China’s farming industry has seen African swine fever sweep across the country, with mass culling of pigs and rising prices. But which countries could benefit?
African swine fever (ASF) has been squeezing pork supplies in China to a point where the country’s political leadership fears upheaval, as reflected by the social media networks influenced by Beijing restricting discussion on the outbreak. Even academic articles, if ASF-themed, now require explicit regulatory approval before publishing, informed sources in China, who requested anonymity, tell just-food.
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Pork is a major part of the Chinese diet and a huge market. Extrapolating data from the US Department of Agriculture that shows the average Chinese (plus Hong Kong and Macao) consumer in 2017 ate 40kg of pork in 2017, the Greater China market for pork was that year stood at 57 million tonnes.
According to market researcher Research & Markets, 1.27 million tonnes of pigmeat consumption was imported that year (Germany, Spain, Canada, Brazil and the US being the top five sources), with the bulk being produced domestically. The country also imported 1.23 million tonnes of pig offal in 2017.
According to the National Bureau of Statistics of China, the country produced 54 million tonnes in 2018 but, with around 1 million pigs having been culled across all provinces since the ASF outbreak took hold last last August, that production is falling fast. US government officials have forecast China will produce just 51.4 million tonnes of pork in 2019, pushing imports up to 2 million tonnes, or even higher.
Whereas spot wholesale prices for pigmeat had initially taken a nosedive due to panic selling, they have by now risen to around 25% higher than they were at the same time last year, at around CNY15 per kilogram, compared to CNY11.1 (US$1.60) according to pig information service pig333.com.
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By GlobalDataRabobank, the Netherlands-based financial services group, projects China may lose up to 200 million pigs from its national herd this year because of ASF, which would cause domestic pork production in the whole of 2019 to drop by 25-35% from 2018.
The fresh and frozen pork state reserve, with an estimated 320,000 tonnes of pork, or less than 1% of total annual consumption, is so limited it is only being used to keep prices in Beijing and Shanghai in check, the informed China-based sources say.
Whereas Chinese feed millers, plus soybean and grain importers, have been suffering drastic drops of demand, traders in China pork-breeding stocks have seen their shares shooting up to record levels, at least doubling over the past year, according to Hong Kong’s South China Morning Post.
A case in the point is Muyuan Foodstuff, a Henan province-based pig farmer, whose shares jumped 102% from June 2018 to June 2019, according to Shenzhen stock exchange data.
“Prices of piglets are exceptionally high, and the sow stock is historically low, which are two indicators for a worsening situation in the coming five to six months,” Wang Dan, a Beijing-based analyst with the Economist Intelligence Unit (EIU), says. “Consequently, we expect the pork price to be up between 80% and 100% in the third quarter of the year, compared to July-September 2018.”
Wang warns these trends would continue given the ASF epidemic is not likely to end soon. There is no effective vaccine, and government measures, such as restrictions on inter-provincial pig transport and rules for the cleaning of trucks used for pig transport, are weakly enforced.
Rather, Wang predicts consumers will switch to poultry amid concern about the quality and availability of pigmeat, especially because the Chinese chicken industry is heavily industrialised and able to increase production.
But even here, with Chinese consumers switching from pork to chicken, supplies are tightening. The average wholesale price of chicken meat increased CNY10.86 per kilogram in the last week of April, up more than 68% from March of 2018, according to Sublime China Information (SCI), an information provider for China’s commodity market.
Wang says: “Also, China can potentially import more pork from the US, and I suspect that if the situation was to get severe enough by the end of this year, China would relax its requirements on growth hormones used by US pig farmers, and it may even reduce the current 62% tariff rate that was slapped on US pork as part of the trade war.”
By contrast, she sees little room for increased pork imports from the EU, as production increases are impeded by EU environmental regulations.
The US’s National Pork Producers Council (NPPC) calls ASF an historic sales opportunity for American pork, given the record production Stateside last year – and given the country is projected for record production this year and next. As of March 1, there were 74.3 million pigs on US farms, up 2% from March 2018.
