China’s Pork Industry Struggles Amidst Surging Debt and Market Challenges

In the face of a persistent market downturn, China’s leading pig breeders, responsible for half of global pork consumption, find themselves grappling with escalating losses and mounting debt. Despite state efforts to bolster prices and the onset of the peak winter season for pork consumption, the downward trend persists, placing significant pressure on the $200 billion-a-year industry. According to state-run media, the top 10 producers have seen a 13% increase in net debt by the end of September.

New Hope Liuhe, the third-largest producer globally, has taken measures to alleviate its financial strain, selling off farms and expressing intentions to attract strategic investors for its poultry and food units. The company reported progress in these initiatives but offered no specific details. A recently announced 7.35 billion yuan private share issue aims to aid in loan repayment and debt reduction.

Major players such as Tech-Bank and Fujian Aonong are resorting to selling stakes in themselves or subsidiaries to raise capital. Aonong’s third-quarter debt-to-equity ratio soared to 8.26, as reported by LSEG data. Notably, Jiangxi Zhengbang Technology, China’s second-largest producer, underwent restructuring last year, indicating the challenging landscape even for previously rapidly expanding firms. With swelling debt levels across the Chinese economy, banks and local governments are becoming less inclined or able to offer support.

Analysts point out that while industry leaders like Muyuan Foods and Wens Foodstuff Group, with effective cost management, may weather the storm, challenges loom large. China’s push for a significant expansion of sow herds after the African swine fever outbreak has resulted in record pork production. Muyuan, for instance, has tripled its sow herd since 2018, competing for market share. Analysts at Hua’an Securities project a 10% surge in hog output in the first half of 2024, following a 17% increase in the first nine months of this year, despite a combined net loss of 200 billion yuan among China’s 15 major breeders.

Compounding the industry’s woes, pork consumption in China is declining due to economic slowdown and changing consumer preferences favoring healthier alternatives like poultry. The persistent threat of African swine fever adds to the costs of disease management. The agriculture ministry warns of heavier losses in early 2024 and urges pig producers to reduce output.

While cost-cutting measures, including reduced spending on new equipment, have been implemented, leading companies remain reluctant to divest idle farms and reduce breeding herds. The aggressive expansion of 2020-21, marked by significant capital expenditure, poses a challenge, with industry leaders showing resistance to capacity reduction despite the current weak prices, as noted by Flora Zhu, Director of China Corporate Research at Fitch Ratings.