January 13, 2020
Plagues, pigs and a powerful dragon: China's dominates the swine meat trade
World pork exports are booming but without China, they would have stagnated for a second consecutive year. Devastating swine sector misfortunes give Beijing the power to decide who will enjoy export-led growth.
By Eric J. Brooks
An eFeedLink Hot Topic
After spending the first two decades of our new century redefining world feed crop markets, China is now reinventing the world meat trade; and none more so than pork.
African Swine Fever (ASF) induced a catastrophic 26% plunge in 2019 Chinese pork production and is now threatening Southeast Asian nations with comparable output declines. Consequently, we estimate world swine meat output fell 11.6%, from 112.9 million tonnes in 2018 to 99.8 million tonnes in 2019.
From 54 million tonnes in 2018, Chinese pork output probably totaled near 40 million tonnes in 2019. For 2020 Rabobank and many other analysts projects a further fall in Chinese pork output to near 34.75 million tonnes.
China normally grows half the world's pork and its projected 2020 5 million tonne+ output decline cannot be counterweighted by higher production elsewhere. This both reflects production constraints in top EU exporters and impending ASF-induced production declines in other Pacific Rim nations.
ASF has spread to a growing roster of highly populated, pork consuming nations including the Philippines, Thailand, Vietnam, Cambodia, Laos, Indonesia and Myanmar. Consequently, in 2020, world pork production will fall another 4.8% to around 95.2 million tonnes –roughly 16% below its 2018 peak and its lowest output volume since 2007.
On one hand, with China's pork consumption falling by far less than its production, 2019 saw world pork exports rise an impressive, USDA estimated 12.0%, to 9.476 million tonnes from 8.445 million in 2018.
On the other hand, if one factors out African Swine Fever (ASF) and its 66.6%, 1.039 million tonne boost to Chinese pork imports (to 2.6 million tonnes), 2019 pork exports to the rest of the world declined by 8,000 tonnes (to 6.876 million tonnes) or 0.1%. Consequently, while trade continues to boom, the swine sector's dangerous dependence on China continues to increase.
At the time of publication, The USDA is still forecasting another healthy 9.6% or 907,000-tonne increase in world pork exports, to a record 10.383 million tonnes –but without China's 900,000-tonne increase in imports, pork exports to the rest of the world are no higher in 2020 than they were in 2018.
Even so, the latest news is mostly bullish for pork suppliers: Within the last two months, Beijing liberalized its pork trade with top exporter America and second-ranked Canada. As a result, 2020 Chinese pork imports need to be revised upward from the USDA's current 3.7 million tonne estimate and will total closer to 4.0 million tonnes.
That, in turn, would result in total world pork exports rising by around 11.9% and totaling approximately 10.6 million tonnes. –Even so, that would still leave the total quantity of pork exported to nations other than China in the 6.7 to 6.8 million tonne range –lower than it was in either 2018 or 2019.
Based on USDA statistics, from 2% in 2000 to 7% in 2010 and 14% in 2015, mainland Chinese buyers will account for 35.6% of world pork exports in 2020 –though our analysis shows the actual figure (including Hong Kong) could be closer to 40%. Aside from becoming overly dependent on one market, analysts warn that the high pork prices caused by ASF may permanently dent pork demand in many consuming nations.
On one hand, China is single-handily growing the whole world pork market. On the other hand, high Chinese prices have frozen the quantity of pork exported to all other nations.
At this point, China's political relations with individual nations decide who wins or loses this export bonanza more than market forces do. In 2019, China clearly favored the EU for high-end, pricier pork imports and Brazilian pork for lower-cost commodity supplies.
After rising from 700,000 tonnes in 2010 to a 1.88 million tonne peak in 2016 (when artificially corn prices made Chinese pork uncompetitive), China's EU pork imports should have retreated back to around 1.1 million tonnes but ASF broke out in mid-year, boosting their volume to 1.358 million tonnes.
For 2019, Spain boosted output sufficiently to boost its pork exports to China by 66% to approximately 540,000 tonnes, thereby overtaking Germany (500,000 tonnes, +39.6%) as China's top supplier, followed by Denmark and Netherland. The latter four nations however, relied on falling domestic consumption and in some cases, the diverting of exports to China from less profitable destinations. This is why EU export volumes to China have risen by over 50% --while overall EU exports increased by (a still very healthy) 24%.
With European producers constrained by a variety of factors including low domestic returns, falling domestic consumption and environmental laws restricting their expansion, China's imports of EU pork are likely to level out in the 2.2 to 2.3 million tonne range in 2020.
