Chinese consumers grapple with ‘flying pigs and rocketing eggs’ as supply disruptions send food inflation soaring

12-Aug-2020 Intellasia | South China Morning Post | 6:02 AM Print This Post

When it comes to buying food for daily meals, Chinese consumers are increasingly being forced to swallow unaffordable prices for two staple products so-called flying pigs and rocketing eggs.

Supply-side problems have sent the price of pork surging this year and driven up egg prices in the past month, with the price trends becoming a fixture of local media reporting in the process.

Last month, pork prices rose by 85.7 per cent on-year and expanded 10.3 per cent from June, new data from the National Bureau of Statistics showed. The price of pork has more than doubled in the first seven months of the year from the same period in 2019. Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China.

The price of pork, a staple meat in China, has the largest weighting in China’s consumer price index (CPI) and last year it contributed about 30 per cent of the country’s headline inflation rate of 2.9 per cent.

China’s inflation rate which is heavily influenced by food prices accelerated by 2.7 per cent last month from 2.5 per cent in June, mainly because of a 13.2 per cent increase in the cost of food.

Pork prices are rising because the stock of hogs and breeding sows are still recovering from the African Swine Fever epidemic that hit the country in late 2018, according to the government. The coronavirus pandemic and recent flooding in central and southern China have also hurt supply.

Meanwhile, demand for pork has risen quickly as more restaurants have resumed their business after nationwide coronavirus lockdowns early in the year.

The stock of breeding sows bottomed out last September and grew 3.6 per cent in June from a year earlier, according to the Ministry of Agriculture and Rural Affairs. This was the first month of positive growth since September 2013.

But pork output in June was still about 75 per cent below the same period a year earlier, a commerce ministry survey of select slaughterhouses showed. The volume of slaughtered pigs was down 24.5 per cent from a year earlier, though output has been improving since last fall.

Prices were likely to fall in percentage terms as the year went on, partly because of last year’s high base numbers, analysts said.

“In the short term, the supply-demand deadlock could ease in late August, and the pork price will start falling. In the long run, both supply and demand will increase, and the increase of supply could be larger than demand,” said Ma Liyuan, a pork analyst with commodity consultancy Zhuochuang, adding weak household incomes would drag on demand.

Egg prices also rose last month, up 4 per cent from June after falling for nine months in a row. However, the price was still down by 14.5 per cent in July compared to the same period of last year.

High summer temperatures slowed egg production and drove up prices last month. The stock of egg-laying hens was also down as the economic impact of the pandemic sent farms out of business. Meanwhile, prices for chicken feed climbed because of rising prices of corn and soybeans.

Strong demand for eggs, particularly from schools and food processing firms, could cause egg prices to rise further, said Zhang Wenping, a commodity analyst from Zhuochuang.

“In late July, chicken egg farming began to make some profits,” Zhang said. “The per unit income from egg sales has surpassed costs. Although egg prices fell in early August from a high level, demand could still keep the price rising steadily, and chicken farming may continue to be profitable.”

Many Chinese consumers are starting to feel the pinch and some have been forced to cut back on purchases of the staple goods.

“When egg prices rise, pork should not rise; when pork rises, egg prices should not rise. When both go up, working-class people want to cry,” one Chinese netisen wrote on Weibo, the Chinese version of Twitter. “It’s been a while since I ate eggs.”

Economists from HSBC expect China’s consumer inflation to slow this year, saying the supply disruptions that have driven up prices are likely to be only short-lived and noting core inflation remains subdued.

“As we expect the recovery in household demand to continue to be gradual due to impaired household income and a change in consumer behaviour, together with a high base last year, we continue to see disinflationary pressure on headline CPI in the rest of the year,” Chen Jingyang, a China economist, said in a note.

China’s producer price index, a reflection of the prices factories charge wholesalers, fell 2.4 per cent last month from a year earlier, improving from a 3 per cent contraction in June, partly due to the recovery of oil prices and other major raw materials.


Category: China

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