FEED Business Worldwide - August, 2011
Vietnam's pork dilemma: Imports & infant industry argument revisited
Several months back, FBW noted that Vietnam's pork demand was showing signs of drawing in imports. Now, thanks to an act of God, the pork import question has arrived sooner than anyone ever expected.
After wreaking havoc on Vietnam's pork industry from 2007 to April of this year, Vietnam's blue ear disease outbreak seems to be under control but a new menace to the country's hogs has emerged. In June, Vietnam's ministry of agriculture and rural development (MARD) reported a foot-and-mouth-disease (FMD) outbreak in 39 provinces, resulting in the death of 37,760 pigs, among other livestock.
Outbreaks cause price inflation
This new FMD outbreak is a big setback for Vietnam, which had hoped to totally eradicate the disease by 2015. After suffering severe outbreaks in 2006, there had been major progress in the control of this disease. According to the Vietnam Veterinary Association, from 2008 to 210 FMD outbreaks had been confined largely to the country's isolated upland provinces.
The FMD resurgence couldn't have come at a worse time. Since April, an outbreak of Porcine Reproductive and Respiratory Syndrome (PRRS or "blue ear disease") has forced the culling of 11,600 pigs. PRRS caused Vietnamese swine numbers to fall so low that prices of both live hogs and pork have skyrocketed.
If price inflation from PRRS was not enough, after June's FMD outbreak, local pork prices surged by a whopping additional 13%. In just one month, pork spiked up another VND10,000/kg to VND20,000/kg (about US$0.50/kg to US$1.00/kg).
This brought retail prices to an average of VND120,000/kg to VND130,000/kg (US$5.85/kg to US$6.35/kg) for pork shoulder, VND110,000/kg (US$5.36/kg) for pork ribs and VND100,000/kg (US$4.88/kg) for pork loin.
Pork's average wholesale price also rose to VND85,000/kg ($4.13/kg), from approximately VND75,000/kg (US$3.63/kg) the month before, according to local newspaper reports. By comparison, MARD reports that depending on the meat cut in question, after import duties and transport costs, in May a kilogramme of wholesale imported pork cost an average of VND60,000 ($2.93).
With imported pork's after tax and transport wholesale cost rising to barely US$3.00/kg, June's swine price spike more than doubled the price spread between Vietnamese and imported pork. In mid May, imported pork cost roughly US$0.48/kg less than local pork. By the first week of June, Vietnamese pork was on average US$0.63/kg more expensive than imported pork. By early July, imported wholesale pork was up to US$1.13/kg cheaper than domestic wholesale pork.
Of course, the hyperinflation and underlying supply shortages put incredible pressure to import on this undersupplied market. Especially since in Vietnam, pork is far and away the protein line of choice: Per capita consumption in the country is among the highest in the region. Official estimates put it at 23.7kg, but the International Livestock Research Institute believes the country's per capita pork consumption had already reached 26kg as early as 2008 or a jump of more than 30% from 20kg in 2003.
Many analysts placed Vietnam's 2010 per capita pork consumption at nearly 30kg. This in a country that only eats 40kg of meat per capita annually. In comparison, the Philippines, a robust pork eater like Vietnam, lags behind at 14.7 kg.
Yet actual damage from the PRRS problem early this year and the current FMD epidemic are mild compared to last year's PRRS outbreak when 460,000 hogs were culled across the country. But they were enough to spark alarm among pig farmers across the country to cut down or stop production to avoid losses.
And despite its best efforts, such as importing 1 million doses of vaccine against PRRS from China, government actions do not inspire confidence that it can deal with these animal health problems anytime soon. In fact the government appears overwhelmed by these outbreaks, which keep popping up one after another.
While it is busy dealing with the FMD and the blue-ear pig disease, the MARD's attention is partly distracted by another agribusiness crisis situation: A disease outbreak in the Mekong Delta decimated more than 53,000 hectares of shrimp farms in seven provinces, with losses estimated at close to US$50 million.
And in what appears to be a sign of helplessness, the Vietnamese government recently warned pig farmers that the current warm, humid weather could spark new PRRS outbreaks across the country. It has even asked officials from the World Organization for Animal Health (OIE) to come to the country's rescue and contain this disease once and for all.
Similarities & differences with China
With the government running out of effective disease-control initiatives, these outbreaks have greatly increased the risks associated with hog farming. As a result, farmers are leaving their farms idle to avoid huge investment losses from disease-ridden pigs. This fear of investing in hog replenishment is responsible for the current critically low pig inventories and high pork prices.
Indeed, Vietnamese meat retailers complain that while the live-weight price of hogs is at a record high of VND60,000/kg-62,000/kg (US$2.95/kg-$3.00/kg). Even though this exceeded even China's recent record live hog price, there are actually very few pigs left to buy. In Ha Dong, an urban district in Hanoi, reports say that sales volumes among meat vendors are down by as much as 50% due to a lack of available pork to sell.
In some ways, this resembles what happened in China in 2007: Low inventories, high pork demand, piglet shortages and rising feed costs are leading to swine hyperinflation. What is different is that while China's 2007 swine shortage was caused by an earlier overculling of sows, in Vietnam, diseases are playing a much larger role. Moreover, while China sought price relief by importing pork, Vietnam has decided not to do so.
Vietnam's annual pork demand is estimated at 3.3 million tonnes â€“ or 275,000 tonnes monthly. But in the first four months of the year, total pork output was only 960,000 tonnes or 240,000 tonnes/month, according to its Ministry of Industry and Trade (MOIT). This meant a there was a shortfall equal to 12.7% of pork demand. In all, the country was short of 35,000/tonnes of pork a month or 140,000 tonnes during the total January to April period.
As an emergency measure, the ministry suggested importing 100,000 tonnes of the country's pork requirements to ease this shortage. It would have stabilized prices for a few months, as it would take at least five months to restore hog numbers to normal levels even if all disease outbreaks disappeared.
As the assumption of no further disease outbreaks is tenuous at best, it more realistically will take one to one and a half years to restore hog inventories, as is the case in neighbouring South Korea. It also noted that domestic pork prices had become prohibitive and beyond the reach of the ordinary Vietnamese, who had also been struggling against high oil prices and low wages.
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