The New York Times - 08.10.2019

B6 N THE NEW YORK TIMES BUSINESSTUESDAY, OCTOBER 8, 2019

INTERNATIONAL | COMPANIES

China is hardly alone in stock-
piling food at gigantic scale. The
Canadian province of Quebec, fa-
mously, has a maple syrup re-
serve. Until not that long ago, the
United States had a national raisin
reserve.
But yes, the idea of a strategic
pork reserve raises some ques-
tions. Let’s take them in turn.

Why does China have a pork
reserve?

The system was created in the late
1970s, just as the nation began
emerging from economic ruin.
Mao’s government had kept emer-
gency stockpiles of grain, salt and
sugar since the ’50s as part of the
planned economy. As the country
introduced market reforms, re-
serves became a tool for control-
ling price swings, not just for pork,
but for beef, chicken and lamb, too.
In addition to the latest pork de-
ployments, 2,400 tons of beef and
1,900 tons of lamb were put on the
market in early September.

How much pork are we talking
about?

The exact numbers are a state se-
cret. No, seriously.
Officials have, however, given
some hints. Part of the point of a
reserve is psychological. If there’s
too much secrecy, the reserve
loses its power to reassure people
that supplies are ample.
In a 1996 essay, an official with
China Foods Limited, a govern-
ment-affiliated company that
managed the national pork re-
serve, wrote that the official stock-
pile had grown to 200,000 tons

from around 20,000 tons at incep-
tion. The number dipped in the
early 2000s, researchers say. But
it seemed to have recovered by
2011, when, amid a bout of infec-
tious disease that brought pork
prices to new highs, China’s com-
merce ministry said the national
reserve held around 200,000 tons.
The big question, of course, is

whether the reserves could ever

be large enough to have a mean-

ingful effect on prices. China con-

sumes over 50 million tons of pork

a year, or nearly half of the pork

that is eaten annually by all of hu-

mankind. Most that comes from

pigs raised within the country.

But analysts estimate that Chi-

na’s herd is already 40 percent

smaller this year than last, as

hogs die from African swine fever,

are culled to control the disease’s

spread or are never born in the

first place. Analysts at Jefferies,

the investment bank, predict that

the nation will produce 30 percent

less pork this year compared with

last year, a drop of 16 million tons.

Against those numbers, even

200,000 tons of emergency meat

can seem like a drop in the ocean.

Where is all that pork kept?

China’s central government has

more than a dozen storehouses,

each of which can hold around

10,000 tons of frozen raw pork.

There are also private and state-

owned companies that work with

the authorities to manage na-

tional and local reserves.

These companies mostly keep

their pork in unmarked suburban

warehouses, where the meat

stays at the state-mandated tem-

perature of minus-18 degrees Cel-

sius, or just under zero degrees

Fahrenheit. In 2013, a reporter in

the eastern province of Shandong

got a peek inside one such facility,

where 1,500 tons of pork was sit-

ting behind a double-locked door.

The guard at the warehouse was

wearing eight layers of clothing.

Technically, though, China’s

pork reserves don’t contain only

meat. Since the ’90s, the govern-

ment has stockpiled live pigs, too.

In 2007, when reporters in

Shandong visited a farm that bred

pigs for the provincial reserve,

they found tens of thousands of

hogs running around in what

sounded like pretty idyllic condi-

tions: “The area is lush with vege-

tation and shaded by trees. The

hog house is tall and spacious.

There is heating in the winter and

ventilator fans in the summer.”

And then there is Yunnan, a

southwestern province famous

for its ham. The local government

there said last year that it held

3,000 tons of ham in addition to

132,000 live pigs and 400 tons of

frozen meat.

How does strategic reserve

pork taste?

Just fine, apparently.

The government mandates

pork in the reserves be swapped

out three times a year, which

means no meat is supposed to

stay more than four months.

Recently on Weibo, the Chinese

social media platform, a user

wrote a post titled “Today I

Bought Government Reserve

Pork.”

The pork in question was found

at the local supermarket, the user,

@lbtgs, wrote. It was labeled “No.

4 meat,” which is government

code for pork leg. It was cheaper

than the “non-reserve pork” he

found at the same meat counter,

he said, so he gave it a shot.

“The quality isn’t bad, and it

doesn’t smell weird,” he reported.

“It is totally edible meat.”

Stockpiling Hogs for a Rainy Day in China

Workers unloaded carcasses, above,

and transported meat, near left, at a

warehouse near Beijing, part of

China’s national pork reserve. Far

left, a meat market. China sold

30,000 metric tons from the national

reserve last month.

PHOTOGRAPHS BY GILLES SABRIÉ FOR THE NEW YORK TIMES

FROM FIRST BUSINESS PAGE

entities that have settled with the
utility, plus $8.4 billion for wildfire
victims. PG&E’s plan would be fi-
nanced by a combination of bank
loans and the proceeds from issu-
ing new shares.
The offer has been rejected by
lawyers representing a commit-
tee of fire victims, who say the
amount is insufficient to cover
tens of thousands of claims from
victims of fires sparked by PG&E
equipment since 2015. Instead, the
committee has thrown its support
behind a rival reorganization plan
spearheaded by a group of PG&E
creditors that includes prominent
hedge funds, including Elliott
Management, and Pacific Invest-
ment Management Company, the
mutual fund giant.
“The only lever that appears to
have been effective in pressuring
the debtors to attempt to move the
plan process forward has been the
ongoing threat of an alternative
plan,” the groups said in a filing
last week.
They have asked the bank-
ruptcy judge, Dennis Montali, to
allow a competing proposal under
which the funds would invest
$29.2 billion, and offer up to $14.5
billion to individual fire victims.
The funds would get a majority
stake in the reorganized PG&E,
gaining control from the current
shareholders, many of which are
also hedge funds.
Lawyers for PG&E have argued
in court filings that the bondhold-
er plan is an effort by hedge funds
and victims’ lawyers “to do a deal
to overpay each other” with the
utility’s assets. The company says
it has obtained commitments for
$14 billion in new equity capital
and $34 billion in new debt financ-
ing with “terms far superior” to
the bondholders’ plan.

