Why do pork prices swing so wildly? The key lies in the mechanism!
A good pork price formation mechanism is the key yardstick for judging whether the market-oriented reform of the pig-farming industry has succeeded. What is a good pork price formation mechanism? It means that when the wholesale price of pork rises, the retail price rises too, and consumers should pay more; when the wholesale price of pork falls, the retail price falls along with it, stimulating consumers to spend less and consume more.
Monitoring data from the Ministry of Agriculture show that as of July 2, after nine consecutive weeks of decline, pork prices rose slightly, with the weekly average price at 19.89 yuan per kg, still down 24.3% year on year. According to a Xinhua News Agency report, this round of sustained price decline was the result of a combination of factors including increased supply, feed prices running at a low level, changes in residents' consumption habits and the market off-season, while the market also showed a divergence in which high-end branded pork prices held firm while ordinary pork prices “kept falling and falling”.
The entire pork industry chain is mainly composed of five major links: farming, slaughtering and processing, cold transport and cold storage, wholesale and retail. The factors that may cause relatively large fluctuations in pork prices are mainly concentrated in the three links of farming, wholesale and retail. As long as one link has a problem, the pork prices collected from the market by survey agencies may be distorted. Price is the key regulator of the supply-demand relationship for live pigs. If the collected price data are distorted and used as the main basis for regulating the supply-demand relationship for pork, cyclical sharp rises and falls in live pig inventories are almost unavoidable.
The transmission chain of pork prices is this: when feed prices rise and the live pig inventory rate is high, wholesalers will push down pig farmers, and retail stallholders will push down wholesalers. Retail stallholders profit at both ends, buying cheaply while keeping selling prices unchanged. In this situation, pig farmers suffer visible losses, and consumers suffer hidden losses. If feed prices fall or run at a low level for a long time, and at the same time the live pig inventory rate is high, wholesalers likewise push down pig farmers, and retail stallholders likewise push down wholesalers. In this situation, pig farmers can basically ensure they do not lose money, and wholesalers can also avoid losses. Retail stallholders profit from both wholesale and retail, and it is still consumers who suffer hidden losses. This round of nine consecutive weeks of pig price declines is a typical manifestation of this situation.
If feed prices rise and it happens to coincide with a low live pig inventory rate, then pig farmers can avoid losing money, the wholesale price “rises as the tide rises”, wholesalers can ensure a normal profit level, retail pork prices immediately rise, and retail stallholders remain as carefree as ever, while it is still consumers who lose out. The above three situations are all obtained by starting from observation and investigation at the retail link and then working upward in sequence. They confront the problem directly from the distortions in price transmission in the circulation link and are the conclusions most in line with the actual situation of pork price fluctuations.
In addition, it is worth noting that total pork output has shown negative growth for many consecutive years, and last year it fell 3.43% year on year, reflecting the trend of shrinking pork consumption year by year; the markets for pork, beef and mutton are gradually being opened wider to the outside world, and by the end of this month at the latest, the first batch of high-quality frozen beef imported from the United States will first be put on the retail markets of major cities such as Beijing, Shanghai and Guangzhou. Furthermore, in household pork consumption, the proportion of processed pork products has increased year by year, residents' dietary structure has changed, and the concept of “green-label” branded pork has been hyped and overdrawn without limit, all of which create new shocks to the formation of pork prices. Although at the current stage the impact of these factors on pork price formation is still limited, it will tend to increase cumulatively year by year.
A good pork price formation mechanism is the key yardstick for judging whether the market-oriented reform of the pig-farming industry has succeeded. What is a good pork price formation mechanism? Simply put, it means that when the wholesale price of pork rises, the retail price rises too, and consumers should pay more; when the wholesale price of pork falls, the retail price falls along with it, stimulating consumers to spend less and consume more. In the two situations, the former transmits a signal to increase supply by making consumers pay more, while the latter absorbs excess supply by making consumers consume more.
Obviously, the current pork price formation mechanism is not smooth, mainly because retail pork prices have long been in an abnormal state, and governing the retail link seems to have become the key to solving the problem. However, retail stallholders are also full of complaints, complaining that stall fees and other management fees are too high, and at present, in various vegetable markets at and above the town level, more than 80% are privately invested in and contracted out. The operators likewise have a belly full of grievances with nowhere to air them. Where exactly is the root of the problem? One main reason is that since the 1990s, vegetable markets originally positioned as public-welfare services, including those newly built and expanded afterward, have almost all been converted to private or individually run operations, and have almost completely lost the nature and function of public-welfare services.
Some people believe that the sharp rises and falls in pork prices are due to insufficient supply-side structural reform, and advocate strengthening supply-side reform to conquer this price fortress. Supply-side reform is of course needed, but it is not a master key. Establishing a normal pork price formation mechanism should start by granting and continuously strengthening the public-welfare service attributes of vegetable markets. This is the key to breaking the dilemma of sharp rises and falls in the pig-farming industry.