Why Can't AI Save the 'Skyrocketing' Pork Prices?

[baoshi.rao]

The high-tech industry has started intelligent pig farming, but due to factors like industry scale and timelines, its impact on current pork prices may be negligible.

Over the past few years, the six-word mantra we've heard most often is 'technology changes lives.' From the 'New Four Great Inventions' to 'ABCD5,' new technologies have emerged dazzlingly, only to be abruptly grounded by pigs caught in the wind—failing to deliver.

On one side, tech giants like NetEase, Alibaba, Tencent, and JD.com have ventured into smart agriculture, becoming 'pig farmers.' On the other, traditional pig farming groups like Wens and Muyuan have also introduced intelligent measurement devices en masse, attempting to transform into 'the Googles of pig farming'...

Unfortunately, these combined efforts haven't brought significant changes to the pork consumer market. So far, pork prices continue to soar, seemingly about to bid farewell to us ordinary folks.

How is it that high-tech solutions, which can effortlessly manage megacities of tens of millions, collectively fail when it comes to pigs? The mystery behind this is worth pondering.

Pig farming becoming a focus of high-tech transformation isn't news. Unlike real estate tycoons 'using farming to acquire land' or steel giants 'saving the nation through indirect means,' tech companies have sung 'We Are Different,' carving out a unique path of technological pig farming that replaces and surpasses traditional models.

The first-generation exploration of tech-driven pig farming likely began with NetEase's high-profile announcement. CEO Ding Lei bluntly stated: China's pig farming industry is stuck at a century-old level. While harsh, it was the truth.

In 2009, pig farming was mostly small-scale, with poor hygiene, low yields, and questionable quality, plagued by issues like antibiotics and water-injected meat. NetEase adopted the 'self-breeding, self-raising' Muyuan model, building pig apartments, playing music, ensuring exercise, and adhering to a 300-day slow-growth cycle.

The resulting 'eco-pigs' were indeed higher quality but also more expensive, priced at 40-50 yuan per jin, far from ordinary consumers' tables.

Later, Alibaba and JD.com introduced AI pig farming, marking the industry's second tech iteration. The core logic was using AI+IoT+SaaS for comprehensive,精细化智能管理. For example, Alibaba Cloud partnered with Sichuan Tequ Group and Dekon Group to deploy the 'ET Agricultural Brain' for targeted training and R&D.

JD.com followed suit with its JD农牧智能养殖解决方案, collaborating with China Agricultural University on the 'Fengning Smart Pig Farm Pilot.'

The giants' efforts boil down to two goals: increasing PSY (piglets per sow per year) and improving feed-to-meat ratios (pounds of feed per pound of pork), aiming to maximize output and minimize costs.

With nine years of compulsory education under their belts, consumers might think: higher supply and lower costs should mean cheaper pork, right? This is where AI shines, particularly in three areas:

1. Breeding Cycles: AI helps optimize sow breeding, using machine vision and algorithms like Alibaba's 'pregnancy diagnosis algorithm' to improve success rates and litter sizes.

2. Reducing Mortality: High piglet mortality, often due to crushing by sows, is mitigated by AI-driven sound and temperature monitoring for timely intervention.

3. Health Management: IoT devices track individual pigs' health, enabling automated adjustments in feeding, ventilation, and lighting to maximize growth.

Despite these advances, pork prices haven't dropped. Why? Because high-tech pig farming remains limited in scale. Even after industry consolidation, China's规模化养殖水平 lags behind the U.S., where top farms account for 45% of output. Small散户 still dominate the market, diluting the impact of tech-driven efficiency gains.

Moreover, pig farming's natural timeline is long—at least 18 months—and改造 costs are high. Wang Jianlin once remarked: 'A 100,000-head farm costs billions. How much does a five-star hotel cost?' Current projects are mostly pilot demonstrations, with Alibaba targeting 10 million pigs by 2020 and JD's first 'AI pigs' only hitting the market in mid-2019.

Tech also can't address downstream supply chain inefficiencies or external shocks like disease outbreaks. Pork prices at retail are 30% higher than farm-gate prices due to middlemen, slaughterhouses, and transport costs—all硬成本 unaffected by tech.

In short, soaring pork prices are a whole-industry phenomenon. While smart tech can boost farming efficiency, expecting it alone to lower prices is wishful thinking. For now, dreaming might be faster.

It seems that high technology is not omnipotent after all. We can only wait for this round of the 'pig cycle' to naturally come to an end. After all, if we wait long enough, affordable pork will eventually return...

However, what needs reflection is that in this recurring cycle of 'high prices hurting consumers, low prices hurting farmers,' there is often collective panic and repeated policy adjustments and inefficiencies. In such situations, perhaps we can glean some modest, albeit not entirely responsible, suggestions from markets that have successfully stabilized pork prices.

Let’s first discuss an interesting phenomenon: the industrialization of pig farming in the U.S. was not solely due to the foresight of pig farmers but largely driven by the accelerated consolidation of mid- and downstream processing and retail sectors.

Starting in the 1960s, U.S. slaughterhouses and processing plants underwent a wave of mergers and acquisitions. At the same time, downstream retailers also began consolidating rapidly. By 2009, the top four slaughterhouses, led by Smithfield, accounted for 70% of the market share, while the top 20 retailers captured nearly 82% of the sales market.

To ensure quality and reduce costs, retailers began bulk purchasing from large slaughterhouses. In turn, the surviving slaughterhouse giants, which controlled the industry's lifelines, naturally pushed for large-scale, intensive pig farming through contract production or direct upstream expansion.

In contrast, the mid- and downstream segments of China's pork industry, such as slaughtering and retail, still face significant concentration issues. In 2017, there were very few large-scale slaughterhouses in China, with only 2,076 semi-mechanized enterprises generating annual revenues exceeding 5 million RMB, accounting for just 10.5% of the national total.

The retail sector is even more fragmented, with thousands of wholesalers and retailers operating in Beijing alone. This leads to delayed decision-making by pig farms, which often adjust production capacity based on current prices, resulting in herd behavior of 'buying high and selling low' and exacerbating cyclical price fluctuations.

In other words, the mid- and downstream segments, where industry giants have yet to make significant inroads, present enormous transformation opportunities and social impacts, much like pig farming itself. The untapped potential in these sectors may be waiting for tech-driven players to step in.

Additionally, in markets like the U.S. and Japan, where pork prices are relatively stable, the pork industry is not left entirely to the free market's supply-demand dynamics. Instead, it operates under a series of protective mechanisms supported by ancillary industries.

Take Japan, for example. Many articles claim that Japanese pig farmers need not worry about losses because the government provides subsidies to ensure profitability. However, this is only half the story. Beyond government subsidies, policymakers collaborate with insurance organizations and associations to offer pig farming insurance services. This not only prevents fraudulent claims by farmers but also mitigates the inefficiencies of slow government subsidy adjustments during the 'pig cycle.'

China has already established a pork price/income insurance mechanism, but it relies heavily on government subsidies. The introduction of reinsurance and other financial services into pig farming is still in its infancy, and emerging smart financial solutions may hold promise.

In short, the biggest lesson from this wave of 'resilient pork' price hikes is that high technology is not a cure-all. However, its integration across industries might eventually create an unexpected 'utopia.'