China: Is Pork a Barrier to Economic Stimulus?

(September 2019)  Pork prices in China have increased 82 percent over the last year, presenting an unconventional potential threat to the monetary easing policy Beijing announced earlier this month.​ According to the Ministry of Agriculture and Rural Affairs of China, the growth rate of pork prices is accelerating: before this month's wild increase, the average price of pork jumped 19.3 percent year-on-year in July and 47.6 percent in August as the African swine flu ​outbreak ​further diminished pig stocks to only 39 percent of the​ inventory one year ago.

• Prices for other meats​,​ such as beef and lamb​,​ have also​ increas​​​​​ed this year—though to ​lesser extent than pork—contributing to ​an increase in the ​overall consumer price index for meat ​by ​11 percent year-over-year in August, according to China’s National Bureau of Statistics. 
• Growing meat prices, together with fresh fruits and vegetables, ​also ​contributed to​ inflation of the​ ​broader food price ​index​, which recorded a six percent year-over-year​ increase​.

Pig meat is one of the most important foods in ​the​ daily diet of people living in China​,​ accounting for ​12 percent (about ​368 kilocalories​) of ​each person's ​daily energy intake​,​ according to the Food and Agriculture Organization. T​o meet this consumption demand, China produces around 54 million tonnes of pork annually​, which is five times more than the US, the second largest producer of pork globally. ​While ​Chinese domestic supply of pork relies primarily on domestic production, ​​the swine flu will force China to turn to other suppliers, such as Spain, Germany, Canada, and (potentially, despite the trade war) the United States.

Rising pork prices ​have had a negligible effect on overall consumer price inflation to date​, which remained stable at 2.8 percent in August.​ The threat to China's economy comes from the unabated and accelerated growth rate in pork prices in tandem with the central bank's implementation of new policy measures effective September 16 to support monetary easing. 

• The People's Bank of China cut the reserve requirement ratio by 50 basis points to support the slowing Chinese economy.
• Lower reserve requirements will enable increased lending to businesses and households, reducing borrowing costs, and (if all goes to plan) stimulating more investment. But on the flip side of more investment is ... rising inflation, which given current pressures, may accelerate beyond the Bank's targets.