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August 29, 2019

 

African swine fever in China: Tight pork supply and a lingering uncertainty
 
An eFeedLink Exclusive
 

China's African swine fever outbreak continues into its second year, and the disease's impact - felt across most of the country's administrative regions - could result in a 40% year-on-year loss of its 348 million strong swine inventory, a recent Rabobank report pointed out.


Worse, this loss could expand to 50% by year-end. Rabobank also foresees that another "10 to 15 percent" drop in "both herd and pork production in 2020."


Adding to the less optimistic outlook of the Chinese pork sector, the South China Morning Post reported a 26.7% loss of breeding sows in mainland China by the end of June from a year earlier based on a tally provided by China's Ministry of Agriculture and Rural Affairs. 


Consequentially, the massive pig deaths left a huge dent in Chinese meat supply, prompting Beijing to seek imports from Europe, Brazil and even the United States, which it remains locking horns with in an ongoing trade war. In fact, the US Meat Export Federation revealed that US exports to China in the second quarter 2019 doubled year-on-year to 60,898 tonnes.


Referring to government statistics, the South China Morning Post reported that "A 6.2% year-on-year fall in domestic hog supply in the first half meant the slaughtering and meat processing industry imported 818,702 tonnes of pork - 26.3% higher year on year – to meet demand."


However, the import of pork from the US was complicated by the US-China trade war. One such company affected by this dispute is WH Group which is also dealing with impact of ASF on the availability of raw meat at its Chinese facilities.

 

Increasing the import of pork from WH Group's US unit, Smithfield Foods, would be hampered by the tariffs the US and China had imposed on each other. The company, which imports around 100,000 tonnes of pork a year into China from the US,  is now seeking to buy the meat from potential markets outside the US, namely, Europe, South America and Canada.

 

This shift in Chinese pork sourcing led to a 52% year-on-year increase (to 432,293 tonnes) of pork exports from the European Union (headed by Germany, Spain and Denmark) in the first five months of 2019. The souring of relations between Canada, a key pork exporter, and China over the arrest of a top executive from Chinese telecom company Huawei also contributed to the European uptrend. In addition, exports from Brazil increased 28.9% to 92,188 tonnes in the first half of this year, said an analyst from commodities brokerage INTL FCStone.

 

Still, as highlighted by eFeedLink's Eric J. Brooks in a July report: "...the entire world economy cannot supply sufficient meat – let alone pork – to make up for an ongoing 125 million head decline in Chinese hog inventories. This equals the combined hog inventories of America, Canada and Brazil."


As such, China is also exploring other alternatives, specifically beef, poultry and fish. According to Brooks, local chicken and farmed seafood production could rise by up to a million tonnes each. 


Meanwhile, the tightening of China's swine numbers have caused hog price to rise 80% in August from February this year. This development presents an opportunity for both WH Group and Muyuan Foodstuff to boost their profits - hence, the latter plans to expand production this year despite the ASF outbreak.


Whether this action will position Muyuan's profits for a satisfying uptrend remains to be seen. Already, the company - which is China's second-biggest pig producer - has reported an increase in first-half losses from last year due to declining pig prices in the first quarter of 2019 and rising costs in keeping its farms free from ASF. 


Based on a Reuters report, Muyuan has suffered a net loss a net loss of ¥155.7 million (US$21.95 million) compared with a loss of ¥78.7 million (US$11 million) a year earlier, in the first six months of this year.


The company joins other Chinese firms also affected by ASF-linked losses, including COFCO, which witnessed a  ¥276 million (US$38.9 million) loss of first-half profits from 2018.


Inevitably, the pressures faced by the Chinese swine sector has a far-reaching impact on local feed production as well.


"Complete feed accounts for 42% of hog feed consumption," eFeedLink's Eric Brooks noted.

 

Another eFeedLink analyst, Shi Tao, stated that, "In June 2019, nine (out of 22) provinces slashed the output of complete hog feed by more than 50% compared with June 2018. The output of another nine provinces decreased by more than 20%. Total complete hog feed output fell by 32.4% year-on-year."

 

Brooks said that the sharp drops in hog feed production is in line with eFeedLink's July 2019 Livestock Tracker, which stated: "Since peaking at 492 million head in January, African swine fever mortality and culling slashed inventories by 7.1%. Expect an additional ASF-induced inventory fall of 20% to 25% from current levels before they stabilise."

 

This downtrend in feed production could explain the recent losses of Chinese feed maker Beijing Dabeinong Technology Grup Co. Ltd,  which produced 4.6 million tonnes of feed - mostly for pigs - last year. On August 21, the company reported a 67.67% drop in first-half net profit due to affected feed demand as well as weaker earnings from its pig farms. 

 

Overall, experts and analysts saw a long road ahead for the Chinese swine sector's recovery and suggested that the country's livestock production system is in need of some reformation.

 

"It would be a miracle if African swine fever can be controlled, let alone eradicated, within the next five to 10 years," Dirk Pfeiffer, a professor at City University's Jockey Club College of Veterinary Medicine and Life Sciences in Hong Kong, told the South China Morning Post. He identified the density of Chinese farms and weak biosecurity in the entire production chain as the industry's main challenges.


"ASF is merely the most severe symptom of a much larger problem: China's chronic, decade long agribusiness crisis is not so much due to unfortunate microbial outbreaks, illegal farm animal farming methods or government policies but an entire livestock farming paradigm," Brooks said.


"The fact no other developed or developing country faces comparable non-stop disease-and-scandal driven constraints on its meat output implies that this problem is rooted in China's approach to livestock farming."

 

- TERRY TAN
 
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