Quote_left

It is estimated that every dollar of agriculture export value generates an additional $1.48 in supporting industries, roughly $171 billion in added value last year alone.

Analysis: China reaches a crossroad in rebuilding its hog industry

Date: 11/6/2019

China_systems

Simon Quilty

At the recent Leman China Swine Conference I listened to Chinese hog producers large and small, Chinese swine academics and their US counterparts speak on a vast array of topics on ASF in China and how the China pork industry will eventually rebuild itself from this disease.

I believe the China pork industry is coming to several crossroads on how the industry will evolve from here - in this paper I look to explore these potential evolution options

The different paths that China will go down is in the hands of industry, government and researchers but many decisions I believe will be out of their hands as African swine fever will ultimately dictate the final terms.

The key cross road issues I see are as follows: * China’s small farms versus large farms – will small farms survive?

  • Vaccines versus biosecurity – should a vaccine be found is there a need for biosecurity?

  • Big business – how with this look in the future?

  • Heavy pigs versus light pigs – has pig production changed forever?

  • Government transparency – will this improve?

Does ASF spell the end for small hog producers in China?

So much of the answer to this question depends on whether a vaccine is found for ASF. If no vaccine then it is likely that the role of finishing hogs will be left to large commercial operations as they have the capability of introducing the strict biosecurity measures required.

The biosecurity steps required to manage ASF dominated the presentations in the three-day Lemin China Swine Conference with both US/Chinese research experts and industry players from both countries each outlining how they have succeeded with either ASF or with other diseases such as PRRS (porcine reproductive and respiratory syndrome) and HCV (hog cholera virus) in managing these diseases.

It should be noted that sow rearing operations in China, which is dominated by large commercial operators, all spoke of the success of their biosecurity measures – so much so, that it is estimated that the top 10 sow operators will each have 1 million pigs by Q1 next year in 2020.

What is clear from all the presentations is that biosecurity is costly for all concerned, these costs range from the expensive chemicals needed to clean, the extra man power to do the cleaning, lost days in production, trucks needing to be cleaned and the list goes on and on – and for good reason, without these strict procedures reinfection will occur.

Medium and large businesses have the ability to afford these costly procedures but for the majority of China’s small farm operations the level of biosecurity required is likely to be cost prohibitive.

The number of small hog producers impacted is estimated to be 41.6 million pig farm operations, (based on 2016 National Statistics of China data) presented by Professor Dirk Pfeiffer, of City University of Hong Kong – Professor Pfeiffer later said these numbers were potentially slightly less in recent years but stressed that the majority of small farmers (1-99 in hog numbers) did the majority of finishing in China.

There is no doubt to me that the significant loss of small farming operations from the hog production system would lead to enormous social problems such as large scale unemployment in rural regions, removing important revenue from rural communities and would have many flow on affects to other associated enterprises which inevitably would lead to the abandonment of small scale hog facilities.

This is why the development of a vaccine is essential as this will eliminate the need for such strict costly biosecurity measures and enable small hog producers to re-enter into this space and continue to make a living – a vaccine is the ‘silver bullet’ for small hog producers to survive - without it there current existence is in question.

Vaccine versus biosecurity – what is the real cost?

Professor Qiu in his opening address at the conference outlined why he thought the development of vaccines in China to date had not been successful.

Firstly, there had been insufficient basic research – the issue being the complexity of African swine fevers biological characteristics and strain specificity. He noted that the ASF genome is huge with over half the genes still unknown, he described the infection and immune mechanisms as being very limited.

Secondly, the live virus operation restrictions within China had held back progress – researchers are needing primary ASF cells to isolate the virus, which in turn enables them proliferate the virus – both of which are difficult, given the government imposed live virus operation restrictions. The end result is that China’s vaccine production lacks suitable stable cell lines of ASF which has hampered the development of a small animal infection model. Progress so far has seen Harbin Veterinary Research Institute develop several candidate vaccines and an initial laboratory evaluation of these potential vaccines but that is it, so far – a successful vaccine has not been found yet.

Several other researchers at the conference reiterated the need for strong science based clinical trials and if the testing was not done correctly could result in the situation becoming even worse (if that’s possible) as an incorrect vaccine could mask the disease for an extended period – resulting in more contamination and spreading of the disease unknowingly with other pigs.

So, as China’s hog industry waits for a vaccine to be developed strict biosecurity measures is the number one means of ASF prevention and control.

Estimated biosecurity costs within China

It has been estimated that the cost for large commercial hog operations to introduce the strict biosecurity measures is about 42 RMB/pig ($6 USD/pig) per operation that might turn off 420,000 pigs per year – this cost is often being payed up front with the need for expensive chemicals and other costly inputs.

