March 21, 2019
Five Asians, one Latino and much uncertainty: How six nations redefined (and saved) the world pork trade
185 of 193 nations are importing less pork than they did in 2005 but swine meat has never been more popular. Optimistic growth fundamentals are made volatile by trade wars and a disease epidemic.
By Eric J. Brooks
An eFeedLink Hot Topic
It might surprise many to learn that pork, not poultry is the meat whose international trading is growing the most swiftly. In 2000, beef (5.81 million tonnes) was the meat line most likely to cross borders, with 5.81 million tonnes of imports, followed by chicken (4.18 million tonnes) and pork (2.95 million tonnes).
By 2018, chicken (9.36 million tonnes) overtook beef, with a 4.8% growth rate in imports over the last eighteen years. Despite enduring far more religious and political restrictions, pork import grew at an even faster 5.8% rate. With USDA estimated world pork imports of 8.34 million tonnes to beef's 8.67 million tonnes, pork is on track to overtake beef as the second most internationally traded meat before 2025.
-But whereas a handful of beef or chicken suppliers export to a large number of countries, world pork demand is dominated by just five importing nations in Asia and one in Latin America. Containing 1.88 billion people or 25% of the world's population, they account for 59% of global pork consumption and will soon buy 80% of world pork exports.
Based on USDA statistics, Greater China (including Hong Kong and Taiwan), Japan, Mexico, South Korea, Philippines and Singapore bought 76% of the world's pork imports by volume in 2018. Twenty years earlier, they only accounted for 44% or 1.88 million tonnes of 1998's smaller world pork market -a market they expanded and redefined.
While 2018 world pork imports rose 2.7% (from 7.89 to 8.10 million tonnes), this small handful of countries boosted their purchases by 6.9%, from 5.755 million tonnes in 2017 to 6152 million tonnes.
While the USDA projects 2019 world pork imports rising 3.6% (to 8.40 million tonnes), Mexico, these five Asian nations will boost their procurement volume by 5.4%, to 6.49 million tonnes. Their proportion of world imports will rise to 77%.
While these six countries grow in market power, Russia caused a post-2012 downturn in pork import volumes to all other nations: Since peaking at a 1.11 million tonnes in 2008, Russian pork imports have fallen over 95% or more than a million tonnes, to a mere 60,000 tonnes in 2018 and a USDA projected 40,000 tonnes this year.
While Russia was withdrawing from the world pork market, Mexican pork imports jumped 120% from 535,000 tonnes in 2008 to 1.175 tonnes in 2018. They are expected to increase a further 5.1% to 1.235 million tonnes this year. -Even so, Mexico's 640,000-tonne rise in pork imports since 2008 only replaced 61% of the 1.05 million tonne decline in Russian import volumes.
Russia's withdrawal from the world leaves exporters dangerously dependent on Mexican and East Asian buyers. China for example, imports as much or more pork than 185 of the world's 193 nations combined.
-Because of Russia, total pork collectively imported by the 185 of the 193 world's nations has fallen sharply, declining at a 3.9% annual rate from 2010 through 2015.
From a peak of 2.966 million tonnes in 2012, pork imported by the 185 nations not featured in this article fell to 1.956 million tonnes in 2018 -their lowest volume since 2005. It will decline further to 1.912 million tonnes in 2019, down 35.5% in seven years.
-Consequently, the eight nations and territories featured in this article will have jacked up their pork import volume by 67% over seven years. From 3.886 million tonnes in 2012, the collective pork imports of China (including Hong Kong and Taiwan), Japan, Mexico, South Korea, Philippines and Singapore will total an estimated 6.485 million tonnes this year. -In other words, pork imports of a small handful of mostly Asian nations will exceed the total volume of pork that was exported in 2010.
What is fascinating is how small gaps between consumption and production incrementally induces a large transformation of world trade flows: From 2000 through 2018 inclusive, top importing nations saw pork consumption rise an average of 2.0% annually while its production increased by 1.7% over this time. -But when you are dealing with 1.88 billion people, tiny but persistent differences between supply and demand accumulate into profoundly transformative trends.
