Voluntary Report - Public distribution

**Date:** 5/21/2008

**GAIN Report Number:** CH8035

CH8035

**China, Peoples Republic of**

**Livestock and Products**

**Earthquake\'s Impact on China\'s Swine Production**

**2008**

**Approved by:**

![](media/image1.wmf)Mark Petry

AGBEIJING

**Prepared by:**

Kevin Latner, Chanda Beckman, Jianping Zhang

**Report Highlights:**

On May 12, 2008, a magnitude 8.0 earthquake shook China's Sichuan
Province. Although the center of the earthquake is not a main swine and
pork production area, some major production areas have been impacted.
China's pork imports are expected to remain strong and prices high
throughout 2008 due to this disaster, strong domestic consumer demand,
short domestic supplies, and the desire to guarantee adequate strategic
reserve levels. Pork production is expected to decline two to four
percent in the region as a result of the earthquake, putting slight
upward pressure on nationwide pork prices, but rebound in six to eight
months. The earthquake will likely be a contributing factor to
agricultural price increases of 10-20 percent over the summer.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Beijing \[CH1\]

\[CH\]

**Summary**

On May 12, 2008, China's Sichuan Province experienced a massive
earthquake measuring 8.0 on the Richter scale. Although the epicenter of
the earthquake is not a main swine and pork production area, some large
production areas near the earthquake center were impacted. The immediate
impact includes destruction of 12.5 million head of livestock, mostly
poultry. Local industry reports that four to five million pigs were
impacted, with most being killed by the earthquake, but some also are
expected to starve or be slaughtered due to lack of feed supplies. The
long-term impact is more difficult to assess and depends on the speed of
restoration of water, energy, and transportation services. Post
estimates that pork production will decline two to four percent in the
region as a result of the earthquake, but is expected to rebound in six
to eight months. Initially, local pork prices may decline slightly as
swine are liquidated because of the lack feed or water, but prices will
rebound and put a slight upward pressure on pork prices nationwide. Post
forecasts the earthquake will be a contributing factor to agricultural
price increases of 10-20 percent over the summer, but that pork price
increases will be limited by government price controls. China's pork
imports are expected to remain strong throughout 2008, especially from
the United States, the largest supplier of pork to China.

**Strong Earthquake in China**

![](media/image2.png){width="3.1666666666666665in"
height="2.6930555555555555in"}

The May 12 earthquake's epicenter was in Wenchuan County, Sichuan
Province. China's Seismological Bureau has upgraded the earthquake from
7.8 to 8.0 magnitude. The U.S. Geological Survey reports the epicenter
was located at 31.0 degrees north latitude and 103.4 degrees east
longitude. As of May 21, the official death toll is 40,075, with as many
as 247,645 people injured, and 32,361 missing, according to Xinhua News.
On May 17, the central government said the death toll could reach over
50,000. The earthquake is being called China's worst disaster since a
1976 earthquake killed more than 250,000 people in Tangshan City, Hebei
Province.

**Sichuan: China's Largest Pork Producer**

Sichuan is China's largest swine and pork producing province, and
accounts for 12 percent of China's total swine inventory, 11 percent of
slaughter, and 10 percent of total pork production. Sichuan Provincial
Agriculture and Forestry Department data shows that Sichuan slaughtered
71.1 million head of swine in 2005 and 74.7 million head in 2006. Pork
production in Sichuan was 5.1 MMT in 2005 and 5.4 MMT in both 2006 and
2007, respectively. GDP in the disaster area is reported to account for
two percent of China's total GDP and the damage from the earthquake is
expected to slow China's total GDP growth slightly in 2008.

**Earthquake's Impact on Swine and Pork Production in China**

Like the death toll, the immediate impact of the earthquake rises with
each reassessment. On May 19, Vice-Minister of Agriculture Wei Chao'an
said the impact on agriculture includes the destruction of 12.5 million
head of livestock, mostly poultry. According to China's swine industry,
the earthquake has impacted four to five million pigs in the disaster
area, with most being killed by the earthquake, but some also expected
to starve or be slaughtered due to lack of feed supplies.

Post estimates that pork production will decline two to four percent in
the region as a result of the earthquake as the overall earthquake
recovery draws resources away from agriculture, but production is
expected to rebound in six to eight months. Most of Sichuan's industrial
swine cultivation facilities are located in the southern part of the
province. The eight main swine and pork production areas (Chengdu,
Mianyang, Nanchong, Ziyang, Dazhou, Yibin, Liangshan, and Luzhou)
account for 51 percent of the total swine and pork production in the
province.