Biosecurity cost estimates on small farms have been estimated closer to 220 RMB/pig ($30 USD/pig), which is more than five times that of the commercial operators and this still has no guarantee of success.

To save money some small operators have opted for cheaper chemicals like calcium oxide which does not kill the ASF virus. The concern is that reinfection is likely if incorrect biosecurities measures are taken.

In the race to try to find a vaccine China has engaged eight universities and a minimum of seven biological product companies.

Funding of the vaccine research is coming from four separate Government departments including; China’s Ministry of Science and Technology, China’s Academy of Science, China’s Ministry of Agriculture and China’s Academy of Agricultural Science.

The vaccine strategy is to try to find a gene deletion vaccine, a live vector vaccine and a sub-unit vaccine – but in reality, many researchers believe it will take many years to find an ASF vaccine solution.

It should be noted - it was well recognised by many participants at the conference that by China improving biosecurity across all of China’s hog industry it is likely to prevent other diseases – effectively ‘raising the bar’ in terms of hygiene procedures and steps to minimise further infections of all swine diseases in the future over the long term.

In summary, should a vaccine be found it could see these strict biosecurity procedures disappear and the industry return to its ‘old ways’ and the industry will be again be susceptible to more diseases in the future, conversely without a vaccine, the standards will lift and therefore minimise all future swine diseases but is likely to be at the expense of the small hog operator who cannot afford these strict biosecurity procedures.

Big business looks to dominate

There is no doubt that large commercial sow operations in China have succeeded in recent times to put in place rigorous biosecurity measures, many claiming that by early 2020 they would have rebuilt their sow herds back to one million head. The belief is that within one to two years the entire 30 million sow herd will be rebuilt.

I admire the sow producer’s belief and tenacity but the real issue I believe does not come from the sow production end of the industry, the true bottle neck really lies with growers – that is growing the piglets out as both weaners and/or as fatteners – this is where the bulk of production is done and where the greatest risk still lies with ASF.

There is real reluctance by smaller players to re-enter this finishing market, as so many have lost a lot of money and reluctant to borrow again.

In September this year China’s Government offered subsidies from China’s Central Budget to large pig farms to support expanding their current facilities in the belief this would stabilise pork supply – these subsidies ranged for 500,000 yuan to 5 million yuan (or $70,000 to $700,000 USD).

It’s clear to both Government and other industry participants that many large farms with modern facilities have better control of potential risks than smaller ones.

Many within China are predicting that further concentration of the pig industry is inevitable with small and medium size firms leaving with one Chinese analyst describing the current situation as 'challenging' but said that China’s pig breeding industry was heading towards a more intensive, environmental-friendly and disease risk resistant growth model.

Ideally, the Chinese government wants the best of both worlds with Professor Qiu opening address highlighting the words of Premier of the State Council, Keqiang Li - who on August 21st outlined the five measures to stabilise pork production and price - the third being, ‘develop large scale farming and support mid and small farmers in raising pigs.’

Without a vaccine the government focus to me looks to be on large commercial pig farms – some of the potential ways forward to achieve this goal I have outlined below.

Potential development of a closed production system

One suggestion is that with time we will see the evolution of a closed system on large farms whereby contamination from outside is unlikely.

This would involve companies ‘under the one roof’ producing the grain to feed pigs, sow operations, rearing operations and meat works – all located on the same site with little ability for foreign contaminants to enter into the closed loop.

This would avoid some of the costly biosecurity steps like wash down of trucks or ensuring feed was not contaminated.

The only issue with this concept is that it requires a lot of land – and the abundance of land in China is very restricted - large commercial players who I spoke to at the conference admit this constraint.

Owning animals further up the supply chain, double stocking

Another potential option is for sow operators to value add further up the supply chain and develop weaner barns - this was one of the presentations given by Dr Gordon Spronk, from Pipestone Veterinarian Services.

Dr Spronk outlined how the process would work, whereby it was feasible that sow operators would not only produce the piglets but also grow the piglets out during the weaning stage for 8 weeks, growing the pigs from 7 kg to 25 kg.

The advantage of this stage is that given the size of the pig operators they have the ability to hold in existing barns ‘double’ the number of pigs and therefore adding value and better utilising their own pens.

The importance of this stage is that by releasing the animals at an older age into the more exposed feeder barn stage it will lessen the fatalities, the longer pigs are held in an ASF free safe environment with high biosecurity systems, the greater the chances of survival. This double stocking approach does enable the small farm to co-exist with large farms but the bottleneck still exists in the small farm sector. The ongoing vulnerability of small farms does not go away due to the lower biosecurity measures (or complete lack of).

Co-operatives may evolve

One real possibility for small and medium size farms is the development of co-operatives enabling the large biosecurity costs to be shared.

