Now it’s pork

First it was vegetables and fruit. Now pork has joined the inflation drivers and, given the importance of that meat to the national diet, this is significant. China contains around 55 per cent of the world’s pigs and average pork consumption by the average urban Chinese adult amounts to one animal a year.

A scandal erupted last month over feeding the chemical clenbuterol to pigs: it makes them leaner and their meat more attractive to up-scale consumers but can be poisonous to humans. Now that pork prices are surging, the clenbuterol scandal in Henan, unveiled by state television, will add to the market advantage of food companies with a safety record consumers can trust. With fresh reports of chemical tampering with milk, those firms will become premium destinations for investment.

Continuing food inflation pressure is expected to squeeze retailers as the central government gives local governments responsibility for capping prices. As China goes into the wide-ranging shake-up of political personnel in the run-up to the next Communist Party Congress in October 2012, officials will be keen to get good marks on their score cards. The big food processors and retail chains are the obvious candidates for a squeeze from above (local politicians) and below (farmers). Tingyi and Want Want have already suffered shrinking margins. Yes, the China consumption story is real but, like everything else, it has to be put into a wider investment context.