September 4, 2003
Hong Kong Imports Of Beef, Pork Seen Up In 2003
Imports of beef and pork to Hong Kong from all sources, excluding re-exports to China, are expected to increase moderately by 3% and 2% respectively for 2003, according to information from the U.S. Department of Agriculture's Foreign Agricultural Service web site, dated Aug. 29 and released Tuesday.
Situation and Outlook
Imports of beef and pork to Hong Kong from all sources, excluding re-exports to China, are expected to increase moderately by 3% and 2% respectively for 2003. Beef imports from the United States increased by 21% during January - June 2003 compared to the same period in 2002. Due to recent escalating beef prices in the United States, it is expected that this high rate of growth will not be sustained for the second half of 2003.
U.S. beef sales could strengthen during the late winter months when U.S. beef prices are forecast to moderate. The United States is not a significant pork supplier to the Hong Kong market primarily because U.S. pork products are not price competitive with China, the press release said.
The Hong Kong catering business plunged earlier this year because of the SARS outbreak and resulted in far less meat sales to that industry. Hong Kong consumers now consume more frozen meats, both pork and beef, because they are more receptive to frozen meats, which are now easily available in supermarket chains. In contrast, the consumption of freshly slaughtered meat is forecast to decline gradually. Hong Kong is a mature market and no drastic changes in demand are expected.
The Severe Acute Respiratory Syndrome (SARS) significantly impacted Hong Kong's economy during April and May. Tourist arrivals dropped by over 65%. Hong Kong consumers avoided eating out and social activities. Meat sales to restaurants briefly plummeted by half.
Consumption of high value added meat items such as U.S. primal cuts and pork chops declined as they are largely served in restaurants. The consumption of beef and pork in the catering industries was diverted to household consumption of low-end poultry products.
Business for the second quarter of 2003 faced great turmoil. Fortunately, there were strong signs of recovery in the third quarter.
Imports of U.S. beef increased to 6,671 MT, valued at US$26 million in January-June, 2003. The growth will not be sustained in the remainder of the year because of escalating U.S. beef prices. Importers tend to order by demand though inventories are short. Traders say they are reducing orders for U.S. primal cuts. In contrast, they are placing more orders for New Zealand and Brazilian beef. The demand for U.S. beef is strong but the current economy cannot afford high pricing. Imports of U.S. beef for April through June 2003 recorded decreases when compared to the previous months (see Trade Section). It is possible that imports will grow again when winter months come and when U.S. beef prices become more competitive.
The United States is not a significant pork supplier for the Hong Kong market because U.S. pork products are priced higher than supplies from China and Brazil. U.S. pork accounts for only 2% of the import market share.
An estimated 16% of Hong Kong's beef imports and 19% of pork imports are re-exported. Offals however have a higher percentage, over 85%, being re-exported primarily to China. Re-export trade in offal has a much higher value than meat products. Offals are commodities and demand depends on prices. The United States occupied 13% of the beef offal import market share and 20% of the pork offal import market share.
There is a growing trend that increasingly more direct shipments from export countries are going to ports in northern China rather than going through Hong Kong. Transport companies still work in the south facilitating Hong Kong's re-exports to China. Transport fees in China vary according to the scarcity of import permits and quarantine requirements. If permits for certain product categories are available in large quantities at times, transport fees will become lower correspondingly. Conversely, transport fees will rise when the Chinese authorities stringently enforce quarantine inspections.
Narrative On Supply and Demand, Policy & Marketing Production
There are about 300 pig farms in Hong Kong of varying sizes. The pig population of farms ranges from 1,000 to 10,000. In 2002, local farms supplied 444,300 pigs to the market, while imports from Mainland China totaled 1.7 million live pigs. Live pigs are slaughtered in slaughtering houses and sold as fresh pork in wet markets.
Pig farmers report that there have been instances of PRRS (Porcine Reproductive Respiratory Syndrome) and PCV2 (Porcine Circovirus 2). The diseases have been known to exist since last year, and production has been adversely affected. Daily production, which used to be around 1,200 head has dropped to 800. Recent analysis by the Hong Kong's Agricultural, Fisheries and Conservation Department advised pig farmers to improve biosafety measures.