Local industry reports that swine and pork production in Chengdu and
Mianyang have been impacted significantly. Feed and food processing
plants in these and other affected areas have halted production due to
the disruption of water and electricity supplies. Chengdu and Mianyang
are both in the immediate earthquake zone. Mianyang is a swine
production base, while Chengdu is important for both swine and feed
production. Disruption in the transportation infrastructure has resulted
in shortages of feed and other inputs. As transportation facilities,
airport, trucks, trains, and warehouses are dedicated to the relief
effort, the immediate impact of the earthquake may lead to more
protracted problems.

China's pork production in 2007 is estimated to have decreased nine
percent from 2006. Production has suffered from high prices, inflation,
natural disasters, and animal diseases. Inflation has pushed grain,
labor, and energy costs to new highs, making it more expensive to
produce pork. Insufficient disease control in the aftermath of blue ear
disease (porcine reproductive and respiratory syndrome - PRRS), foot and
mouth disease (FMD), and swine fever in the last few years, combined
with severe winter snow storms in early 2008, have all negatively
impacted China's swine and pork production. As large numbers of backyard
or small-sized operations withdraw from production and commercial sized
operations struggle to fill the supply gap, China's 2008 pork supply is
expected to remain very tight as production recovers slowly. Currently,
50 percent of swine are raised in backyard or small-sized farms versus
over 70 percent in 2005.

The long-term impact is more difficult to assess in part because it
depends on the recovery of key components of the agricultural production
infrastructure which is too early to assess. Critical long-term
infrastructure needs, include transportation, water, power, irrigation,
fuel, disease control, and cold storage. ATO/Chengdu current assessment
is that the transportation infrastructure is damaged but intact.
Significant transportation resources, including trucks, trains, planes,
and warehouses, are being dedicated to the relief and recovery effort.
Water resources remain generally available but there are conflicting
reports of damage to dams in the affected region that protect against
flooding and provide irrigation and hydroelectric power. Electrical
power in Sichuan is mostly provided through hydroelectric stations, but
the region is also a net coal exporter. Mining coal in the effected
region has been suspended. Initial reports are that destruction of
industrial facilities threaten to contaminate water supplies with
chemical pollutants.

**Price Increases and the Earthquake**

Initially, local pork prices are expected to decline slightly as swine
are liquidated because of lack feed or water. During the relief period,
the government is expected to cap pork prices. After the initial
earthquake recovery through June, local prices are expected to rebound
and put slight upward pressure on pork prices nationwide. While not the
dominant factor, the earthquake is expected to be a contributing factor
to price increases of 10-20 percent over the summer. ATO/Chengdu
currently does not forecast long-term water, electrical, or other
transportation or input problems.

China's consumer price index (CPI) increased by eight percent in the
first quarter in 2008. Wholesale prices for staple goods prior to the
earthquake were up 32-68 percent over January 2008, and pork prices in
April 2008 increased by 68 percent compared with the previous year.
Representing nearly 65 percent of per capita meat consumption, the daily
increases in pork prices have pressed China's poor and middle-class
families, who spend a larger portion of their income on food.

**Impact on Pork Trade**

***Imports***

China's pork imports in 2008 exploded as a result of strong demand,
increased public stock holding, and short domestic supplies. Imports of
pork from January to March 2008 increased to U.S. \$121.6 million, up
from \$7.5 million in 2007, while imports of variety pork meat have
increased to U.S. \$142.6 million, up from \$74.2 million during the
same period in 2007. U.S. exports to China account for 68 and 24 percent
of China's total pork and variety meat imports, respectively. This does
not even include U.S. exports to Hong Kong re-exported to China. Post
forecasts the United States will remain the largest supplier to China
for the remainder of 2008.

Source: China Statistics

***Exports***

According to the General Administration of Quality Supervision,
Inspection and Quarantine (AQSIQ), Sichuan exported a total of 8,200 MT
of pork from January to April 2008, mostly to Hong Kong. Local trade
sources confirm that some processing plants in Sichuan have halted
exports to Hong Kong as a result the earthquake.

On May 14, AQSIQ coordinated with Hebei, Guangdong, Hunan, Henan, and
Shandong provinces to supplement export supplies to Hong Kong by an
additional 400-500 metric tons per month, to make up for lost exports
from Sichuan. This will insure supplies are tight throughout China,
putting upward pressure on pork prices nationwide. As a result,
sustained levels of imports in 2008 are expected, especially from the
United States, the largest supplier of pork to China. The United States
is also the largest supplier of pork to China's national strategic
reserves.