The concept of co-operatives in China’s pork industry is not a new idea and there are many examples in recent history of these occurring such as in 2015 when fourteen large pig breeding firms joined forces to form Jin Chu Shou Chuang Pig Breeding Co cooperative. At the time the members of the co-operative combined their breeding herds and were able to leverage the procurement of inputs such as feed, at a time when China’s pig prices were rebounding.

Based on the success of the co-operative they decided in 2018 to build a slaughter facility came up with a potential new way of organising China’s pork industry in which they invested in building a slaughter facility, today the cooperative members have a combined annual pig production of 1.5 million pigs, and have pooled their investment of RMB530 million into a new firm, which slaughters two million pigs per year.

It would seem quite plausible that small and middle size operators ranging anything from 0-500 pig size operations could ban together to form medium to large scale operations similar to Jin Chu Shou Chuang Pig Breeding Co cooperative - to both lower input costs, share expertise in biosecurity and strengthen their sales by value adding through meat processing.

Heavy versus light hogs

One of the proposed solutions in the short term is for China to produce heavier hogs thereby lifting carcase weights and increasing production from less animals.

Many presentations were given on ways to do this without the need of using growth promotants and feed additives such as ractopamine.

The key steps about maximising weight gain in limited spaces were:

  • Meeting the nutrient needs of heavy weight pigs.

  • Ensuring adequate feeder space.

  • Adequate floor space.

  • Good ventilation.

  • Well managed manure disposal.

In the last 20 years China hog weights have been improving in general by improved genetics, evolution of effective feeding programs, increasing growth rates and new technology.

There is no doubt that since ASF we have seen pig weights in China increase from an average of 110 kgs up to 140 kgs in the last 12 months – there have been examples of much heavier pigs up to 500 kg but this is the exception not the norm. The driver behind this has been large feeding margins in China which have been close to $400 USD per head which has seen weights in general up 20-30% higher.

The need for government transparency

It’s clear if the disease persists that accurate surveillance is needed across China enabling epidemiologists to understand how the disease spreads and its characteristics.

The lack of information by the government has made it very difficult for this evaluation to occur. An important part of this surveillance has been the ability of Chinese farmers to now test on farm since July this year enabling a quick turnaround in results and limiting the spread of the infection within farms.

This procedure of early detection has led to the process of ‘China tooth pull’ whereby the diseased animal is recognised early before the disease manifests itself and ensures that the spreading is minimised as the 'rotten' tooth is removed before it can spread to others.

These new steps of on farm diagnosis and early detection has enabled sow breeders to start to rebuild quickly – leading the way hopefully for all of China hog producers to follow suit.

I think that without a vaccine then the need for transparent quality surveillance data becomes even greater as researchers try to evaluate the disease and its movement - thereby assisting in biosecurity measures not only within farms but just as importantly between farms.

I can understand that the concerns by the Chinese government with trying to manage supply risk and the need to try to buy imported beef, pork and chicken in place of the lost pork domestic production but as buying patterns normalise in 2020 and beyond, I believe greater transparency will come with that, particularly if there is no ASF vaccine.

Conclusion

Strong ASF biosecurity and an ASF vaccine ideally, should both coexist, but in reality, its human nature that we follow the path of least resistance and with an ASF vaccine the enormous efforts made to improve China’s biosecurity is likely to fall away.

As stated without a vaccine larger farms seem to be inevitable in China and smaller farms will get less in number, or need to join forces with other smaller enterprises, to potentially form cooperatives as a means to survive.

The ability of China sow producers in recent months to rebuild so quickly gives hope that the rest of the hog sector can follow suit. As stated, the challenge will be the rearing/fattening stages in the China pork industry which in the past has been dominated by small farms, in this paper we have alluded to how some future models may look.

I think we would all like to see an ASF vaccine produced but this could be years away and in the meantime rebuilding needs to occur – so there is a need to move forward in China and to me it should occur as if a vaccine will not exist – if one day it does get produced, then it’s a bonus.

The obvious steps being, strong biosecurity processes need to be introduced throughout the entire pork sector, continued support of larger farms and greater transparency of ASF to better understanding where, when and how it has occurred throughout all regions.

Even with these measures - the time line and production shortfall outlined by Professor Qiu in his opening paper of a 15-20 million tonne pork deficit per year for the next 3-5 years still to me rings true – but there is no doubt that once these challenges are overcome China’s pork industry will be a stronger and more robust pork industry than what it was before ASF.

Once again I would like to I would like to acknowledge the work of the University of Minnesota and the respective universities in China that together with assistance of the Chinese Government and China's private sector on putting together an outstanding conference.

Any feedback in appreciated

Regards Simon

simon.quilty@mlx.mx

Quote_left

It is estimated that every dollar of agriculture export value generates an additional $1.48 in supporting industries, roughly $171 billion in added value last year alone.