China Unleashes SPR (Strategic Porcine Reserve) As Pork Price Surge Threatens Social Unrest

As we detailed recently, in addition to its sub-prime debt crisis, China is dealing with an issue that is just as troubling, if not more so: Porkflation. Due to a drop in global production of pig meat, pork prices in China have been skyrocketing at both the wholesale and retail levels.

Retail prices

And wholesale prices

As we also noted previously, Pork's role in CPI is also being felt (factors heavily into the CPI basket), as China's broad-based CPI is creeping up.

 

Porkflation is a very delicate, and very concerning issue for China. The massive amounts of layoffs that China has experienced as a result of a slowing economy has already lead to some social unrest, and pork prices exploding higher for those unemployed will only add fuel to that simmering fire. Social unrest is something that we've been discussing for quite some time as a critical risk factor in China, something that the mainstream media continues to overlook (primer here). As a reminder, the number of strikes that China has experienced has significantly grown over the years, and a growing social unrest is something that the government does not want to deal with, especially as the economy implodes and needs to be the focus for now.

 

 

As such, Beijing has announced that it will release 3.05m kilograms of frozen pork reserve into the capital's market between May 5 and July 4, in an attempt to lower prices.

The impact on prices may be short lived however, as China may not have the sows to be able to continue the subsidy.

China's total sow stock has fallen...

Evan as pork imports have climbed to record levels, going back to 2008.

With that said, one can understand why China won't be implementing a broad based economic stimulus any time soon that would push inflation even higher (RRR cuts or QE). Instead, in an effort to not completely push the citizenry into panic mode, injecting credit piecemeal into the economy will be the path forward - for now.