Success in the global meat export market is a moving target. The factors that determine success today may change completely a week, a month or a year from now.
Thus far, 2011 has been an outstanding year for U.S. pork exports. Through the first five months of the year, exports when measured by volume are up 16% to 916,763 metric tons (just over 2 billion pounds) valued at nearly $2.4 billion, a 22% increase over 2010 levels.
To put it in another perspective, we’re 11% ahead of the volume pace in the record-setting year of 2008 and 26% ahead in terms of value. We’re currently exporting 28.7% of all U.S. pork production, and those exports are adding $53.10 to the value of each and every animal processed.
But history tells us that this is precisely the time that we need to take a close look at both potential risks and opportunities. Over the past few years, exporters of U.S. pork have encountered changing conditions that have had both positive and negative impacts on export success.
South Korean Market Thrives
The hottest market for pork exports currently is South Korea. A country beset by foot-and-mouth disease (FMD) issues, Korea has dramatically increased its pork imports, and the United States has benefited disproportionately, boosting its share of Korea’s pork imports from 26.2% last year to 35.7% this year, according to the Global Trade Atlas. So far in 2011, American pork exports to Korea have jumped 168% in volume and 213% in value vs. 2010, reaching 113,565 metric tons (250.4 million pounds) valued at $275.4 million.
One key factor in this success has been the lowering of import tariffs on pork by the Korean government in an effort to combat rampant food inflation. To bring in additional pork supplies to help offset the deficit in domestic production, Korea has waived tariffs on 260,000 metric tons of imported pork products.
While this action has provided a significant boost to a number of pork exporting nations, it also points out the significant hurdle these tariffs pose for exporters. If the Korea-U.S Free Trade Agreement (FTA) is passed by the two nations’ governments, it would phase out the current duties of 22.5% on chilled pork and 25% on frozen pork by 2014 and 2016, respectively. As a result, U.S. Meat Export Federation (USMEF) projects that U.S. pork exports to Korea could more than double.
At the same time, passage of the Korea-U.S. FTA is an important defensive measure. The European Union is essentially even with the United States in pork exports to Korea, and the Korea-EU FTA being implemented this month calls for the elimination of duties over 10 years. Chile, the No. 3 single-country pork exporter to Korea in terms of volume and No. 4 in value, has an FTA in place that will eliminate its duties by Jan. 1, 2014.
Ups and Downs in the Mexican Market
Mexico provides a different pork export challenge. A NAFTA-related trucking dispute between the United States and Mexico resulted in Mexico placing a 5% duty on U.S. bone-in hams and pork shoulders and a 20% duty on cooked pork skin. The announcement of an agreement between the two nations on the trucking issue earlier this month has resulted in the duties being halved. The duties are expected to be eliminated later this year.
How have those duties affected U.S. pork exports? While Mexico remains the United States’ top volume export market (through the first five months of 2011), the volume of product sold is down 2% to 220,130 metric tons (485.3 million pounds), and the value is up slightly to $408.8 million.
More significantly, the United States’ share of the Mexican pork market has slipped 1.5% (from 92.5% to 91%), while Canada has grown its share by an equal amount.
All About Access
A completely different set of challenges is posed by the No. 1 global pork consumer – China. So far this year, U.S. pork exports to mainland China stand at 99,405 metric tons (291.1 million pounds) valued at $152 million. What makes those totals significant is that they represent increases of 928% in volume and 324% in value vs. the same period in 2010.
Market access is the difference. One year ago, U.S. pork exports to China were still being inhibited by unscientific restrictions related to H1N1 influenza virus. Thus, a year ago exports to China accounted for 1.2% of total U.S. pork exports by volume. This year the total is 10.8%.
What we see here are three very different scenarios. The first is a market (South Korea) that shows great growth potential, particularly when tariffs are reduced. To bolster the momentum we are building in that market, National Pork Board has committed an additional $240,000 to fund USMEF programs there through the end of this year.
The Mexican market is extremely price-sensitive. Tariffs there that have affected only U.S. product have helped drive some Mexican buyers to switch to Canadian product. However, even though the United States dominates with 91% of the imported pork market, there remains significant opportunity for growth. Only 5% of U.S. pork is going into the hotel, restaurant and institutional sector; 25% is destined for retail. These markets continue to be dominated by domestic product, which accounts for 66% of total pork consumption.
The pork potential of China is difficult to anticipate. With a population of 1.3 billion and an estimated per capita pork consumption of 36 kilograms (79.2 lb.), that translates to annual consumption of 103 billion pounds of pork. The United States currently has about 15% of China’s imported pork market, but the country remains in excess of 90% self-sufficient in pork production. If there is an opportunity to gain a stable foothold in China’s pork market, the potential for adding value for U.S. producers is limitless.
U.S. Meat Export Federation