoughts on China

Last Friday’s hogs and pigs report showed the largest US inventory of pigs on record at 68.395 million pigs. While this sounds like a lot of pigs (and it is), it is still fewer pigs than the recent reduction in pig numbers in China. Once again the importance of China to the world supply of pork cannot be ignored.

On my recent trip to China I spent one day with a group of second generation pork producers. These young men (estimated to be in 25-30 years of age) were in Fujian Province which is located south of Shanghai. In this province the government is making a huge effort to control pollution from animal agriculture. All of these producers talked about the changes they were making in their operations to try and comply with this government effort. Last year I attended a production conference in this province where a government minister talked about the need to close a vast majority of the pig farms in the region in order to stop this source of environmental pollution.

In addition to pollution, a second concern of this new generation of producers was access to capital. In China the state retains ownership of all land. As near as I can understand the situation, when you build a home you get a 70 year (some said 99 year) lease on the land associated with the home. However, in Fujian the producers only had rights to the land until the year 2028. This means they were unable to find a lender in order to access capital using their existing production facilities as equity. The only equity the lenders would accept was their homes since that was the only buildings with a long term land lease associated with the property.

Imagine having a 1500 sow farrow-finish operation and having to do all of your business on a cash basis, including any investments in facility upgrades or purchase of feed ingredients. Yes China has a lot of potential but it is still a tough place to be an independent pork producer.

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