Will China's little piggies soon go to the market?
By Zhang Ran (China Daily)
Updated: 2006-03-15 06:12

China should allow pigs to be bought and sold on commodity exchanges in an effort to stabilize fluctuant pig prices and increase farmers' incomes.

So said Zhu Yuchen, director of the Dalian Commodity Exchange (DCE) and deputy of the 10th National People's Congress (NPC), speaking yesterday in Beijing.

"An exchange will help to stabilize the price of pigs, reduce related risks for producers and consumers, and help to increase farmers` income in rural areas," Zhu said.

Since 2000, the DCE has been studying the feasibility of having a futures exchange on pigs.

The China Securities Regulatory Commission (CSRC) said it would look into the idea.

"In the long run, we hope there will be more and more different types of products transacted in futures exchanges. But first the CSRC needs to organize a team to do some research on the feasibility of pig transactions on commodity exchanges," said an assistant to Zhang Banghui, vice-director of the department of futures supervision with the CSRC.

Pork is the most popular meat in China. The country plays an important global role producing, selling and consuming pork. The pig-raising industry pumps a lot of cash into the nation's coffers and farmers' pockets.

However, prices began dropping sharply in 2005 when supply exceeded demand, causing farmers and pig traders to lose money and threatening the market.

According to Zhu's proposal, if pigs can be sold on futures exchanges, such a transparent transaction system would help lead to reasonable pig prices.

He said such transactions would provide an extra instrument for related companies such as pork-processing manufacturers and pork traders to balance t heir books and reduce operating risks.

Zhu believed that the time is ripe to launch pig futures transactions.

"Technically, it is easy to distinguish between breeds and grades, and a nationwide quality control standard has already been established. China has developed advanced technology on storing pork. This all means it is the right time to have transactions."

Huang Yinghong, a futures researcher at the University of International Business and Economics in Beijing said more than 100 developed countries had futures transactions on pigs.

"The pig is a commonly transacted product on Western futures exchanges. For example, the Chicago Merchandise Exchange was one of the major exchanges to launch pig and cattle futures transactions in the nineteenth century," Huang told China Daily.

Huang also thought now would be a good time to buy and sell pigs on a futures exchange.

But he said any new product involves a lot of preliminary work.

Furthermore, if the price of a product on the futures exchange is manipulated, it will probably affect the price of spot transactions.

"So decision-makers must be very careful."

Agricultural products already bought and sold on domestic commodity exchanges include wheat, cotton, corn, sugar and soybean oil.

(China Daily 03/15/2006 page11)