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China to close down small slaughterhouses to control African swine fever

China's agriculture ministry announced today (5 November) that it will reduce the number of small-scale slaughterhouses to better prevent and control African swine fever.

5 November 2019, at 11:07am

There are too many small slaughterhouses in some places in China, equipped with old facilities and backward production techniques, and checks on the pork quality are not done properly, the Ministry of Agriculture and Rural Affairs said in a statement on its website.

The ministry will start reviewing slaughterhouses in some regions from mid-November and shut down those that do not meet the requirements, the ministry said.

China's top pig producers only recently posted their highest ever profits in the three months to September, as soaring hog prices more than compensated for losses resulting from African swine fever, reports Reuters.

The huge profits underline how the fatal pig disease, which has killed millions of hogs across Asia and left many small farmers bankrupt, has proved a major opportunity for the leading producers in the world's largest but highly fragmented hog sector.

Wens Foodstuff Group Co Ltd, Muyuan Foods Co Ltd , and New Hope Liuhe all saw third-quarter profits more than double from the previous year's level.

Muyuan's net profit of 1.54 billion yuan ($218.88 million) was twice as high as its previous best quarter.

The sharp turnaround comes a year after the disease broke out in China and spread rapidly across the country.

The herd has shrunk by 41 percent year-on-year in September, pushing live hog prices to 30 yuan per kilogramme in some provinces.

pork processing plant

For large producers, even if they lost some sows to the disease, prices are so high now that they are still earning much more than before.

"Upstream hog breeders suffered losses in the first quarter of 2019. However, prices started to rise due to tightened supply from the second quarter, which helped the breeders turn profitable," said Fitch Ratings in a note on Wednesday.

Hog margins averaged about 1,625 yuan per pig by the end of the third quarter.

"While production costs are basically the same, pig prices keep soaring. The growing spread is all profit," said Mao Yifan, analyst with Industrial Securities.

The companies are also gaining market share after price volatility earlier in the year pushed many smaller farmers out.

Wens, which produced 22 million pigs in 2018 and had a market share of 3.2 percent, had increased its share to 3.8 percent by the end of September, said Becky Han, associate director of APAC Corporates at Fitch Ratings.

It is targeting a 10 percent share of the market, producing about 70 million pigs, by 2027.

With hog margins now at more than 3,000 yuan per pig in many southern provinces, profits will grow much more in the fourth quarter.

Zhongtai Securities analysts expect Wens to report full-year profits of 20.87 billion yuan, a fivefold increase on last year.

Muyuan profits will jump 10 times to 5.2 billion yuan, say China Merchants Securities analysts, and hit 30 billion yuan in 2020.

Even if the disease hits a small number of the companies' farms, margins are so high that profits at the other farms will more than cover the losses, Darin Friedrichs, senior analyst at INTL FCStone, said last week.