In 1997, these top importers consumed 41.94 million tonnes of pork and produced 41.25 million tonnes, making for a supply-demand gap of 1.7% or 0.69 million tonnes. By 2008, they were consuming a collective 55.00 million tonnes of pork but only growing 51.8 million tonnes, making for a supply-demand gap of 3.2 million tonnes or 6.2%.
By 2018, these East Asian nations and Mexico were consuming 66.4 million tonnes of pork but only producing 60.7 million tonnes, with demand exceeding domestic supplies by 9.4% or 5.7 million tonnes. Before ASF broke out, this supply-demand gap was on track to widen into the 10% to 15% range, approaching 10 million tonnes in the early 2020s.
With ASF-stricken China accounting for 90% of the top importers' pork production, its ASF outbreak implies that in 2019, the gap between top pork importer's production and consumption could (in theory) widen into the 11 to 15 million tonne range, making their demand exceed domestic production by anywhere from 16% to 22%.
--One one hand, Chinese consumer's partial substitution of other meats in place of pork will probably narrow the supply-demand final gap by a third. On the other hand, even a seven to eleven million tonne gap between top importers' pork consumption and production should prove to be highly stimulating to the world pork trade. We can expect current USDA export estimates to be revised upwards soon.
Moreover, only 7.4% of the world's pork is traded internationally, compared to 10% of chicken meat or nearly 14% of beef. Consequently, the supply deficit of these major pork consuming nations has a far more stimulative impact than a similar production deficit in more widely traded meat lines.
From 2000 through 2018 inclusive, the volume of pork traded increased by 175%, far more than the quantity of chicken (123%) or beef (19%) increased over this same time period. -That's because the import volume of the above mentioned top importers increased by 229% over these same 18 years.
Over these eighteen years, top pork consuming nations increased their import volumes by 7.1% annually, while the rest of the world increased its pork imports by only 3% yearly.
From 2010 through 2015, these nations literally carried the world pork market: Over those five years, their import rose 6.9% annually while the rest of the world saw its pork imports fall by 3.9% annually over this time. Not surprisingly, their share of world imports went from 57% in 2010 to 70% by 2015.
The last three years have seen a further concentration of pork buying power. From 2015 through 2018, Greater China, Japan, South Korea, Mexico, Philippines and Singapore ramped up pork imports a collective pork imports by 31.6% or 1.48 million tonnes.
--On the other hand, with Russia's pork imports falling from 408,000 tonnes in 2015 to 60,000 tonnes last year, the world's 185 other nations collectively bought 93,000 tonnes or 2.5% less pork than they did three years earlier.
While the Philippines (13.4%) experienced the fastest pork import growth from 2000 through 2018, it is China (12.4%) that redefined the world pork market. With a population 13 times larger, China's personal incomes and per capita pork consumption are double those of Philippines China became a pork net importer in the late 2000s and within ten years, overtook Japan to become the world's biggest buyer of swine meat.
Both nations turned into mass pork importers for the same reason: From the late 2000s onwards, Chinese and Filipino corn import tariffs boosted pork production costs above international levels, drawing in imports.
With Beijing keeping corn costs artificially high while controlling pork prices during high demand periods, supply fell behind demand. By the time Beijing started deregulating China's corn market three years ago, imports had peaked at over 2.18 million tonnes. Thereafter, with domestic swine farming costs falling, imports fell back to 1.6 million tonnes in 2017 and were in a clear downtrend -until African Swine Fever struck in August 2018.
China's ASF-induced production shortfall shattered its 1.2 million tonnes 2018 pork import forecast, making volumes rise to 1.75 million tonnes in 2018. For 2019, Rabobank's Q2 Pork Quarterly projects "Pork production in 2019 to drop by 10% to 20% YOY, with the hog slaughter number dropping more, but carcass weights rising."
-This implies a stunning 8% to 14%, 4 to 8 million drop in Chinese pork production -from 2018's 54.15 million tonnes to somewhere between 46 and 50 million tonnes in 2019. Even if Chinese consumers substitute chicken, mutton, beef and other meats in place of 80% of this pork output shortfall, it still implies Chinese pork imports rebounding back to record levels, somewhere in the 2 million to 3 million tonne range over the next year or two.
