ZHOUCUN, China (Reuters) - When Zhang Faqing received a letter from the government last December ordering him to close his pig farm on the outskirts of Beijing with just two weeks notice, he thought it was a joke.

Zhang Faqing shows discarded record cards in his pig farm on the outskirts of Beijing, China October 30, 2017. Picture taken October, 30, 2017. REUTERS/Hallie Gu

After local officials visited his farm in Zhoucun village a few days later to reinforce the message, the 47-year old realized it was no laughing matter.

Almost one year later, he is still waiting for millions of yuan in compensation promised by the government, more than a dozen pig pens that used to house his 15,000 hogs stand empty and he is still at a loss about what to do.

“I had to sell (my pigs) at whatever price the buyers offered, so I basically sold the meat at the price of cabbage. I lost so much money,” he said on a recent visit to his farm. He said he lost more than 70 million yuan ($10.57 million).

He is among hundreds of thousands of small pig and poultry farmers across the country that have been forced to close as Beijing has waged a three-year campaign to clean up the world’s biggest livestock sector.

China’s Ministry of Agriculture declined to comment for this article.

In the months ahead of the Dec. 31 deadline for complying with tough new standards, the pace of government inspections and shutdowns has increased.

That has spurred a 16-percent rally in hog prices since June amid concerns about a temporary squeeze in supplies of the nation’s favorite meat for Lunar New Year celebrations in February, the busiest season for demand.

(Graphic - China's hog prices rebound: reut.rs/2z8YF3A)

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In the long term, the policy will reshape the nation’s scattered livestock industry with a whopping 1.1 billion pigs squeezing out smallholders and boosting the share of industrial-scale farms as the government aims to develop more modern and efficient agriculture.

Backyard family-run operations with fewer than 50 pigs account for 90 percent of China’s hog farms, but only a third of supply.

With this push, big players like Guandong Wens Foodstuff Group Co. Ltd and New Hope Liuhe Co. Ltd who are building mega-farms each with millions of hogs, stand to grab a larger share of the pork market worth about 7 billion yuan ($1.06 billion).

“Pig farming in China will gradually develop into a semi-monopolistic structure, with major companies dominating the market and competing with each other,” said Zhu Zengyong, a researcher at the Agricultural Information Institute of Chinese Academy of Agricultural Sciences.

(Graphic - China's pig herd: reut.rs/2h8yqDs)

NO CHOICE

Zhang had little choice but shut up shop and sell his pigs because his farm was too close to a reservoir.

Tough new pollution standards will ban livestock production near water sources or heavily populated areas. Farms in other regions must meet higher standards for treating manure.

Yao Guilin, analyst with China-America Commodity Data Analytics, reckons the environmental inspections will have a significant long-term impact on meat supplies and prices.

The number of pigs sent to slaughter from small-hold farms will drop by at least 20 million this year to 380 million, which will only be partially offset by growth of 15 million in the mega-farms, she estimates.

After years of complaints about foul smells and filthy water from unregulated farms, many rural villages are now celebrating their pig-free status, claiming new revenue streams from orchards and ecotourism are starting to emerge.

But eight smallhold farmers with herds ranging from 50 to 15,000 located in Beijing and rural parts of Jiangsu, Shandong and Henan provinces interviewed by Reuters say they worry about the future.

One in western Beijing said she will probably build a hotel with the 20 million yuan ($3.03 million) pledged by the authorities in return for closing her 5,000-strong pig farm, but most said the cash won’t cover the losses from fire-selling their pigs and equipment at discounts.

Four are still waiting for compensation and struggling to find alternative income, with little experience of other work.

“The local government promised me an allowance of 500,000 yuan. However I think it should be at least 1 million yuan to compensate for the cost,” said a farmer from Shandong who gave his surname as Sun and sold his 100 pigs last month.

Another Shangdong farmer, who gave his surname as Song, said he’s been told by local authorities his 600-strong pig farm faces likely closure in a few years as the government is expected to expand the pig-free zones.

In the Beijing suburb, where piles of discarded vaccines and animal feed now sit unneeded, Zhang says he’s contemplating building an organic pig farm nearby. But without the government cash, he is stuck.

“All the blood and heart I have invested (in my business) were all cast to the wind,” Zhang said.