January 31, 2020

ASF's impact on Vietnamese pork production and meat trade

Pork and poultry prices and imports set new records as feed output, corn purchases fall short of projected levels. Strongly rebounding domestic production, a preference for freshly slaughtered pork may minimize swine meat imports by the mid-2020s –but trade politics may give foreign chicken a long-term market advantage.

By Eric J. Brooks

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Rabobank estimated that as of October 19% of Vietnam's population had succumbed to ASF, we project that its hog inventory entered 2020 at 22.313 million head, 22.5% lower than the 28.79 million head a year earlier.
At the same time, high late 2019 hog prices encouraged hogs to be fattened to above-average weights, more than counterbalancing the panic selling of underweight pigs earlier when the epidemic first broke out. This implies pork production fell by approximately 20%.
Hence, from 2018's USDA estimated 2.8 million tonnes, we project Vietnam's 2019 pork production fell approximately 20% or 560,000 to 2.24 million tonne range. With industry observers expecting another 5% to 10% fall in hog inventories, we anticipate an additional 8% fall in 2020 hog inventory to induce a 6.3% in Vietnam's pork output, to 2.10 million tonnes.
While production falls a steep 20% from 2.81 to 2.24 million tonnes, 2020 consumption declined only 14.8%, from 2018's 2.906 million to 2.47 million tonnes in 2019. For this year, Vietnam's pork consumption is projected to fall to 2.37 million tonnes. Similarly, after peaking at 4.85
This, in turn, impacted Vietnam's feed output: After rising at a 12.4% annual rate from 2.4 million tonnes in 2000 to an Alltech Global Feed Survey estimated 19.63 million tonnes in 2018, 2019's fall in hog feed consumption exceeded the higher feed demand for all other livestock types. As a result, feed output declined 6.8%, to 18.3 million tonnes. For 2020, we expect a smaller fall in hog feed consumption to be counterbalanced by higher poultry and aqua feed consumption, making output level out near 18.5 million tonnes.
As a result, instead of importing the 11.5 million tonnes of corn the USDA forecast for 2020 a year ago, Vietnam will probably buy a volume closer to 10 million tonnes. With lower feed production pushes down feed corn demand, imports of soybean meal (5.5 million tonnes) and soybeans (1.85 million tonnes) will stay relatively unchanged, as the substitution of protein meals in place of lower quality feed inputs offsets lower hog feed demand.
With hog inventories falling significantly faster than pork consumption, Vietnam is experiencing the same rapid growth in pork import volumes that China experienced a year earlier –but the exact level of import penetration is somewhat contentious.
Even before ASF broke out in February 2019, Vietnam's pork consumption had stayed consistently several percent ahead of supplies for several years, resulting in rapid import growth from a very low starting base –but the exact quantity is in contention.
On one hand, USDA statistics show exponential expansion in imports, from 3,000 tonnes to 10,000 tonnes in 2016 to 20,000 tonnes in 2018. On the other hand, EU statistics show that European suppliers shipped 83,742 tonnes of pork in 2018 –even before the ASF crisis dented domestic production. 
Given that the USDA's lower figure showed mostly US pork exports and Latin American suppliers are also known to have shipped at least 20,000 tonnes of pork to Vietnam that year, its real 2018 pork import volume at around 120,000 tonnes –And do note this is at least close the 105,000-tonne difference between Vietnam's USDA estimated 2018 pork production (2.801 million tonnes) and consumption (2.906 million tonnes).
For 2019, Vietnam's ministry of finance announced that January to November imports totaled 111,000 tonnes, with 74,514 tonnes of this volume originating from EU nations –but this is nowhere near the volume of imports required for 2019 or even 2020.
Two-thirds of 2019 imports arrived after September, as prices shot up from VND35,000/kg (US$1.33/kg) in Q1 2019 to VND75,000/kg (US$3.24/kg) by Q3 –and even after the Q4 import flood, rose further to over VND100,000/kg (US$4.31/kg) by late December 2019. While most came from Germany or Denmark, a rising proportion of Vietnamese pork imports are being supplied by Polish, Brazilian and US producers.
According to traders interviewed by Bloomberg, Vietnam must import 200,000 tonnes of pork from December through late January (when Lunar New Year occurs) to stabilize prices. This probably pushed 2019 pork import volumes to approximately 200,000 tonnes –reasonably close to the 230,000-tonne gap between the estimated 2019 output (2.24 million tonnes) and consumption (2.47 million tonnes).
While the inflow of pork imports will peak in Q1 2020, the USDA still expects 2020 volumes to increase by 50% above 2019 levels. That implies a record 2020 pork import volume of approximately 300,0000 tonnes –roughly in line with an anticipated 280,000-tonne gap between 2020 pork production (2.10 million tonnes) and consumption (2.38 million tonnes).
With pork's price tripling in less than a year, the prices, production and consumption of other meats were also stimulated. Chicken meat production jumped 10.2%, from 2018's 835,000 tonnes to 920,000 tonnes last year. With pork becoming expensive, chicken consumption also rose a comparable steep 10% from 900,000 to 1,000,000 tonnes.
That in turn made 2019 chicken imports jump to a record 160,000 tonnes, much of it in the form of dark meat parts from America or Brazil. That is more than double than 2018's 70,000 tonnes and far more than 85,000 tonnes initially forecast by the USDA. For 2020, chicken meat consumption is expected to increase another 5% to a USDA estimated 966,000 tonnes –but with the cost of pork still high, chicken consumption is on track to increase 8%, to 1.155 million tonnes. Hence, a record chicken import volume of approximately 200,000 tonnes will be needed to bridge the gap between domestic supply and demand.
While 2020's 50% rise in foreign pork purchases exceeds China's anticipated 35% rise, post-2020 pork import volumes may drop rather steeply for two reasons. This is for reasons that go beyond Vietnam's shallower 30% fall in hog inventories (versus 50% in China) or even recent signs that the worst of the ASF epidemic has passed.
First, whereas China's population is approximately 49% rural, 64% of Vietnamese still live in the countryside. Along with Vietnam's lower level of development and less developed cold storage chain, this means that prior to ASF, 98% of pork consumed was freshly slaughtered.
Frozen pork is shunned and usually only used by food processors, putting imports a distinct disadvantage. Chinese show a strong willingness to eat foreign pork, especially if it is of higher quality. Despite having lower incomes, Vietnam's rural majority (and even many urban dwellers) prefer freshly slaughtered local pork even if the frozen imported pork is cheaper in price.
Second, while China's sow population is estimated to have fallen by over 50% from early 2018 levels, Vietnamese sow inventories fell by only 30%, from an estimated 3.6 million head before ASF hit to around 2.5 million at the present time. Vietnam's significantly lower ASF sow mortality rates mean that once ASF dies out, it is in a position to boost pork production more rapidly than China.
Going forward, assuming ASF is brought under control with less output loss than in China, industry analysts expect pork imports to total 2% to 4% of consumption or 60,000 to 120,000 tonnes by the mid-2020s.
On the other hand, Vietnam was a minor net importer of poultry meat ever since bird flu broke out fifteen years ago and was one even before ASF broke out. Facing political pressure to open up its market to poultry imports in return for continued access to America for its manufactured goods, Vietnam is likely to liberalize its chicken meat trade. Hence, once ASF is over, we may see Vietnam's pork imports fall to previous low levels but not its foreign purchases of poultry meat.

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