October 6, 2017
One hungry dragon: How China became the red meat king
Ten years ago, China imported almost no beef or pork. Today, it buys more beef than Japan and more pork than the combined imports all other East Asian countries.
By Eric J. BROOKS
An eFeedLink Hot Topic
Since 2000, a great transformation has occurred in world demand for red meat. Twenty years ago, Japan was the world's largest importer of both beef and pork. South Korea and Southeast Asia also played important roles in world demand for red meat and still do -but all three have been eclipsed by China.
In 1997, Japan's beef and pork imports exceeded the combined volumes purchased by South Korea, Southeast Asia and China. China imported almost no beef or pork and was a leading exporter of the latter. Collectively, Northeast and Southeast Asia absorbed 24.8% of the world beef exports and 35.3% of pork exports.
Thereafter, Japan's economy stagnated and ten years of high oil prices caused Middle Eastern beef demand to grow faster than that of East Asia. From 2004 through 2008 East Asia's share of beef imports languished in the 18% to 19% range. It was an era when Japan's falling demand for imported beef could not be fully compensated by rapid import growth in South Korea and Southeast Asian nations.
From 1997 through 2007 South Korea beef imports jumped 31%, from 233,000 tonnes to 308,000 tonnes. Led by Philippines and Singapore, Southeast Asian beef imports jumped 40%, from 233,000 tonnes in 1997 to 327,000 tonnes a decade later -But ASEAN and South Korea's collective 169,000 tonne increase in beef imports was overwhelmed by Japan's 27%, 249,000 tonne drop in beef purchases, from 935,000 tonnes in 1997 to 686,000 tonnes in 2007 -and China played no part in all of this.
On the other hand, due to Middle Eastern religious prohibitions on pork consumption, East Asia's share of the swine meat trade never declined, fluctuating in the 35% to 45% range throughout this time. Stagnant post-2003 Japanese pork demand was offset by strong growth in South Korea and Southeast Asia. They drove all increases in Asian pork import volumes through the late 2000s.
Powered by rising consumption in Singapore and Philippines, Southeast Asian pork imports tripled, rising 270% from 41,000 tonnes in 1997 to 152,000 tonnes to 2007. South Korean pork imports jumped even faster, quadrupling a whopping 432%, from 84,000 tonnes to 447,000 tonnes. In the decade ending in 2007, South Korean and Southeast Asian pork demand grew a collective 474,000 tonnes, with China playing virtually no role in world markets for beef and pork -but all this changed after 2007.
From 1997 to 2017 inclusive, Japan's pork imports rose 3% annually. Southeast Asian and South Korean demand for imported pork increased at much faster 10.6%% and 11.3% rates respectively. Over this same time, China's demand for imported pork jumped by 29.1% annually over these two decades -with almost all of China's rising demand for imported red meat occurring after 2008 onwards.
In 2007 China encountered swine sector hyperinflation of nearly 100%. Formerly a net pork exporter, China's pre-2007 pork import volume had never exceeded 100,000 tonnes. In 2008, they skyrocketed to a USDA estimated 708,000 tonnes and stayed around this level for five of the seven years up to 2014. In response to 2007's pork shortage, Beijing introduced politically popular (but profit destroying) policies that turned China into the world's largest pork importer.
Hemmed in by artificially high, government-imposed feed corn costs and politically expedient suppression of pork prices, China's post-2007 hog rearing returns were chronically depressed. As a result, pork production constantly lagged demand. That caused imports to spike whenever the swine market cycle peaked. After falling in 2009, imports rebounded to 758,000 tonnes during the 2011 market top.
The next market peak saw imports jump to a USDA estimated 1.03 million tonnes in 2015 and 2.1 million tonnes in 2016 when it overtook Japan's 1.3 tonnes. Even though they amount to less than 5% of domestic consumption, China will import 2.3 million tonnes of pork in 2017 -as much as the collective pork purchases volume of Japan, South Korea, and Southeast Asia.
Outside of China, East Asian pork demand also grew. South Korean pork imports jumped 41%, from 447,000 tonnes in 2007 to a USDA estimated 630,000 tonnes this year. Due to artificially high Philippine corn prices, Southeast Asian pork imports grew an even faster 130%, from 152,000 tonnes in 2007 to 350,000 tonnes in 2017. -While East Asian pork demand outside of China increased by an impressive 381,000 tonnes over ten years, that was dwarfed by a 2 million tonne+ increase in annual Chinese pork imports.
