Walking through swarms of flies at his piggery on the outskirts of Beijing, Liu Jin shows off 1,500 hormone-free black hogs raised for China's growing organic meat market.

Liu employs a dozen people to look after the swine that are kept in indoor sties and outdoor pens -- the type of large-scale operation China hopes will one day replace the millions of "backyard" farms across the country.

"Even ordinary people care a lot about whether their food has hormones," said Liu, describing his pigs as "green".

About 90 percent of China's estimated 40 million pig farmers raise fewer than 50 hogs and account for about one third of supply, according to Dan Wang, an analyst at The Economist Intelligence Unit.

Poorly educated and lacking an understanding of market cycles, they often buy and sell their pigs at the wrong time, triggering supply disruptions and price volatility.

To stabilise the industry and encourage cleaner large-scale production, Beijing has been cutting back subsidies for smaller farmers and rolling out stricter environmental regulations to force backyard producers to expand or get out.

"The larger farmers have a very steady production cycle but the smaller ones don't," Wang said.

"The government wants to commercialise the entire pork industry -- they don't want small farmers."

- Farmers disappearing -

China consumes more pork than any other country, with the average person gobbling 20-40 kilogrammes a year, according to analyst estimates, and its farmers are struggling to keep up with demand.

The country's world-beating output fell in the last two years as authorities ordered farmers to install waste disposal systems, properly dispose of carcasses and move foul-smelling piggeries away from drinking water sources and urban areas.

But many backyard farmers cannot afford the additional costs and an estimated 10 million left the sector last year, contributing to a doubling of China's pork imports.

Wang Landong, 52, has been losing money on his 100 hogs for the past two years due to price swings and government subsidy cuts for vaccinations.

"The pig industry is hard and miserable," said Wang, who, despite the difficulties, feels he has invested too much money in his farm in eastern Shandong province to quit.

The decision may eventually be out of his control.

"Many of them will disappear in the next five years," said Chenjun Pan, a senior analyst at Rabobank.

China's move towards industrial-scale pork production is part of a broader plan to develop a more modern and efficient agricultural sector that it hopes will lead to improved productivity and -- importantly -- food safety.

High-profile pork scandals in recent years have exposed some of the unsavoury practices in the industry, including the dumping of thousands of dead pigs in a river near Shanghai and the sale of meat from diseased swine.

Some pig farmers, like Liu, are exploiting the growing demand among Chinese consumers for higher quality produce that is safe and free of chemicals.

The Beijing restaurant owner spotted an opportunity to make money from hormone-free pig farming five years ago.

He chose black hogs instead of the more common white variety because the market was relatively stable and the meat attracted significantly higher prices in the market.

After starting with 10 piglets he now has a herd of 1,500 pigs and makes as much money from them as his restaurant.

- Hedging against risk -

China is also using the financial market to help large-scale producers, launching a pork price index earlier this year that it hopes will pave the way to a futures contract.

The index is a gauge of the current market price for white pork meat. It is updated daily using data collected from 89 slaughterhouses in 16 provinces.

But the index would be of little use to farmers who were more interested in the price of an actual pig than its meat, said Feng Yonghui, chief analyst at Soozhu.com, a website focused on the pork industry.

A futures contract, however, could help them hedge against financial risk.

But the market was still too fragmented for that to work well, said Wang, the analyst.

"I can see that in 30 years China would have large-scale farms producing over 60 percent of hogs. That would be a better time to launch the futures option," Wang said.

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