Across China, hundreds of thousands of small, family-operated pig farms are struggling like Liang. While the nation’s pork supply has largely recovered from the worst of African swine fever in 2018-19, the outbreak and subsequent pressure on prices has accelerated a structural transformation in the industry, with only large farms able to tolerate falling profits and mitigate ongoing risks.

“In general, the whole industry is gradually switching into the direction of large-scale production and specialisation,” said Pan Chenjun, a senior analyst focusing on agriculture at Rabobank.

While large agricultural corporations have been able to ride out its impact, many of China’s small retail farmers – who used to account for most of the nation’s production – are struggling to survive in an industry that has been integral to rural families for thousands of years. Even the Chinese character for “home”, or 家, originated from a drawing of a pig under a roof.

“For most farmers in the past, raising pigs was more like a type of savings,” said Yang Xidi, executive director of Yunnan Kunzhou Agriculture, an agricultural technology company. “They would put money into buying grains and feeding the pigs in normal times, and when they needed the money, they would sell them.”

01:20

China’s ongoing African swine fever epidemic is spreading across Asia

China’s ongoing African swine fever epidemic is spreading across Asia

Pork accounts for about 60 per cent of total meat consumption in China, which is the world’s largest pork consumer, and its price has a significant weighting in the nation’s consumer price index.

Some 700 million hogs – more than half of the world’s annual pork production – are eaten in the country of 1.4 billion people each year.

Cultural factors and consumption habits account for the strong presence of small-scale pig farmers in China, whose hog stock usually ranges from dozens to hundreds, and who still account for most farms in the country.

In 2019, China had 26 million pig farms, 99 per cent of which were small operations supplying fewer than 500 hogs per year, according to the Ministry of Agriculture and Rural Affairs.

But their share of production has been slipping amid sustained price volatility over the past two years as well as the government’s attempts to modernise the industry.

Before the African swine fever pandemic hit in 2018, large pig farms that supply over 500 animals a year accounted for 47 per cent of China’s hog production. Their share increased to 57 per cent in 2020, according to official statistics.

Although authorities have never officially discouraged individual farmers from raising pigs, they have attempted to transform the fragmented sector into a more organised, efficient and environmentally-friendly structure.

At the height of the disease outbreak in 2019, Liang and nearby pig farmers were haunted by the deadly virus; once a pig was infected, all the pigs in the village had to be destroyed.

Liang recalled the deadly disease sweeping through a neighbouring village, forcing a friend to bury all her breeding sows – more than 100 in total – and prompting her to quit pig farming forever.

“The hit from African swine fever is indiscriminate,” said Lin Guofa, a senior analyst at consultancy Bric Agriculture Group. “Small retail farmers usually just have one farm, and they would lose everything if they were hit. But big corporations can dilute their risks by having several farms in different locations.”

To meet regular demand, authorities loosened restrictions on the establishment of new pig farms. Farmers lured by the surging price of pork, which remained elevated for most of last year due to supply chain disruptions caused by the coronavirus pandemic, came rushing in.

But over-optimism led to an overcrowded market, sowing the seeds for more chaos this year. As pork prices have fallen and grain prices surged, the average return earned for raising a pig dropped to a loss of 283 yuan (US$44) as of June 22, down from a profit of over 3,300 yuan in the same period last year, according to data from Sublime China Information, a market intelligence provider.

The output of pork in the first half of 2021 increased by 35.9 per cent compared to the same period last year, according to official statistics released on Thursday.

Behind the numbers are countless opportunistic farmers who went bankrupt.

“These people came into the industry with a gambling mindset,” Lin said. “Many of them were previously migrant workers in the cities and decided to come back to the villages after seeing other pig farmers had earned a lot. They knew little about the techniques [for raising pigs] and their costs were high.”

The sector’s price volatility, referred to as the “pig cycle” by industry experts, has been observed in China since the early 2000s. While swine epidemics have always been the trigger for a cycle, the strong presence of small retail farmers is the fundamental reason behind it, according to experts.

“Retail farmers are like those retail investors in the stock market: their investment choices are not usually rational,” Yang said.

“They all swarm in when the price is high, and all exit the market when they lose money. Under these circumstances, the supply and demand relationship is very volatile, which leads to the ‘pig cycle’ naturally.”

04:15

Chinese farmers see livelihoods threatened by coronavirus pandemic and related economic slump

Chinese farmers see livelihoods threatened by coronavirus pandemic and related economic slump

The rush of bankruptcies among small farmers has caught the attention of industry authorities.

Last month, the China Animal Agriculture Association issued a letter urging pig farmers to “not panic” when prices fall, not to believe rumours, or adopt a “gambling mindset”.

As retail farmers have withdrawn during the current cycle, farms backed by big corporations have quickly filled the void.

“The market space left for retail farmers is dying out,” Pan said. “The costs are too high to compete for market share with more established big farms.”

If pork prices continue to slump, the proportion of retail farmers will further decline this year, according to analysts.

Stricter environmental requirements are also raising the entry threshold for small farmers, who usually run their operations with traditional, relatively primitive methods.

China tightened regulations for pig farms in 2015 under a new environmental protection law, which led to the closure of many small inefficiently-run operations that could not meet the pollution emissions standards.

While the government loosened this criteria in 2019 to encourage more pork production, it has strengthened law enforcement again this year as supply has recovered.

Big pig farms are not only better positioned to meet new government standards, but they can also hedge risk amid ongoing African swine fever outbreaks.

China’s domestic hog supply was 527 million animals last year, 3.2 per cent below the year-earlier level, while the top 10 leading rearing enterprises supplied around 55 million pigs, a 35.3 per cent increase from the year before, according to the National Bureau of Statistics.

The method employed by leading pig rearing companies in China is a “surrogacy” – or a “company plus farmer” – model, under which companies provide farmers with piglets, grains, veterinary drugs and technical guidance, while the farmers provide buildings, equipment and personnel.

The two sides set the delivery price for a mature hog in advance, and the company, which is responsible for hog sales, will bear the market risks. Thanks to this light-asset model, the leading rearing companies are rapidly expanding territory.

Retail farmers, meanwhile, have to source piglets, grains and vaccines on their own, and the small amount they acquire pushes up the costs. They bear all the risks when the pork price drops, as they have to trade at current market value.

Some 350km from Liang’s village, bar-owner-turned-pig farmer Tai Hailun counts himself lucky he chose to collaborate with Shenzhen-listed agritech company, Dabeinong, under the surrogacy model.

Construction on his new pig farm covering 20,000 square meters (215,278 sq ft) in the countryside of Chaoyang, Liaoning province, started in September 2020 and welcomed its first batch of piglets at the end of the year.

Tai decided to venture into pig farming because of the skyrocketing profits in 2020, investing 20 million yuan to establish the biggest farm in the area, with 8,000 hogs.

“Looking back, I feel so lucky that I made that decision,” he said. “Otherwise I would have been trapped [by tumbling prices].”

Experts say there will still be room for retail farmers in the future, as long as they focus on boosting efficiency and management skills.

“Raising pigs is still a very important source of income for Chinese farmers,” said Lin, from Bric Agriculture Group. “In the future, China will be like other major animal husbandry countries in the world; big corporations will play a major role in the market, and family-operated farms will also an indispensable part.

Liang said she was also thinking about the path ahead, as her son is pursuing a PhD degree and will not be returning to run the family pig farm.

“Profitability won’t reach the same level as last year and raising pigs is quite tiring too,” she said. “I may consider quitting soon.”