Iowa State University Professor of Economics and Finance Dermot Hayes embarks today (Jan. 18) on a trip to Bejing, China to provide research support to efforts to open the vast Chinese market to U.S. pork exports.
Inflation that has pushed up food prices by 11%, land-use policies that are growing cities and forcing farmers off the land, causing China’s livestock farms to buy commercial feedgrains, have combined simultaneously to make U.S. pork a good buy – once policy issues can be overcome.
The United States is in a good position to supply the Chinese market, Hayes says. In the summer of 2008, the Chinese purchased ½ of 1% of U.S. pork production during the Summer Olympics, boosting live U.S. hog prices by $12/head. “As a result of that, our pork industry didn’t contract as much as some of our competitors; Canada, for instance, saw a fast rise in production costs but didn’t have our export markets to help balance that out.”
China produces five times as much pork as the United States, resulting in 98% self-sufficiency, but since it is virtually all produced in a small part of the country near the eastern coast, there is constant disease pressure from the close proximity of pigs, poultry and waterfowl.
Hayes says that South Korea is in a somewhat similar situation in that they have problems limiting domestic pork production. The country is mountainous, there are environmental issues, and South Korea has zero feedgrain production, resulting in pork production costs 2.5 to 3 times higher than the United States. The country is also dealing with deadly foot-and-mouth disease afflicting cattle and hog herds.
The impending U.S.-South Korea Free Trade Agreement presents a huge trade opportunity in that it will be the first time since Mexico that America will have a pork market with zero tariffs, with fresh and frozen pork exempt by 2016.
Because of zero tariffs, eventually South Korea could top Japan as the number one market for U.S. pork because Japan is a protected market with tariffs up to 30% on pork imports.
In South Korea, the U.S. pork industry expects to increase pork exports by $687 million per year, creating more than 9,000 direct U.S. pork industry jobs and raising live U.S. hog prices by $10.