Going forward, China's government is officially guiding corn prices down to international levels over several years. Although hog prices have recovered, two factors are preventing inventory growth.
First, due to a chronic sow shortage and high piglet costs, large-scale hog farms enjoy healthy profits while backyard farms suffer massive losses. Small farms selling off hog herds and exiting the industry are offsetting inventory gains of larger operators.
Second, China's hog market recovery coincided with the imposition of environmental laws. The USDA reports that "Implementation of strict environmental regulations will further constrain China's sow herd recovery in 2017…decreasing its 2017 starting sow estimate by 12%to 38 million head."
-The last time sow numbers were this low, China had several hundred million fewer people and 22kg or 50% less pork demand per capita. Historically low hog inventories are reducing 2017 pork output 4.5% to a USDA estimated 52.75 million tonnes. With pork consumption at 55 million tonnes, imports of 2.3 million tonnes bridge a widening supply-demand gap. -If pork imports to Hong Kong are included, China's real pork import volume is 2.75 million tonnes, twice as much as second-ranked Japan.
Hence, while Japanese pork demand languishes, China's gap between supply and demand exceeds South Korea and ASEAN's combined pork import growth. As a result, from 35% of pork imports in 1997, East Asia now accounts for 56% of world market swine purchases this year.
A similar, but even more dramatic story is underway in the world beef market: Since 1997, Japan's beef imports have fallen at a 1% annual rate while those of South Korea and Southeast Asia have risen an average of 4.2% and 3.9% respectively -but China's beef import volume has risen by 31.5% annually over this time -with almost the entire increase occurring after 2012.
China's severe post-2007 pork price inflation means that consumer incomes rapidly increased just as the price gap between pork and beef narrowed. This caused demand for beef to greatly outrace output growth after 2011.
From 1997 through 2012 inclusive, Chinese beef production equaled consumption. Both increased from approximately 4.4 million in 1997 to 6.6 million tonnes in 2012, making imports almost unnecessary. By 2017, China's beef production had grown to 7.07 million tonnes -but its consumption jumped to 8.01 million tonnes. As happened with pork, a widening gap between beef supply and demand was bridged by exponential import growth.
Thus from 16,000 tonnes in 2000 and 86,000 tonnes in 2012, beef imports grew 1,005% in five years, to 950,000 tonnes in 2017 and over a million tonnes in 2018. If one adds in Hong Kong's beef import volume (which almost tripled after 2012), China's real 2017 beef import volume exceeds 1.4 million tonnes -and that doesn't include Indian beef illegally smuggled in from Vietnam!
By comparison, from 2007 through 2017 inclusive, Japan's beef imports grew 11% from 686,000 tonnes to 760,000 tonnes -staying far below their 1.3 million tonne peak volume of the mid-2000s.
South Korean beef imports fared better,up almost 80% from 298,000 tonnes in 2007 to 535,000 tonnes in 2017. Powered by population growth and rising incomes in Singapore, Philippines, and Indonesia, Southeast Asian beef imports rose 54% from 327,000 tonnes in 2007 to 505,000 tonnes this year. -But China's 945,000-tonne 'official' (and 1.4 million tonne+ unofficial) increase in beef imports dwarfs the collective 489,000 tonnes, decade-spanning rise in collective Japanese, Korean and Southeast Asian inflows.
Powered by Chinese demand, East Asia's share of the world beef imports rebounded from its mid-2000s low of 18% to 36% this year. -But this is about more than the fact that East Asia now buys approximately half of the world's exported red meat, or that this proportion is destined to rise further.
It is about the unspoken concentration of Market Power: Previously, a handful of red meat exporters conducted a majority of their trade with half a dozen large importing nations. Today, China buys as much red meat as the rest of East Asia -and more than the next top three or four importing nations put together.
It imports almost as much pork as America the world market's top supplier exports. China and Hong Kong's beef imports match the total beef exports of America and exceed the combined shipments of Canada and New Zealand. In the future, meat market analysts will need to follow China's every move in the world market for meat, in the same manner, they already do for soybeans.
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