Currently, there is no Hong Kong registered vaccine for the diseases. If the diseases continue to prevail, local production for 2003 and 2004 will wane, and so will the self sufficiency ratio. The 2002 self-sufficiency ratio was 26%. Pigs in Hong Kong are routinely vaccinated against Type O foot-and-mouth disease, and most pigs are vaccinated against classical swine fever. In the first quarter of 2003, there were three outbreaks of foot-and-mouth disease involving 879 pigs. For classical swine fever, there was one outbreak affecting 20 pigs.
Hong Kong does not raise cattle. Supplies rely entirely on imports from China. The self sufficiency ratio is as low as 0.3%.
Hong Kong has been seriously affected by the SARS (Severe Acute Respiratory Syndrome) outbreak since March 2003, with a total of 1,755 cases and a death toll of 299 people as of Aug. 24. On April 2, the WHO advised the public to consider postponing all but essential travel to Hong Kong. This travel advisory was not removed until May 23 and Hong Kong was delisted as a SARS affected area on June 23. Hong Kong's economy was worst hit during the months of April through June.
People avoided eating out and the number of tourists dropped drastically, the press release said. Visitor arrivals for April 2003 plunged 65%, reaching only 494,000 compared with 1.4 million in 2002. In May, the fall was even more severe. The number of tourists dropped 68% to 427,000 in May 2003 while the number was as high as 1.33 million in May 2002.
The consumption of a variety of meat items in the catering industries plunged since the start of the crisis. High value meat items such as chilled beef were most severely affected, as they are primarily served in hotels and high-end restaurants. Also, the consumption of beef and pork offals in Chinese restaurants were significantly reduced. The wholesale price of Brazilian pork chops, which plummeted from HK$8.00/pound to HK$4.00/pound during April and May due to slackened demand in fast food chains and restaurants. The wholesale price has now gradually bounced back to HK$5.00 per pound. At one point, the sales of all meat items to restaurants dropped over 60%. However, one meat importer/wholesaler commented that the overall business volume remained stable after June because the reduced demand in restaurants was compensated for by the increased demand in household consumption of poultry products, the press release said. Retail sales of chicken wings and legs increased during the SARS months.
With the lifting of the WHO's travel advisory on May 23 and Hong Kong's delisting as a SARS infected area on June 23, Hong Kong has witnessed signs of recovery. The government has introduced measures such as tax rebates to encourage more domestic consumption. The Hong Kong Tourist Board has launched a range of marketing activities to attract tourists. Such measures will add momentum to recovery.
The BSE incident in Canada coincided with the SARS outbreak and did not attract much media coverage. Since Canada is not a significant beef supplier for the Hong Kong market, the incident did not have any significant impact on beef consumption.
Between January - June 2002 and January - June 2003, beef imports grew 14%, reaching 30,324 MT. The three major beef suppliers for the Hong Kong market are Brazil (28%), China (24%), and the United States (22%). The United States, however, is the largest supplier in terms of value (37%).
Because of abundant supplies and competitive prices of U.S. beef in late 2002, U.S. exports to Hong Kong increased 21% between January - June 2002 and January - June 2003, thus expanding the market share from 21% in 2002 to 22% this year. The beef market was very robust during the first quarter of 2003. Nonetheless, when U.S. beef prices started to rise in February, Hong Kong importers became more reserved in placing orders.
Consequently, high beef prices began to impact delivery for April. Coupled with the SARS effect, Hong Kong's beef imports have dropped since April. The second quarter of 2003 was very rough as a result of the combined effect of high prices and SARS. Imports from the United States dropped precipitously after March.
Currently, both Hong Kong and China are short of US beef supplies. Buyers tend to order by demand due to high beef prices. An importer revealed that the current prices of U.S. primal cuts have risen to a level that the local market cannot afford. Considering that Hong Kong currently suffers from a weak economy, orders for expensive cuts have been greatly reduced. It is expected that the overall beef market in the third quarter will see signs of recovery with the fading out of the SARS impact. Demand for beef is traditionally strong in the fourth quarter when winter months come. Short plate will be in big demand in both Hong Kong and China during winter months for Chinese hot pots. However, high prices will affect import levels, particularly for expensive cuts.
