RaboResearch: China’s Pork Market Has Started a New Cycle

Sep 06, 2022

According to a new report from Rabobank, China’s pork industry has begun a new cycle, which will see less price volatility and more government monitoring. The cycle started in mid-2022, following a year in which hog prices bottomed out with great losses for the industry. The main drivers influencing this cycle include policies, new industry structures, sustainability demands, and consumer trends. Market opportunities will be available to both local and global players, with considerable growth potential.

This new upward cycle started in June 2022. Between January 2003 and June 2022, China’s pork market went through five full cycles, each lasting around three to four years. This latest cycle will differ from previous ones, as the market is more consolidated, economic growth is slower, and there is a greater social and environmental focus in China. “We expect the new cycle to have less price volatility and a slightly shorter length compared to previous cycles,” says Chenjun Pan, Senior Analyst – Animal Protein at Rabobank. “Where cost leaders were the survivors from the previous cycle, in the longer term, winners will be those who are not only cost leaders but are also able to integrate supply chains.”

Why this cycle will be different

Each cycle is triggered by different factors, with the industry in different stages of development. Still, recent cycles have all pushed the pork industry closer toward consolidation, industrialization, and modernization. In addition to current market conditions, other factors will also influence this new cycle: China is currently in a transitional period of economic and technological development; new trends, like convenience, are influencing consumer demand; and social issues are putting climate change and the need for emissions reductions under the spotlight.

All this should lead to greater governmental oversight and further consolidation. “The top 20 companies produced over 20% of the national total in 2021, compared to 11% in 2019. This leaves less space for smallholders, who tend to react to market signals immediately. As a result, market volatility is expected to be lower,” explains Pan. “We expect this cycle to be a bit shorter than previous ones, as large-scale players can respond quickly by ramping up supply.”

Considerable growth potential

Local and global players will find opportunities in this new cycle. According to Pan, three main areas will offer considerable growth potential: productivity development, market consolidation, and international trade.

  • Productivity development: The government has identified genetics as a core strategic development area. Future development will focus on establishing a breeding system that is independent from the foreign breeder supply. New technology (e.g. automated equipment, robots, AI, etc.) can be adopted to reduce costs.
  • Market consolidation: With the exit of small players, we will see rising competition among large players. In a slow-growing market, competitiveness will come from cost leadership, quality, market reputation, and corporate social responsibility (CSR) efforts.
  • International trade: Given the strategic importance of its pork supply, China will continue to import pork as an important supplement to its domestic supply. Although the import volume is expected to decline in 2022, China will remain the world’s largest importer with imports returning to a ‘normal’ range in this cycle. Importers will shift to a combination of trading and own processing/distribution.
Source : Rabobank
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