Lingering disease issues and an ongoing exit of small hog farmers from China's industry have boosted demand for pork imports this year. China is the world's largest producer and consumer of pork, explains long-time China observer Joel Haggard, U.S. Meat Export Federation (USMEF) senior vice president for the Asia-Pacific.
Lower supplies have boosted prices, leading to both Chinese government purchases of pork for its reserves and private industry buying. This year's strong overseas buying has been counter to year-ago forecasts, which foresaw larger production based on high industry profitability, Haggard says.
Through the first 10 months of this year, China's direct pork and pork variety meat imports were up 49% to more than 1 million metric tons (2.2 billion pounds), with the United States accounting for more than 59% of import volume, while imports were sharply lower from Denmark and Canada. Those imports of U.S. pork were valued at nearly $859 million, according to the Global Trade Atlas.
One need look back only one year to see that the United States had 12.7% of China's imported pork volume (246.5 million pounds) – a total limited by H1N1-related export restrictions placed against the United States.
"China's pork market continues to confound analysts, given the lack of accurate nationwide market data, and the absence of a futures market," Haggard notes. "In the meantime, China has become one of the largest global pork import markets, and has become a lure that has major pork exporting nations from Europe, Asia, North and South America knocking on its doors."
What does the future hold for pork exports to China? Much depends on China's domestic pork production. Corn prices over $9.50/bu. and persistent disease threats are working against the Chinese government's heavy investments in the industry. Chinese hog prices peaked earlier this year at around $1.40/lb., but prices have since declined around 17%, partially reflecting larger supplies. Prices are still higher than the same time last year, but analysts are waiting for price movements after the Chinese New Year season, typically a time of strong demand.
Complicating the pork production outlook is the continued restructuring in the industry. One industry observer claims there have been as many as 80 million hog farmers in China, while another states that 30 million have left the industry.
"The entry and exit of small producers has been one of the major factors making analysis difficult, in addition to sharpening the boom and bust cycles," Haggard explains. "Animal disease issues may be forcing some out, while the high prices – which reached record levels in September – may have enticed others to cash out. Adding to the exodus have been years of double-digit wage growth in both rural and urban manufacturing and service industries."
Affluence Stimulates Appetite
The growing economic power of China is certainly fueling the country's pork appetite as more of those 1.3 billion consumers can afford higher quality proteins. A third-quarter growth of 9.1% in China's Gross Domestic Product (GDP) points to steadily growing affluence, although inflation higher than 6% – partially driven by high pork prices and playing a major role in the economy – helps moderate that a bit.
If China is investing huge amounts in its domestic pork industry, where is the opportunity? Haggard says the key factor is not whether the per capita consumption changes. Rather, the key is China's self-sufficiency. If some combination of weather, disease, high grain prices and other factors reduce China's pork self-sufficiency from 98% to 90%, the difference in volume would approximate the entire volume of pork traded in the world.
For now, even as opportunities present themselves, Haggard sees China as an opportunistic buyer. The government purchases imported pork for price control purposes, while the private sector takes advantage of lower international prices when domestic prices get too high. Analysts are currently watching Chinese pork prices fall and trying to ascertain to what extent the dip is production-related vs. the surging arrival of imports.
If China's pork cycle swings begin to moderate due to industry restructuring, the large vacillations in pork imports may flatten out, allowing U.S. producers and exporters to better plan production for the marketplace.
Challenges in the Marketplace
Today, most imported U.S. pork muscle meat is going into the processing sector, although there are a few notable exceptions. USMEF-China recently arranged a promotion with a new, modern Walmart store in Beijing for a high profile promotion. Walmart merchandises the defrosted carcasses at the point of sale, providing a semblance of how fresh domestic pork is currently sold.
Chinese consumers prefer chilled product, so one of the biggest barriers to large-scale imported pork growth will be to ensure product can move through the cold chain quickly, including port inspections. Currently, the critical control points for shipping product are lacking. This hindrance is particularly true for getting quick inspection turnaround in the 24 to 48 hours that would be necessary for shelf life. USMEF is continuing to work with Chinese port officials to try to expedite the import process, but that is not a quick fix.
In the meantime, October statistics for U.S. pork exports showed that China was the largest destination for U.S. pork and pork variety meats, taking 48,678 metric tons (107 million pounds), more than double year-ago volume and setting another monthly record. For January through October, exports to China and Hong Kong combined were up 60% to 361,690 metric tons (797.4 million pounds), valued at $654.396 million, up 82%, placing China/Hong Kong as the No. 3 market for U.S. pork and pork variety meats in volume and value.
Vice President of Communications
U.S. Meat Export Federation