July 3, 2019

US pork sector survives trade war by tapping into smaller markets


As the US-China trade war cost US hog farmers hundreds of millions of dollars in export sales to China and Mexico, the pork sector attempts to ride out the dispute by turning to other countries, Reuters reported.

To mitigate losses, the US pork industry reached out to smaller markets including Colombia and Vietnam, an analysis of data from the US Meat Export Federation (USMEF) and US Department of Agriculture (USDA) showed.

While the United States and China have yet to resolve their trade dispute, the pork industry has been noted for staying clear of drastic sales drop which have impacted other US farm sectors. 

Overall, US pork exports fell 3.9% by volume and 8.4% by value from May 2018 to April 2019, compared to a year earlier, according to data compiled by the USMEF.
China raised tariffs on US pork in April 2018 and again in July last year, when it imposed tariffs on soybeans.  

By comparison, total US soybean exports dropped 13.7% by volume and 19.2% by value during the same period, while total sorghum exports dropped 72.8% by volume and 73.6% by value, according to the USDA.

An Iowa hog farmer told Reuters that small-market sales have helped save the US pork industry. This development is linked to an ongoing, worldwide promotion of US pork which started more than 10 years ago as US hog farmers and trade groups sought to exploit an opportunity in the rising demand for protein in emerging markets.

With China and Mexico cutting purchases in 2018, a drop in US pork prices prompted other buyers to increase spending on the meat. These buyer consists of smaller markets like Colombia and South Korea which have trade agreements with the US. This shift in the US pork trade highlights the importance of a diversified customer base that is crucial in enabling the pork sector to avoid significant declines in exports, especially in the event of a trade disruption with a major importer.

Compared to the US pork industry, the soy sector, which is extremely dependent on exports to China prior to the trade war, struggles to make up for losses as it looks for new markets. On the other hand, 20% of US pork by volume went to China and Hong Kong.

US pork sales to China and Hong Kong sank about 30% by volume and value to about 326,726 tonnes and US$737 million in the 12 months ending in April, after China increased its tariff to 62% from 12% in 2018.

Sales to Mexico over the same period dropped 11% by volume and 25% by value, to about 726,859 tonnes and US$1.2 billion, after Mexico imposed 20% tariffs on US pork imports in retaliation for US duties on metals imports last year.

As a result, buyers from smaller markets quickly took up surplus from the US pork sector.

US exports to Colombia, the Dominican Republic, Australia, Philippines, Vietnam and South Korea climbed by 24% by volume - to more than 530,000 tonnes - in the 12 months ending in April, compared to a year earlier, according to data from the USMEF.

Colombia's imports of US pork rose by 34% to more than 103,000 tonnes in the 12 months ending in April 2019, aided by the US-Colombia Trade Promotion Agreement.

Exports to South Korea jumped 14% to more than 230,000 tonnes in the 12 months ending in April, boosted by the United States-Korea Free Trade Agreement.

US pork sales to Vietnam climbed by 334% by volume, to more than 16,500 tonnes, over the same period.

In a bid to increase international meat sales, Tyson Foods Inc added staff last year to include South America, Philippines, and the Middle East. Hormel Foods Corp also added staff, focusing on Asia and South America.

The US pork sector could have benefited even more from the Chinese market as the China's African swine fever (ASF) epidemic has led to an increased demand for pork imports. However, the US-China trade war has severely curtailed that opportunity.

"This is a once-in-a-lifetime opportunity in China because of ASF," said Nick Giordano, vice president and global government affairs counsel for the National Pork Producers Council. "We can't fully capitalise on it because we have a 50% cent punitive tariff."

The US industry did benefit from the epidemic, however.

Expectations that the disease will push China to increase pork imports lifted US hog futures by 78% from a four-month low in February to a five-year high in May. Prices have since dropped, but the gains allowed some farmers to lock in profits through 2020.

- Reuters

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