China’s Lunar New Year pork gloom exposes deep economic trouble

For families across China preparing for Lunar New Year, the most important celebration in the calendar, pork is a must. An ingredient synonymous with prosperity and abundance, it’s used in countless dishes and cured for festive delicacies.

But in Beijing’s Xinmin market, vendor Wu Aizhen is struggling. Though pork prices have fallen by about a fifth compared to a year ago, she is selling a third less than she would in a normal holiday season. 

Pork demand has been sluggish for months in China, but its continued weakness even as the country approaches peak season for elaborate meals sends a powerful message about consumption and oversupply in the world’s second-largest economy, as wage declines hit households and weigh on consumer prices.

“It has been very difficult to raise prices this year even though it’s already close to the Lunar New Year,” said Wu, who has held her stall for two decades.

Hundreds of kilometres away in eastern China, pork supplier Gong Cheng is also wringing his hands. Previously, migrant workers – who are pillars of the local construction and textiles industries – would have some 1,000 yuan (S$189) to spend on pork to make sausages for the season, he said. Now they spend just 300 yuan or nothing at all, he said.

“Pork consumption apparently clearly hasn’t kept up with supply since China reopened last year, despite a surge in people eating out again,” said Duncan Wrigley, chief China economist at consultancy Pantheon Macroeconomics. While good data is scarce, he added, farmers have ramped up production in response to swine fever losses and large-scale operations have taken up a greater share of the market.

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China accounts for almost half of global pork consumption and hog production, eating five times more of the meat than the US every year. But last year, consumption fell by one million tonnes to roughly 54 million, according to consultancy Shanghai JCI. While not dramatic, it’s a significant drop at a time when families were supposed to be spending and entertaining again, and production has dramatically increased.

It’s adding to China’s worrying deflation picture. Food makes up a fifth of the consumer price index and pork, in turn, is a large component. Consumer prices fell in December for a third straight month and the declines look likely to extend into 2024.

The cutbacks are particularly noticeable among lower-income consumers, said Darin Friedrichs, co-founder and market research director of Sitonia Consulting, which focuses on Chinese agriculture.

“If you are talking about somebody working in a bank in Shanghai, they are doing fine, they are still going out and spending money,” he said. “But there is a large sector of the economy, the migrant workers, the blue-collar workers that aren’t doing well and are cutting back a lot.”

In a city in wealthy Jiangsu province on the east coast, Li Fumin, who manages a dozen cafeterias supplying meals to tens of thousands of migrant workers, is worried he may have to close restaurants as people trade orders of dishes such as red braised pork for cheaper vegetables. 

“It is hard for everyone to make money, so customers are stingy when it comes to eating meat,” said Li, who has stopped sourcing more expensive meats like beef and mutton altogether. 

This drop in appetite, added to changes in eating and entertaining habits, comes after years of expansion and modernisation as China has sought to tackle food scares and to improve security of supply, including through the construction of high-rise pig farms.

Data released last month showed China’s pork production in 2023 expanded to the highest level in nine years, while the government had to intervene three times last year to buy pork for its strategic reserves to buoy prices.

Even Pay, agriculture analyst at Trivium China, a policy research consultancy, said a decline in pork consumption creates a “vicious cycle” that ends up putting even more supply on the market. 

“For example, farming companies that waited to sell their pigs around the Mid-Autumn Festival and October holiday last fall, hoping for higher prices, instead end up feeding those pigs for longer and selling even fatter pigs onto the market at even lower prices,” she said.

The downturn will likely be most painful for China’s small breeders – who still farm about 40 per cent of the country’s hog herd – and accelerate their consolidation.

“The massive losses I see right now in the husbandry industry are something I’m experiencing for the first time in my career,” said Dan Lu, an expert in selective breeding and pig semen seller in south China. Seven of 10 smallholders in the area he covers have closed their farms, he said.

Large producers aren’t immune either. Leading hog breeder Fujian Aonong Biological Technology Group said last week that it could delist in a few years due to continuing losses from weak pork prices. Other producers have been acquired, or have sold businesses to raise money.

The consolation is that the year of the dragon could bring some respite once pork supplies start to stabilise, said Pay. Still, she expects that lies a few months away and pork prices likely won’t rise until September at the earliest. BLOOMBERG