No matter whom you ask, the answer will be the same: China is the No. 1 pork producer and consumer on this planet. In the year of 2000, 527 million heads of pigs were slaughtered, and nearly 50% of all pork in the world is now produced in China (NBSC, FAO, USDA, 2002).  The  1.3 billion consumers seem to prefer pork over any other meats in their meals-essentially all pork produced in the country is consumed domestically.  

Depending on whom you ask, you will at least have some different answers about the profiles of the Chinese pig industry. In 1999, a survey conducted by NBSC (National Bureau of Statistics of China) revealed that households in rural China raised an average of 1.48 pigs (NBSC, 2000). One person of 8 in the world is a Chinese farmer. Another frequently quoted statistic is that about 80 percent of all Chinese pigs are produced in the backyards of farmers’ homes. Recent reports prepared in 2002 by hog industry associations in Zhejiang, Shanghai, Beijing, and Guangdong provinces proposed that 40 to 50 percent of the hogs were produced on ‘scale farms’ in those provinces.  However , it is difficult to precisely define a ‘scale farm’ and validate the reports without more reliable data. What are the correct numbers to describe the profiles? The reality may be simple: there has been no sound and comprehensive investigation/survey accomplished so far in order to accurately profile the industry. 

Increasing market openness inferred by China’s accession to the World Trade Organization, continued income growth, and the shift of food consumption patterns towards more meat have attracted more and more attentions from the rest of world on Chinese pork industry. 

This report attempts to depict the pig industry in China by exploring the production costs and major constraints of several swine producers. Key factors and issues will accordingly be stressed to illustrate what differentiates the Chinese pig industry from other countries’ and what direction the industry is heading infor the future. 
Case 1: Ms. Yan - Struggling Backyard Producers

Ms. Yan is 64 years old and has been raising two pigs for the last 40 years except for several extreme years in early 1960s  when  many people died of famine. She and her husband re-built their house in rural Shandong Provinces at least six times in the last 40 years.  

In those very difficult years amid the Cultural Revolution, 3 or 4 pigs a year could add a significant part of family revenue. Food grain (mainly wheat) was never enough for four young children in the early years. Selling a pig two or three times a year allowed for the purchases of other foods in return.
 
Table 1. Operation Description of Ms. Yan’s 2-pig Farm.
Items Note
1. Feeder Pigs- bought from local bazaars at about 15 to 23 Kg and about $0.85/Kg 2- or 3-way crossbred. Pay can be deferred as short-term debt.
2. Feed- only about 10% of the feed is grain, protein meals, and premixes; others are food residues with no cost.  Only feed little grain at early and late stage.
3. Days to market- about 200 days from 20 Kg to 65 Kg. 
4. Market pigs- sold to dealers or on local bazaars. Live weight price varies from $0.65 to $0.80/Kg in 2002. 
5. Manure- stored in a open pit for field application Considered to have value 
6. Labor & Vets- time used for buying and selling pigs and cleaning; vets and drugs cost about $10 per pig. No opportunity cost for labor included

 
TTable 2. Consolidated Balance Sheet of Ms. Yan’s 2-pig Operation,
June 30, 2002
Items Amount, USD Items Amount, USD
Assets   Liability  
Current  
Cash for feed and vets 42   Short term debt for feeder pigs 19 
4% premix and other feed in store 9  Taxes payable  4 
Fixed    
  Pig shed, trough, and tools  133 
  Pigs  77    
Total equity  238

Table 3. Estimated Consolidated Income Statement of Ms. Yan’ 2-pig Operation, December 31,2002
Items Amount, USD Note
Revenues 
Pigs sold 141.5 3 pigs sold a year
Manure collected for fertilizer use 29 Opportunity cost
Expenses 
Buy feeder pigs 21.5 
Grain and protein meals 13.8 8% of feed
Premixes 2.8 5 Kg total
Labor 65 Normally not included
Vets and drugs 7.3 
Others 6.5 
Depreciation 2.7 
Net income before taxes 50.9 
Net income 48.9 3-5% taxes and fees
Net income per pig 16.3 

Advantages to be a backyard producer
· Enter or withdraw business to/from pig industry at essentially no cost.
· Production flow is totally adjustable depending on market price. 
· Two or three pigs sold per year used to account for 30 to 40 percent cash income for her family but now may be down to only 10 percent. 
Disadvantages and constraints
· No leverage power on inputs and products prices.
· Diseases can cause serious problems and losses.
· More difficult to find market and sell pigs due to higher cost of transportation, thus usually receive lower prices.
· Always being a lowest price receiver no matter how much you improved genetics. 
· Young generation consider odor a problem and neighbor’s complaints of odor. Decreased interests in pig production by younger generation. Actually, backyard pig production is disappearing in areas around big cities.
· Opportunity cost of labor has been noted and begins to increase. 
Emerging Issues

Industrialization, continuous reform, and opening to the outside world are bringing about many changes in the Chinese pig industry.  Observers and researchers interested in the Chinese pig industry are studying the issues currently emerging in the country in order to sketch the outlook for Chinese industry.

Concerned about potential problems caused by reductions in rural incomes, the Chinese government, with a long history of planned economy, will probably continue to provide various supports to the households in agricultural areas. Pig production is one of the sectors chosen by the government to help raise farm incomes. The trend towards household specialization and expanding farm sizes will continue in the hope of increasing production efficiency.  

Although the pace towards privatizing state-owned swine farms is not fast enough to meet the industry expectation, the resolve of the government to drop the long—-suffered burden of poor-managed farms is evident. In Guangdong, local governments have already liquidated many swine farms, facilitating purchase by farm managers and technicians at very reasonable prices. One popular model is to let the managers own up to 40% of net assets/equity and other workers can buy the rest. After the reform the state may or may not retain shares in the business. Managers normally have to pay cash or amortize the initial cost of the transaction. Managers are. They are  even allowed to buy out the farm using the future earnings in some areas. In addition, the value of a pig farm will be assessed well below the real value in order to make it affordable for managers.  Newly created private swine farms can be very competitive due to the low fixed costs and total assets, at least in a short term.  

In addition to an immature market economy, poor infrastructure and logistics to handle live animal and chilled pork logistics will remain a major constraint for a long time. Other aspects like production efficiency are also major constraints for many Chinese swine farmers to overcome. This is not limited to technical skills. Perhaps more important is the lack of basic management skills needed to add economic value to a swine operation.