However, because of the ongoing trade war between the US and China, US pigmeat exporters have been unable to take advantage of the ASF crisis. “The investments to drive this production were predicated on the promise of expanded US exports, but unfortunately, the 62% tariff on US pork is unfairly punishing our producers and limiting our ability to effectively provide high-quality pork to China,” a spokesperson for the NPPC argues.
“According to the latest government data, year-to-date exports to China are 16 percent lower – and 32 percent lower by value– compared to a year-ago, and that is why we continue to urge the Trump administration to resolve the trade dispute with China.
Mandes Verhaagh, an agricultural economist at the Thünen-Institut, Germany’s federal research institute for rural areas, forestry and fisheries, explains increased Chinese demand comes at a time when many German pig farms have been closing amid serious regulatory uncertainties surrounding looming stringent EU requirements for castration, farrowing crates and tail-docking.
Germany was the biggest single exporter to China in 2018, with shipments amounting to 180,000 tonnes but Verhaagh notes how “domestic supply is low, and it can be ruled out that German pig farmers forgo the domestic market to satisfy demand from China, as the administrative effort would be much higher”.
Nevertheless, he recalls at the EU-China summit in Brussels in April the Chinese government signalled it will accept the principle of regionalisation for European pork imports, so that if one German regional had ASF, it would allow exports from other parts of Germany (and other EU countries). This could be “important for Germany, given that it is geographically bigger than most of the other EU countries that export pork to China”, Verhaagh adds.
Meanwhile, Germany’s Agriculture Minister, Julia Klöckner, this month visited China to request the removal of Beijing’s import restrictions on German farm products, including beef and poultry, that impede exports.
Another impact of the ASF outbreak has been China stiffening border controls to stem past illegal and unrecorded imports of pigs from neighbouring countries, over concerns they may also spread disease.
Market researcher Frost & Sullivan estimates illegal cross-border imports of pigs from Vietnam to China, for example, stood at 12 million pigs in 2017.
On the other hand, China may lift restrictions on official imports of buffalo meat, live cows and sheep and pork from India, Mongolian and Russia respectively, according to the China Meat Association (CMA).
China is also looking to expedite the resumption of UK beef imports after agreeing to lift a ban in 2018, according to CMA deputy secretary general Gao Guan, as quoted by Bloomberg News on June 10.
But the biggest winners may be South American beef producers. In May 2018, China liberalised its import regime for Argentine beef, allowing chilled and bone-in beef imports, replacing the previous regulation only allowing in frozen boneless beef from Argentina.
During April and May this year, Chinese veterinary inspectors approved 15 new Argentine beef plants for export to China, as well as six Brazilian plants.
Another 30 Brazilian meat-processing plants are pending clearance for export to China, Brazil’s agriculture, livestock and supply ministry reported in late-May.
“Whereas the US exports premium beef at premium prices, and Australia struggles with low supply due to a drought, South American beef comes at lower prices, and the region’s political relationship with China is very good,” Michael Boddington, managing director of Beijing-based Asian Agribusiness Consulting says. “The South Americans are going to be the real winners, as more Chinese consumers are moving up from pork to beef due to these two protein sources seeing their prices drawing nearer to matching each other because of ASF.”
According to data from local beef exporter association Abiec, China imported beef from Brazil worth US$1.5bn last year and amounting to more than 322,000 tonnes.
In a note to clients last week, equity analysts at Morgan Stanley described the Brazil-based meat giant JBS as “the best-positioned company to capture the ASF opportunity”.
There are, of course, other considerations as the industry saw earlier this month. At the start of June, Brazil temporarily suspended beef exports to China amid the discovery of an unusual form of mad cow disease in the South American country.
The suspension was lifted a week later and sanitary certificates for exports to China are now being issued normally.
ASF has brought misery to China’s pig farmers and pushed up consumer prices in the country. Rival global producers could make inroads. But the path ahead may not always be smooth.
