African swine flu hits Chinese economy, global commodity prices

Bacon could soon be off the fried breakfast menu. African swine flu is sweeping across South East Asia and threatening to spread even further after decimating some pig farmers in China, which consumes more pork than any other country. The virulent disease is now creating a domino effect for commodities markets, farmers and consumers.

HSBC’s closely watched aggregated commodity price index of 20 key resources gained 2% last month, with the cost of pork showing the biggest increase. Pork prices tracked by the bank’s commodities research unit gained by almost 40%. The cause of this unwelcome inflation is China’s pig crisis.

The Chinese literally can’t get enough pork in normal circumstances. The world’s second-largest economy accounts for half of all global consumption, which amplifies the wider impact of the crisis now hitting its farms. Since the first outbreaks were recorded last August, over 1 million pigs have been culled and 129 outbreaks officially reported by authorities, according to the UN’s Food and Agriculture Organization.

To control its rapid spread, China has been forced to implement a near scorched-earth policy because the disease has a 100% fatality rate and is difficult to eradicate. Aside from culling pigs, Beijing has created epidemic zones and banned the transportation of the animals between provinces, in addition to shutting pig markets.

In China the outbreak has already hit the wider economy. Consumer price inflation, which had been under control before the disease spread, climbed over 5% last month. This comes at a tricky time for China’s government, which is trying to navigate an awkward trade war with the US and reinvigorate the high pace of economic growth that has defined the country for the last 20 years.

Soybean prices have been hit hardest. The cheap source of protein is the favored feed for fattening pigs and a bellwether for the global agriculture sector. The S&P Global Platts SOYBEX CFR China, which measures the price of the commodity, has dropped 20% to just over $357/tonne since the first outbreaks of swine flu were recorded last year. The slump is a record low. The problem is fanning out across Asia. Vietnam’s first case was reported in February and almost 90,000 pigs have been culled. Neighboring Cambodia spotted its first cases in March. Meanwhile, Japan picked up traces of the pestilence in sausages brought in as souvenirs by two passengers travelling on planes from Shanghai and Qingdao.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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