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April 20, 2017

Swine, religion and free trade: A popular, but highly problematic Southeast Asian protein
How feed costs and free trade can undermine a popular Southeast Asian meat

An eFeedLink Hot Topic
Poultry and swine define Southeast Asia's meat appetite, with chicken accounting for 50% of the region's meat consumption, pork 43% and beef 6%. Among these protein lines, pork has the most problematic status.
Highly popular but barely consumed in some nations, pork holds a popular but highly paradoxical place within the region's cultures. While its acceptance depends on religious demographics, its consumption is divorced from income levels –and even in places where it is shunned, it is difficult to generalize.
For example, Muslim dominated Indonesia with a per capita GDP of US$4,000 has per capita pork consumption of 1kg -but within that country of 250 million, its wealthy 3 million Chinese minority consume an average of over 20kg per person. On the other hand, Vietnam with a per capita GDP of US$2,000 consume an average of 30kg of pork yearly.
Not only is this much more than the 18kg consumed by Filipinos who make $8,000 or four times more than Vietnamese. More surprisingly, it exceeds the 24kg of pork consumed by Singaporeans, despite the latter having a per capita GDP of US$52,000. -In fact, even when the 20% of Singaporeans who belong to religions that prohibit pork consumption are factored out, the Lion City's Chinese majority –despite having 25 times more spending power as Vietnamese- eat the same 30kg per person as their much poorer Vietnamese neighbors. Just like China, Southeast Asia has overturned the longstanding theory that a country's people need to get wealthy before they can afford red meat.
But while Southeast Asia's pork consumption shows varies greatly by region and demographic, its production is highly concentrated. Vietnam (2.75 million tonnes), Philippines (1.61 million tonnes) and Myanmar (approximately 1 million tonnes) account for approximately 90% of the 6 million tonnes of pork grown within Southeast Asia. While Myanmar, Cambodia and Laos will have the fastest growing pork production going forward, for the next decade, Vietnam and Philippines will raise roughly 75% of the ten nation ASEAN region's pork.
But when comparing the pork industry development of Vietnam and Philippines, we see both a come-from-behind story and a cautionary tale. With similar population sizes, the Philippines traditionally grew more pork than Vietnam. Twenty years ago, it produced 901,000 tonnes of pork to Vietnam's 843,000 tonnes.
Thereafter Southeast Asia's two largest swine sectors embarked on different paths. From 1997 through 2007, Vietnam's pork output expanded at an aggressive 8.3% annual rate. This was more than twice the rate of Philippine pork production, which only expanded 3.7% annually over this time.
In the decade after 2007, high feed costs and recessionary economic conditions slowed down the swine sectors of both countries but even here, the Philippines fared worse. It grew by 2.2% annually over the ten years from 2007 through 2017 inclusive. Vietnam by comparison expanded by 3.0% over this time.
As a result, despite having 10 million more people than Vietnam, Philippines went from producing 6% more pork than Vietnam in 1997 to only 70% as much by 2007. By 2016, despite having 10 million more people and per capita income level four times higher (US$8,000), the Philippines was only producing 58% of Vietnam's pork volume. From eating roughly the same amount of pork per capita in the late 1990s, by the mid-2010s, Filipinos were eating 40% less pork per person than Vietnamese.
What happened? First, while Vietnam enjoyed the country's political troubles during the late 1990s and early 2000s. Second, in both countries, feed demand began to outstrip corn production in the late 2000s. Coinciding with high feed costs and a spate of Southeast Asian hog disease outbreaks, this made life difficult for both Vietnamese and Philippine producers in the years 2007 through 2012 inclusive.
The growth rate of both countries was slowed down but an analysis of statistics shows that after 2013 (when feed costs fell sharply) both countries grew at around a 3% rate. Why did Philippine swine producers have a harder time than their Vietnamese counterparts during those years of high feed prices? 
In response to feed grain shortages, both countries protected their corn farmers. While that inflated corn costs (and pork prices) in both countries, Philippines suffered the greater misfortune. Unlike Vietnam, it had signed free trade agreements that forced it to lower tariffs on imported pork.
Consequently, from 1997 through 2007, the volume of pork imported into Philippines tripled, from 15,000 tonnes to 55,000 tonnes. The late 2000s feed cost inflation made matters worse, widening the difference between Southeast Asian and imported pork. In both countries, high pork prices slowed down consumption growth to half its earlier pace.
But while Vietnamese hog farms enjoyed import protection, the volume of foreign pork entering Philippines quadrupled, from 55,000 tonnes in 2007 to a USDA estimated 215,000 tonnes this year. The proportion of Philippine pork consumption accounted for by imports jumped from 1.6% in 1997 to 4% in 2007. Of the 1.82 million tonnes of pork consumed in Philippines this year, 12% will be imported. In Vietnam's protected market, only 0.5% of its 2.75 million tonnes of USDA estimated pork consumption will come from imports.
Even so, Vietnamese pork's superior performance may not endure in years to come. From 2013 through 2017, both Philippine and Vietnamese pork production grew at an equally slow 3% rate. Going forward, Vietnam's new free trade agreement, tariffs on European pork will fall sharply in the years from 2019 through 2024. Similarly, Russia is being allowed to export pork to Vietnam for the first time this year. Tariffs on Canadian pork will also be cut towards the close of the decade.
Consequently, Vietnam's swine sector will soon face competition from the same low cost pork imports that have hampered the development of their Philippine counterparts. The Philippines is not immune to the laws of free trade and neither is Vietnam: Both countries will have to choose between protecting their corn farmers –and watching their swine sector suffer under an import onslaught -or allow the unrestricted entry of lower cost foreign corn. That is the price of keeping Southeast Asia's leading swine sectors healthy and dynamic.

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