May 8, 2017
Beyond front line trade statistics: Canadian pork comes off another disappointing year
Aggressive export growth to China cannot make up for slack domestic demand, declining shipments to other countries. A strategic rethink and new industry marketing efforts are required.
By ERIC J. BROOKS
An eFeedLink Hot Topic
It has been another hard year for Canada's once vibrant swine sector. Domestic demand is going nowhere and while shipments are staying near level, there are signs of serious erosion in this export dependent sector's base of foreign customers.
While less than a third of production is consumed domestically, demand for it has been disappointing. Instead of rising from 2015's 882,000 tonnes to 900,000 tonnes, pork consumption unexepectedly fell a sharp 3.6%, to 850,000 tonnes and is expected to stay at this level in 2017.
In fact, pork consumption peak sixteen years ago, totaling 950,000 tonnes in 2001, when Canada's population had 17% or 5.5 million people than it does today. Per capita pork consumption also fell from 30kg at the turn of the century to 23kg today.
With Canada's economy doing well in 2016, there appears to be a secular shift away from red meat which the country's pork marketing boards may want to address. But the greater, and more disappointing demand swings were in foreign trade statistics, where one overachiever masked an ongoing deterioration in Canadian pork's trade performance.
With US hog numbers rising more sharply than was anticipated, America's swine sector did not need as many Canadian feeder hogs as it initially expected. At 5.67 million head, live hog exports to the United States also came in slightly below the 5.85 million the USDA initially projected. The number declined from 2015's 5.78 million rather than rising as initially assumed.
For 2017, the lifting of COOL restriction two years ago had made the USDA project live hog exports rising to 6.1 million head this year but that was slashed, first to 5.90 million, then revised downward again to 5.75 million head.
With less pork production and fewer animals exported than anticipated, ending inventories were higher than expected. Instead of falling from 2015's 13.51 million head to the initially projected 13.41 million, they rose to 13.73 million. This is their highest level since January 2008, when hog numbers topped out at 14 million head, and they are expected to stay near this level going into early 2018.
Canadian pork's slack domestic market was counterbalanced by front-line trade statistics: Superficially as exports expanded a healthy 6.4% to a record 1.319 million tonnes in 2016, from 2015's 1.239 million tonnes. Even so, that was less than the 9% expansion to 1.35 million tonnes initially forecasted. On one hand, that is a new record volume for Canadian pork exports, which had been stuck in a 1.15 to 1.25 million tonne plateau for the six previous years.
On the other hand, in the ten years since 2006, Canadian pork exports only increased 22%. By comparison, world pork exports 59% over this time. Nor is it any wonder that Canada lost its top pork exporter position to the US, whose pork exports jumped 75% over the same decade. Over this time, Canada's share of the world market fell from 22% in 2005 to 15% this year.
Moreover, Canadian pork's recent export victories have been rather narrow ones. More than 100% of last year's export increase was accounted for by a whopping 137% rise in shipments to China (including Hong Kong). Leveraging a recently signed trade agreement's market access and China's domestic red meat shortages, pork exports to China jumped from 136,100 tonnes in 2015 to 322,200 tonnes last year.
Unfortunately exports to eleven of the next twelve largest importing nations fell by 11.1% from 2015 levels, thereby reducing 186,000 tonne export surge created by China to a net export increase of just 80,000 tonnes. Other than China, only Mexico boosted its imports of Canadian pork, by nearly 5,500 tonnes or 5.4%, to 107,191 tonnes. –In fact, pork exports to all countries excluding China and Mexico fell by a whopping 15% or 77,731 tonnes. When Mexico and China are excluded, pork exports to the rest fo the world fell 551,231 tonnes in 2015 to 474,500 tonnes last year.
Granted, some of this was due to one off factors. For example, an expectedly rapid rise in American pork production, that included a 35,000 tonne drop in exports to the United States, which declined 7%, to 458,944 tonnes, from 493,890 tonnes the previous year.
There were also new free trade between America and South Korea and Brazil's steep currency depreciation, both of which cost Canada market share. But that is not the whole story.
While Canada's pork trade with China has grown rapidly, its apetite for foreign pork will diminish in tandem with its own swine sector's recovery. Its overall trade with the US, Japan and Mexico is growing very slowly (and only in Mexico) while its exports to the rest of the world have fallen rather steeply.
This is putting Canada's pork trade in the same undiversified position it was back in the mid 1990s, when two-thirds of its exported pork was shipped to America. It diversified away by boosting shipments to Japan, from 66,000 tonnes in 1996 to 245,622tonnes by the mid-2000s –but from 2005 through 2016, pork exports to Japan stayed virtually flat, totaling 250,100 tonnes in 2016.
During the 1996 to 2012 period, Canada also did a good job of boosting pork exports to South Korea (from 6,000 to 68,000 tonnes), Philippines (1,871 to 40,131 tonnes), Taiwan (1,800 to 23,000 tonnes) and Singapore (479 to 4,753 tonnes). Strangely, even though the Canadian dollar has fallen by 25% over the past five years, Canada finds itself selling anywhere from 5% to 50% less pork to all these nations than it did in the years 2012-13.
As a result, twenty years of export diversification efforts have now been undone: In 1996, America, Japan and China accounted for 82% of Canadian pork exports. After falling to 56% by 2012, the US (34.8%), China (23.7%) and Japan (19.0%) account for 77.5% of Canadian pork exports in 2016, which is nearly the same proportion they did 20 years earlier. With 70% of pork output exported, this puts Canada's pork sector in the position of being too dependent on the whims of a few large markets.
Ironically, several years ago, we wrote an article on how by diversifying its export base into fast growing Asian markets, Canada's swine sector was in better health than its beef cattle lines. Five years later, except for China, Canadian pork's market share is shrinking in every major export frontier market save for Mexico, where it is expanding too slowly.
Most alarmingly, this shrinkage of Canada's world pork market share is coinciding with a 30% drop in the value of the Canadian dollar. It puts paid to the notion that Canadian pork's troubles stem from an overvalued currency, as this had not been the case for several years now.
Moreover, with Canada's economy having recovered from last decade's recession, domestic consumption continues to lag well below peak levels seen when the domestic market was significantly smaller. The irresistible conclusion is that both at home and abroad, Canadian pork badly needs to remarket itself.
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