Imports from Brazil, China and Argentina are in different market sectors. Imports from Brazil and Argentina are expected to continue to surge in the coming months, following the trend in the past few months. They are very competitive in supplying knuckles, cube roll and ribeye, which are supplied for the local market. Chinese restaurants consume huge amounts of Brazilian knuckles which are relatively price competitive and suitable for Chinese cooking.
While primal cuts from Brazil and Argentina are far less expensive than those from the United States, they can hardly secure a market in reputable restaurants serving steaks because of poor quality.
In general, Hong Kong consumers's; increasing preference over frozen meat will help boost meat imports. This trend will continue to deepen in the future. The two major supermarket chains in Hong Kong -- ParkNshop and Wellcome, have opened meat counters in more and more of their branch stores. Such measures have helped enhance retail sales of frozen meats. In January - June, 2003, Hong Kong's retained beef imports rose 20% compared to the same period last year showing the increasing popularity of frozen meats.
Nonetheless, Hong Kong is a mature market, the growth rate is expected to be modest. Beef imports for 2003, excluding exports, are forecast to rise by 3%.
China and Brazil are the two major pork suppliers for the Hong Kong market occupying a market share of 43% and 22% respectively. The U.S. pork prices are relatively more expensive, thus U.S. pork accounts for about 2 percent of the market share. Only very high-end restaurants and supermarkets buy U.S. pork cuts such as loins and butts. On the other hand, riblet, loins, fillet and butts from Brazil and China are more price competitive and are sold a lot to fast food chains and restaurants. Importers commented that prices of Brazilian pork have increased in recent months as Brazilian pork started to supply the Japanese market. It is expected Hong Kong importers will buy less from Brazil and buy more from China in the coming months.
The restaurant business has plummeted tremendously during SARS. Pork imports have dropped since April. (See table below.) If recovery is on track, imports will bounce back in the third and fourth quarters. The 2003 imports, excluding re-exports, will demonstrate a modest growth of 2% since Hong Kong consumers are more receptive to frozen meats.
For the remaining of 2003 and 2004, Hong Kong's imports of chilled pork from Thailand are expected to decrease after significant increases in the three consecutive years since 2000. Three factors may drive imports from Thailand to decline. First, consumers now know how to distinguish chilled pork from freshly slaughtered pork. Secondly, the new licensing requirement prevents retailers from displaying chilled meat as freshly slaughtered pork, making Thai pork less appealing to consumers. Thirdly, the prices of freshly slaughtered pork have dropped to a level that profit margin of Thai chilled meats is not as attractive as before.
Thai chilled pork jumped 80% from 6,221 MT in 2000 to 11,223 MT in 2002. These items were sold as fresh pork in wet markets. In general, consumers could not distinguish Thai chilled pork from freshly slaughtered pork. The influx of Thai chilled pork pushed down the wholesale prices of live pigs and retail prices of freshly slaughtered pork. Consequently, local pig farmers launched complaints to the government saying that chilled pork should not be sold as fresh pork. The government swiftly tightened licensing requirements for meat retailers stipulating that chilled meats have to be displayed in refrigerators. Any violations to this requirement will lead to license cancellations. Between January - June, 2003, Hong Kong's imports of chilled pork from Thailand decreased 30% when compared to the corresponding period in 2002.
Re-export Trade to China
During the first six months of 2003, U.S. beef re-exports through Hong Kong jumped 17%. Because of prevailing competitive beef prices in late 2002 plus the winter season, many importers placed big orders for delivery in early 2003. Hot items include short plate and boneless chuck. The rise did not continue in the second quarter because of the effect of high prices and SARS.
For pork, China generally cannot afford imports of expensive pork cuts. Therefore, Hong Kong's re-exports of meat items to China are usually low end products such as neckbone, brisket bone, etc.
