As so-called swine flu spreads in the human population, fear of the disease has the potential to decimate an already besieged US pork industry. While the sector waits to assess the full impact of the ongoing crisis, Katy Humphries spoke with Purdue University’s leading agronomist Professor Christopher Hurt about the possible consequences for US pork producers.
Swine flu began to make international headlines last Thursday (23 April), when reports surfaced that people in Mexico – and returning holiday makers – were falling sick.
The next day, Mexican samples sent to Canada for testing revealed that the virus is “human swine influenza” and further tests showed that the disease contains genetic material from human, swine and bird flu.
The majority of cases are clustered in Mexico. The US is the second largest ‘hot spot’ for the disease, which has now also spread to Canada, Europe and Asia Pacific. Yesterday, Spain reported the first confirmed case in someone who had not traveled to Mexico.
The news has had an immediate and profound impact on the US pork industry.
Shares in major pork producers have dropped sharply, with Smithfield down from a close of US$10.55 last Thursday to a close of $9.35 the following Wednesday while Tyson fell from $11.01 to $10.10.
The price of pork futures has also been hit. Lean Hog Futures for May closed at $69 per 100 lbs of carcass on Friday. Over the next three trading days, the price dropped by about 10% to $61 per 100 lbs.
The price paid to producers fell by about 5% between Friday and Tuesday.
And, as bad as things look now for US pork producers, the situation has the potential to get worse, Perdue University’s Professor Christopher Hurt tells just food.
“The impact [of swine flu] has been dramatic, particularly in terms of pork futures… and we do expect a further drop in prices paid to pork producers,” he predicts.
According to Hurt, one of the major problems facing the US pork industry is the implementation of import bans.
In 2008, the US exported 4.6bn tones of pork, or 20% of all US pork production. Hurt says that, prior to the crisis, he had predicted that export figures would be slightly down this year, accounting for about 17% of US production.
However, with nine countries already imposing trade restriction, US pork exports could now be under threat.
“The two most important countries to restrict US pork imports currently are Russia and China. In 2008, China purchased 18% of US pork exports and Russia purchased 9% – together these two countries alone accounted for 27% of all pork exports,” Hurt says.
While these early trade restrictions have focused on states where human cases of swine flu have been confirmed, as the disease spreads, Hurt says, we can expect such restrictions to tighten.
The situation pork producers are currently facing has parallels with export bans put in place after mad cow disease was found in North America in 2003, Hurt suggests.
“Essentially, the situation was so bad in Europe at the time that when it was found in Canada and the US had one case, countries immediately moved to ban imports. This year we expect US beef exports to be 75% of their 2003 levels… The world has moved on from the disease… and set some tolerance levels. But six years on and US beef exports have still not recovered,” he observes.
While the implication of this is clearly worrying for the US pork industry, Hurt says that he expects pork exports will be more resilient.
However, a second challenge facing the pork industry is the threat that there could be a drop in global pork consumption as fear of the disease turns consumers off pork.
“Another major concern is that world consumers will reduce pork consumption because of the – we think false – assumption that it is linked to pork consumption,” Hurt warns.
To date, no scientific evidence has demonstrated a link between contracting the disease and consuming pork. In fact, the disease is yet to have been found in swine and US pork producers have stepped up biosecurity measures as a precaution.
The message from US pork producers has been clear: pork is safe to eat.
Nevertheless, looking to the Asian bird flu epidemic, there is support for the theory that pork consumption could fall.
“The connection to hogs is unfortunate for the industry… Scares, such as this one, can have a long-term impact on consumption. If you jolt consumption, consumers can find alternative sources of animal protein, as we saw in Asia when the avian influenza scare was at its height.
“Will that be the case here? My guess is no because as the scientific evidence is laid out it is becoming increasingly clear that this is not a hog disease… The single biggest issue is how the human disease evolves. If it lasts a week, there will be no lasting impact. But the longer the scare lasts – be it weeks, months, or more – it could have a long-term impact on pork consumption globally and US pork exports,” Hurt predicts.
A third issue, facing not only pork manufacturers but every branch of the global economy, is the possibility that the crisis could become severe enough to retard world economic growth, Hurt says.
According to World Bank estimates, if the disease becomes a “mild” pandemic – claiming around 1.4m lives – world economic output would drop by 0.7%; if it escalates into a “moderate” pandemic – resulting in 14.2m deaths – global economic output would drop by 2%; while a “severe” pandemic – which would kill 71.1m people or more – would see economic output drop by 4.8%.
“If it was serious enough that it would reduce world economic growth, there would be a negative impact not just on the pork industry but also on food consumption, the travel industry – which is also seen as a front-line industry – the entertainment industry… and then what about things like going to a restaurant to eat… or retail shopping? Consumers are likely to avoid public places for fear of infection.”
While the scale of the disease remains to be seen, Hurt says that the current crisis could hardly have come at a worse time for the US pork industry, which has been loss making since autumn 2007.
Pork producers’ margins have come under significant pressure in recent years, as feed prices have been driven up by increased demand for corn, soy and rapeseed from the developing world and biofuel industry.
While North American pork producers have cut production in order to force through price increases, the global financial crisis has compounded their woes by driving down retail demand for pork products, Hurt says.
“Swine flu clearly comes as a third blow for the pork industry… We had hoped that producers would return to profitability by May. But now, after 18 months of losses, the industry may not get back to profitability this summer.”