HONG KONG: Smack in the middle of a trade war with the US, China is facing a food shortage that’s raising prices for consumers. If officials can’t keep inflation in check, President Donald Trump’s Twitter tantrums will be the least of their worries.
African swine fever is decimating China’s pig population. The country’s stock fell 21%, or by nearly 73 million pigs, from March 2018 through April 2019, according to official statistics. Unofficially, however, industry experts whisper about slides of more than 40% to 50%. That would be comparable to wiping out all the pigs in the US and Europe combined. For a country that derives most of its protein consumption from pork, this is a problem.
Compounding the challenge is the invasion of fall armyworm in the lead-up to the autumn harvest. Travelling up to 60 miles a day, the crop-eating pest is expected to be present in all Chinese provinces by the end of the year. This is already having a significant impact on expected yields of corn, wheat and rice.
Beijing has moved to raise food imports and had even considered increasing US pork purchases before trade tensions ramped up last month. But there simply isn’t enough pork out there to replace the world’s biggest producer.
This adds serious pressure to China’s economy. Food, alcohol and tobacco comprise 30% of the CPI basket, the highest share of any category. The isolated food component stands at about 20%, even after shrinking in recent years. May’s inflation data have already shown evidence of supply shortages: Pork prices gained 18.2%, pushing the consumer-price index up 2.7% from a year earlier, the highest since February 2018. While that’s still within Beijing’s comfort zone, we haven’t even hit the summer growing months, when the damage from armyworm will really kick in.
This puts Beijing in a bit of a pickle. China has been banking on the idea that consumers will pick up the slack in a weakening economy. Just last week, officials announced new stimulus measures to boost purchases of cars, home appliances and electronics. But with rising prices offsetting gains from tax cuts earlier this year, that’s starting to seem like wishful thinking. China’s growth is slowing much faster than the headline official data admit. Higher inflation will only constrain Beijing’s options for further easing.
The first step in addressing this challenge would be to recognize the seriousness of African swine fever and armyworm. There’s little evidence Beijing has done that. Instead, Chinese officials have been snuffing out critical media coverage, underreporting data and putting an all-too-rosy sheen on their response to the crisis, not unlike what we saw with SARS in the early 2000s, as Bloomberg Opinion columnist Adam Minter has written.
Second, Beijing needs to rapidly increase imports to slow expected price increases – even if China starts to skew its protein balance more toward chicken and beef. Theoretically, that would be a boon for other key pork suppliers, such as the US and Germany. In reality, though, the shifting contours of the trade war make relying on US imports unlikely, and China’s relationship with Europe is lukewarm at best.
The existential problem facing Beijing is how to address rising food prices and a slowing economy, which have a history of triggering episodes of social unrest. If pork prices do climb 70% this year, as officials forecast, Beijing will face a very unhappy population eager to assign blame for the mismanagement of a crisis. That will be a lot scarier than missing a GDP target.