Consequently, forecasts of Chinese pork import volumes falling below those of Japan have been torn to shreds by ASF. From a microeconomic perspective, the imports are being drawn to China by high pork prices: Whereas pork prices in rival importers such as Japan, Mexico or South Korea have fallen over the past year, in China, they increased by approximately 40%, with almost the entire increase due to ASF-induced supply shortfalls.
Germany (19.0%), Spain (18.5%) and Brazil (12.3%) accounted for half of China's pork imports, with other EU suppliers such as Netherlands and Denmark also enjoying substantial market shares. On the other hand, China's pork import mix could change substantially if it signs a new trade agreement with top exporter America.
China's resurgent demand for foreign pork coincides with rising consumption in other top importers. After stagnating in 1.1 to 1.3 million tonne range for ten years, Japan's improving economy made pork imports rise at a 5.9% annual rate since 2015, their fastest pace since the early 2000s. From 1.27 million tonnes in 2015, Japanese pork imports totaled 1.51 million tonnes in 2018.
With 394,300 tonnes or 26% of imports, America is Japan's largest pork supplier but is losing market share to secondly ranked supplier Canada (234,000 tonnes) and EU nations, both of which recently signed trade liberalization agreements with Japan. At this point, only a new trade liberalization agreement between America and Japan can stop US pork from being relegated to the number three importer position by 2025, behind Canada and EU suppliers.
Mexico, the third largest importer has seen per capita pork consumption rise from 10.5kg in 1998 to 18.3kg in 2018, and a Rabobank projected 18.8kg in 2019. Mexican pork imports have grown by 8.4% annually since 2000. They totaled 1.175 million tonnes in 2018, with 777,000 tonnes coming from the US. The new USMCA trade agreement between America, Canada and Mexico implies that imports of Canadian and US pork will continue growing at a rate comparable to the 6.2% pace of the last three years.
Similarly, the recently updated Korea-US (KORUS) trade agreement is putting US pork at an advantage in South Korea, where import volumes have risen at a 7.1% annual rate since 2015. Because of KORUS, imports of US pork rose 40%, from 173,000 tonnes in 2017 to 242,372 tonnes last year.
Based on current trade arrangements, US pork looks to make further inroads into South Korea, lose market share in Japan and hold its own within the North American market, with the latter powered by fast-rising Mexican consumption.
Canada is poised to significantly increase its market share in Japan and to a lesser extent, Mexico. EU and Brazilian suppliers are in a good position to boost their exports to Japan and China, but China's uncertain market drives the world pork trade more than any other buyer. -This vast market could change with the stroke of a pen if America and China sign at a trade agreement.
Needless to say, with nearly 80% of imports going to just six countries, pork's bright prospects rest on a thin buyer base. For now, partly due to America's recovery from 2014's PEDV epidemic, partly due to unexpectedly strong Chinese demand and subsequent ASF outbreak, 2015-18 inclusive saw world pork imports grow at a 6.4% annual rate.
On the other hand, as evidenced by 2019's healthy (but slower) 3.6% growth, such rapid import expansion cannot be maintained over the long-term. World pork import growth near 4% can be maintained for as long as ASF ravages China's swine sector.
Without ASF, there is enough demand momentum in East Asia and Mexico to keep the demand for imported pork growing by 3% annually into the mid-2020s -but this forecast is clouded by well known but highly unpredictable factors.
A US-China trade agreement would upset import sourcing assumptions and possibly put US pork a great advantage in China's vast market, thereby edging out European exporters. ASF is also an unpredictable factor -but has the potential to create two very different possible outcomes.
On one hand, if ASF spreads to other top pork buying nations, it could further ramp up import demand. On the other hand, if ASF breaks out in a pork exporting country, the world pork trade's rapid growth could be disrupted by falling import volumes and high prices.
Such profoundly disruptive and contradictory variables leave the world pork market with excellent long-term fundamentals amid volatile medium-term uncertainty.
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