In comparison, offal re-exports to China are the most valuable part of the trade. In the first half of 2003, beef re-exports were valued at US$8 million versus US$53 million for beef variety meats; pork re-exports were valued at US$13 million versus US$58 million for pork variety meats.
The offal trade was not much affected by SARS. The sourcing of offals depends very much on pricing. Between January - June 2002 and January - June 2003, Hong Kong's imports of beef offals from the United States increased 14% as a result of a 16% decrease in average prices. Conversely, Hong Kong's import of Argentina beef offals decreased 19% as a result of a 12% increase in average prices. Similarly, a 6% decrease in average prices of pork offals from Germany raised its exports to Hong Kong by 50%. Popular beef offals include honey comb, omasum, backstrap, aerota, etc. For pork offals, front and hind feet, ears, trotters, hocks, brisket bones, etc are highly sought after items.
The future will see increasingly more direct shipments to the ports in the northern China compared to the past. Shanghai is the most favorable port. Provided that the consignments can fulfill all the labeling and permit requirements and that the goods are to be consumed in the north, it is more cost effective to have them shipped to the north directly rather than re-exported through Hong Kong to Guangzhou in the south.
Meanwhile, the bulk of Hong Kong's meat re-exports to China continue to go to the southern part of China through transport companies. However, transport fees of different items vary according to the scarcity of their specific permits. For example, the transport fee for riblet is RMB$2,300/MT, general pork offals RMB$ 2,200. Permits for kidney are more scarce, then the transport fee rises to RMB$2,500/MT. Beef offals warrant a higher transport fee of RMB$3,900 - RMB$4,100 because such products are subject to more stringent quarantine requirements. Since the importation of poultry products requires an additional license called the automation registration form, the transport fee goes up to RMB3,000 for paws and thighs.
In view of the Alberta mad cow issue, the Hong Kong government has suspended the import of beef from Canada since May 21. Canadian products already shipped to Hong Kong have not been affected. Canada is not a major beef supplier to Hong Kong. In 2002, Canada exported 686 MT of beef to Hong Kong, accounting merely 1% of the import market share. Thus the import suspension did not affect Hong Kong beef business at all.
The Hong Kong government has not yet lifted the ban though the United States announced the reopening of the U.S. market for Canadian beef on Aug. 8.
In view of the fact that Mainland China recently announced a list of animals and animal products of various countries prohibited from import into China because of various animal diseases, the Hong Kong government announced on Aug. 6 that it will suspend issuing import licenses for the re-export of those products to China effective Oct. 6, 2003. U.S. products on the prohibited list include poultry from certain states, rodents, rabbits, sheep and their products. Pig products from Latin America and certain European products are also on the list. Reportedly, the list will be subject to revision as conditions warrant. However, the trade expects to be able to comply without undue disruption. Imports for the Hong Kong market will not be affected.
In late 2001, the Hong Kong Government enacted a new regulation under the Public Health (Animal and Birds) Ordinance, Cap.139 to control the feeding of drugs and chemicals to food animals, and to control chemical residues in livestock and livestock products. The new Regulation prohibits the presence of seven chemicals, which could cause immediate harm to humans, in local and imported food animals in Hong Kong. These are the beta-agonists of clenbuterol and salbutamol; the synthetic oestrogenic hormones of hexoestrol, diethylstilboestrol, and dienoestrol, and the antibiotics of chloramphenicol and avoparcin. It also establishes "Maximum Residue Limits" (MRLS) in line with international standards for 37 restricted chemicals in tissues and milk of local and imported food animals.
Currently, livestock and associated products have been subject to control of all seven prohibited chemicals and 19 out of the 37 restricted chemicals. The 19 restricted chemicals are : cloxacillin, dicloxacillin, ampicillin, amoxycillin, benzylpenicillin, sulfonamides, chlortetracycline, oxytetracycline, doxycycline, tetracycline, carbadox, dihydrostreptomycin, dimetridazole, furaltadone, furazolidone, josamycin, metronidazole, stretomycin and trimethoprim. Control of the first 10 restricted chemicals became effective since Dec. 31, 2001, and the remaining 9 restricted chemicals on Jan. 31, 2003 respectively.