Brazil is also benefiting from China's pork import bonanza but not merely as much as Europe. As of Q3, its exports to China increased 34% --while good it lags the amount by which pork exports from the EU and Canada (prior to their mid-year ban) increased.
Its 15% increase in 2019 export volumes to 860,000 tonnes is below the USDA's initial 900,000 projection. Given its currency's 20% depreciation over the last year, 45% fall since 2013 and undercutting of American (-25%), Canadian (-33%) and EU (-50%) prices, Brazil's 2019 export success has a disappointing air to it.
Brazil is thus in the odd position of having much more potential to boost exports than the EU but stuck behind many EU nations and roughly tied with (tariff-handicapped) America and Canada in 2019 export volumes. One reason for this is that besides being lower quality, after being repeatedly banned by the EU, China and other Asian nations for food safety violations since 2007, Brazilian pork has a bad reputation for food safety. This gives China's very sophisticated, quality-conscious pork buyers cold feet.
Another reason for this underachievement is that Beijing was supposed to approve many Brazilian pork processing plants for export in early 2019 –but delayed doing so. In September China finally approved 25 Brazilian meat processing plants for export –but only one of them processed pork.
Only several weeks after an October summit between Chinese leader Xi Jiping and Brazilian President Jair Bolsinaro were an additional seven pork processing plants were approved for export to China. Finally, in mid-November, Brazilian agriculture minister Tereza Cristina Dias announced that a further thirteen pork processing plants had been approved for export to China.
Hence, Brazil's China-driven export 'surge' has been mostly postponed to 2020, when EU meat will not be as easy to expand as this year. 2020 however, will see Brazil finally exceed a million tonnes in pork exports.
At the same time, two events guarantee that North America will take over from Europe and Brazil as the world pork trade's driver of export growth –though Europe will remain China's top supplier.
First, after being blocked from China's market from June through November due to a diplomatic dispute, China has allowed Canadian pork back into its market. The importance of China to Canada's stagnant pork trade can be seen in one surprising fact: Even though Canadian pork was only exported freely for the first five months of 2019 and the whole of December, H1 2019 shipments destined for China (32.7%) exceeded those destined for its US NAFTA trading partner (23.1%) or Japan (21.7%) for the very first time.
Despite being blocked for almost half of 2019, surging Canadian pork exports to China successfully offset lower shipment volumes to America, Philippines, South Korea, and Japan. Had China not banned Canadian pork for five months, it would have easily overtaken the neighboring United States as Canadian pork's biggest export destination by volume.
The USDA estimated that "If YTD [year to date] export numbers [momentum] to China had been maintained throughout 2019, Canada would have been on track to export 442,000 metric tonnes of pork to China." It instead exported approximately 200,000 tonnes.
With high import tariffs hindering US pork's entry to China and a diplomatic row banning Canadian pork for much of the year, more than 740,000 tonnes of 2019's 1.039 million tonne increase in Chinese pork imports was accounted for by EU suppliers.
With normal, liberalized pork trade between China and Canada now restored, we can safely assume that 2020 Canadian pork exports to China will rise by 250,000 tonnes. We estimated that instead of staying flat near 1.30 million tonnes, Canadian pork exports will rise by 19.2% or 250,000 tonnes, to 1.55 million tonnes.
Second, mid-January's announced US-China trade liberalization agreement means that while 2020 will be another prosperous year for swine meat suppliers, North America will take over from Europe and Brazil to become the locomotive of export-driven growth. European producers will continue to enjoy prosperity amid severe production restraints.
Going forward, some market changes are readily apparent. First, the liberalized entry of US and Canadian pork will make life more difficult for European suppliers. The higher prices and inability of most EU suppliers to boost production further will result in them losing market share to Canadian, American and Brazilian pork producers. Hence, it would not be surprising if the USDA's current forecast of the EU exporting 3.9 million tonnes of pork is scaled back into the 3.7 to 3.8 million tonne range, with the entire difference being due to China liberalizing its imports of North American pork.
Second, among European producers, only supply-elastic Spain will experience significant export growth. Moreover, its high-end pork will face competition from high quality, lower-cost North American and lower quality but heavily discounted Brazilian pork.
Third, with the entire increase in the world pork trade volumes coming entirely from China, Beijing is in a position to upset ALL the above pork export forecasts and make a political decision on who the world pork market winners or losers can be. Even when disaster an ASF hits Chinese feed and livestock, its power over the world market just keeps growing.
All rights reserved. No part of the report may be reproduced without permission from eFeedLink.