China’s hog industry is evolving from backyard and professional household hog production to commercial operations. The change has been led by increases in vertical integration, increases in domestic and foreign investments, and government subsidies. Despite these changes, small backyard operations still constitute a large share of production, and concerns exist as to whether the Chinese marketing system with limited infrastructure is providing appropriate signals to increase production scale to meet increasing demand for pork. While considerable work has been performed to assess the degree of efficiency in Chinese grain markets, few studies have examined the performance of Chinese pork markets. Here, using data from 1999 to 2009, we use procedures to analyze the characteristics of provincial pork prices. The analysis identifies considerable spatial heterogeneity in China’s pork prices among provinces due to differences in local production factors, animal disease impacts, and demand determinants. Over time, the findings indicate that price movements between important markets are not highly linked. Prior to June 2007, long-run price relationships fail to materialize. Only in more recent years do we find a strengthening of market linkages consistent with those reported in China’s grain markets. The limited temporal linkages in pork markets corresponds closely with observed spatial heterogeneity in provincial prices, and with a marketing system constrained by infrastructure, particularly cold transport and storage. The results call attention to a fragmented hog industry, and identify the need for investments in the pork marketing system. Failure to improve the marketing system may in the future result in a more geographically consolidated and less competitive industry than China’s government intends.
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Spatial Integration in China's Pork Markets, 1999-2009
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