May 26, 2017
Europe, China and Mexico reinvent the world pork market
Asian and Mexican importers, European exporters challenge North America's market dominance.
By ERIC J. BROOKS
An eFeedLink Hot Topic
The world pork market has performed better than was expected. Thanks to stronger than expected demand from China and neighboring East Asian countries, top exporters exceeded the 2016 forecasts made a year ago by anywhere from several dozen to hundreds of thousands of tonnes.
At the same time, a world market that was once strongly dominated by North America is now having both its market share and quality standards dominated by European producers, namely Germany, Denmark and Spain. Coinciding with the rise of China and Mexico into top pork importer ranks, the rising influence of European pork marks a new chapter in the world pork market's evolution.
From the viewpoint of buyers, the most important change in the market has been the rise of China (2.3 million tonnes of 2017 imports) and Mexico (1.1 million tonnes) as top three world importers. Along with stable Japan (1.35 million tonnes) and slower growing South Korea (0.65 million tonnes), these four nations define the world pork market for imports.
The thing is, three million tonnes of Mexican and Chinese import demand did not even exist 17 years ago. If one must speak in generalities, it could be said that seventeen years of newly created Mexican pork import demand has been almost all supplied by America. Pork for the 2 million tonnes of Chinese import demand that materialized over the past ten years has been mostly supplied by Europe, with Canada and Brazil enjoying smaller but expanding volumes.
On the exporter side, the Asian and Mexican markets coincide with the changing fortunes of top world pork exporters. In chapter one spanning the mid-1990s through to the mid-2000s, Canadian pork exports leveraged a highly undervalued Canadian dollar. Rising from 0.37 million tonnes in 1995 to 1.08 million tonnes in 2005, Canada exported more pork than any other nation during this time. Although the EU collectively exported more pork even at this time, unlike North American producers, its exports were flat while those of Canada, America and Brazil took advantage of booming world market demand.
The next chapter took place from the early to late 2000s, when a rising Canadian dollar stopped its pork export growth. Even when the dollar returned to lower levels during our current decade, Canadian pork was unable to expand its presence on the world market. In short, Canada's inability to generate sufficiently profitable swine farming returns resulted in stagnant Canadian inventories. This has kept Canada's once world leading pork exports in 1.2 to 1.3 million tonne range for most of the past decade.
As Canada's export surge levelled out, the years from 2003 through 2012 saw US pork exports roughly triple, from 0.78 million tonnes to 2.4 million tonnes. Even so, except during our current 2017 marketing year, US pork exports levelled out in the 2.3 to 2.4 million tonne range thereafter, becoming highly dependent on just one export market during this time.
Thereafter, America's PEDv epidemic coincided with the Euro's devaluation and stagnant European pork consumption. Around this time, Russia's embargo on European and North American meat products prompted it to substitute several hundred thousand tonnes of Brazilian pork in place of supplies previously imported from Germany, Spain or Denmark.
Boxed in by these circumstances, European farmers were more than happy to export their huge, rapidly growing domestic pork surpluses into Asian markets previously dominated by America and Canada. As a result, from 2012 through 2016 inclusive, American pork imported into Asia increased by 0.7% and Canadian pork by 6%.
Taking advantage of Russian demand for non-western pork and a steep 60% currency devaluation, Brazilian fared better, rising 25.9% from 661,000 tonnes in 2012 to 832,000 tonnes last year. Even so, concerns about Brazilian pork quality limited its ability to penetrate new markets.
By comparison, European buyers were suddenly able to offer a vast quantity of high quality pork at a much lower price than just a few years earlier –just as the supply of exportable US pork began to tighten up. It is the Europe and Brazil –not Canadians or United States –who have benefitted from Asia importing 2.7 million tonnes more pork in 2016 than they did in 2006.
Even though EU pork output was only 1.8% higher in 2016 than it was in 2007, the continent's falling meat demand enabled it to boost exports by a whopping 53.5% or 1.15 million tonnes in just five years. From 2.15 million tonnes in 2012, EU pork exports will total a USDA estimated 3.3 million tonnes in 2017.
Having said that, it is difficult to examine Europe's swine sector as a singular entity as one would Brazil or America. While the EU contains 28 nations, pork exports are highly concentrated and the competitive landscape is shifting. Indeed, because the EU is a singular, integrated economic zone, measuring the impact of any country on the world market is a paradoxical affair.
For example, at US$4 billion, the value of German pork exports equals to those of the United States. At US$2.5 billion, the value of Spanish pork exports exceeds those of Canada, which is normally thought of as the second largest exporter after America.
However, because the EU functions as a single, integrated economic zone, only pork exported to non-European countries is counted as a contribution to the world market. For example, Spain's 2 million tonnes of pork exports in 2016 theoretically makes it a bigger supplier than Canada (1.3 million tonnes) and second only to the United States. In practice only 800,000 tonnes of Spanish pork was shipped to non-EU countries. While it is a rising star in the world pork market, that leaves Spain in fifth place, with America, Canada, Germany and Brazil contributing more pork to the world market.
Even so, with its hog herd having overtaken Germany as Europe's largest and its cost competitiveness having vastly improved over 15 years, Spain is taking its place alongside Germany and Denmark as an important European supplier to Asian markets. Of course, this creates a very large challenge to pork producers in America, Canada and Brazil, who assumed their more bountiful feed resources would enable them to increase their world market shares over time.
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