Stephen Karotkin, a PG&E law-

yer, said that “there are plenty of

alternative sources of capital out

there” if the utility’s liabilities are

higher than expected, but he did

not get specific.

After a heated court hearing on

Monday, Judge Montali deferred a

decision on whether to end

PG&E’s right to shape the bank-

ruptcy plan, saying he would rule

soon on whether to let alterna-

tives proceed.

Along with the jockeying over

control, lawyers for wildfire vic-

tims are pushing back against a

court-imposed deadline of Oct. 21

for wildfire victims to file damage

claims against PG&E. While

about 30,000 claims have already

been filed, the lawyers have

warned that up to 70,000 people —

many still struggling to find stable

housing or cope with trauma —

may be left behind.

“How many fire victims are suc-

cessfully going to be precluded

from bringing their claims?”

Steven Skikos, a lawyer appointed

by the court to represent victims’

interests, asked the judge Mon-

day. “That is the battle here.”

Judge Montali indicated sensi-

tivity. “Why should we have a cor-

porate control battle when we re-

ally ought to be prioritizing the

victims?” he asked. But after Mr.

Skikos said he intended to file a

motion to delay the cutoff date, the

judge was noncommittal on when

it might be considered. If there is

merit for an extension, the judge

said, the issue could also be ad-

dressed after the deadline.

PG&E’s ultimate exposure will

be probably influenced by find-

ings in other courtrooms.

Judge Montali has asked a fed-

eral district judge to estimate

those damages, with testimony

from expert witnesses set for Jan-

uary. And in response to lawsuits

by wildfire victims, a California

Superior Court judge has sched-

uled a January trial to re-examine

whether PG&E was responsible

for a devastating 2017 fire in the

state’s wine country, which the

state initially concluded was not

caused by the utility.

PG&E has said it will pay all

claims approved by the court.

While its plan stipulates an

amount for damages to wildfire

victims, a lawyer familiar with the

case said the figure was a place-

holder in negotiations and efforts

to secure funding for reorganiza-

tion plans, not a maximum pay-

out.

Lawyers presenting the rival

plan said they were prepared to

revise their proposed numbers as

well.

Other interests will have to be

weighed in the case. Regulators

and consumer watchdog groups

warn that PG&E’s plan does not

do enough to protect ratepayers

against the prospect that they will

have to absorb liability costs in

their bills.

The liabilities that drove PG&E

into bankruptcy arise in large part

from a provision of California’s

constitution under which it is re-

sponsible for damage caused by

its equipment even when no negli-

gence is involved. It is pushing to

complete the bankruptcy process

by a June deadline to take part in a

new fund established by the State

Legislature to help provide utili-

ties with a backstop against liabil-

ity exposure in the future.

Outside the courtroom, con-

cerns persist about PG&E’s safety

and record-keeping practices.

Last week, state regulators an-

nounced that the utility would pay

$65 million to settle claims that it

had falsified records related to gas

pipeline safety. PG&E is on proba-

tion after its conviction on crimi-

nal charges of violating federal

pipeline safety regulations and

obstructing investigations after a

deadly 2010 gas pipeline explo-

sion.

Over the summer, a federal

monitor in the probation case also

found “systemic” shortcomings in

fire-related public safety efforts

by PG&E’s electricity business, in-

cluding a failure to identify and

trim trees that threaten to hit

power lines.

One prospect in PG&E’s diffi-

culties is that it could be broken

up. San Francisco city officials in

September offered $2.5 billion to

take over the company’s local

power generation equipment. The

utility said in a statement that it

did not “believe municipalization

is in the best interests of our

customers and stakeholders,” but

that it would continue discussions

with the city.

As PG&E’s future is sorted out,

many who will be affected are far

from the courtrooms.

Inez Salinas, a 34-year-old hair-

stylist, and her daughter, now 3,

were uprooted for months after

their uninsured trailer was incin-

erated last year in the Camp Fire,

which destroyed the Sierra foot-

hill town of Paradise. With the

help of the Federal Emergency

Management Agency, the Red

Cross and a volunteer builder,

they moved over the summer into

a tiny house in a rugged area near

Paradise. It is powered by a gener-

ator, and it would cost tens of thou-

sands of dollars to add a well and a

septic system.

Eventually, Ms. Salinas would

like to build a more permanent

homestead. She found a lawyer

and has been told that a claim on

her behalf was filed with PG&E,

which was blamed for the fire. She

is unsure how much she will re-

ceive or when, but she is counting

on something.

“Otherwise, I really have no

way of building,” she said.

PG&E crews after the Camp Fire. Concerns persist about the utility’s safety and record-keeping practices.

ELIJAH NOUVELAGE/REUTERS

FROM FIRST BUSINESS PAGE

Lauren Hepler reported from San

Francisco, and Peter Eavis from New

York. Ivan Penn contributed report-

ing from Los Angeles.

As Stakeholders Circle in Bankruptcy, California Utility Fights for Its Future