In-depth: Chinese pork imports lose momentum
This is the first of more in-depth articles covering the pig meat sector with implications for the UK. This first article covering China is also intended to be a regular feature given its importance as the key global importer of pig meat.
Chinese pork imports fell by around one third on a year earlier during Q2 which is the first time since the end of 2014 that quarterly imports have not increased on the year. Will this slowdown in import demand continue, and what might it mean for the UK and global pork markets?
Chinese fresh/frozen pork imports fell a noticeable 34% year-on-year during Q2, totalling 316,000 tonnes according to Chinese customs. The decline increased throughout the quarter, with June shipments alone 54% behind the month in 2016. The weaker import demand comes as Chinese domestic production has finally begun to recover. Production had come under pressure over the past two years, following the implementation of strict environmental regulations by the Chinese government. However, it seems the extremely high pork prices achieved in China last year did ultimately encourage some reinvestment. As such, according to the Chinese Ministry of Agriculture, slaughterings were almost 1% higher year-on-year in the first 5 months of 2017.
On top of this, consumer demand for pork in China has also been under pressure. The second quarter is traditionally the weakest for pork sales, but this year strong price competition from poultry meat also reportedly impacted on demand.
As such, wholesale pork prices in China have declined considerably from the 2016 level. Prices were 17% lower than the start of the year for week ended 18 July. Live pig prices have also followed a similar trend. With domestically produced pork becoming more affordable, the incentive to import is reduced.
So far, most of the major suppliers have followed the overall trend and exported less than in 2016 during Q2. The EU was particularly affected, with imports falling 43% year-on-year leading to a 10 percentage points drop in market share. Tight supplies, high European pig prices and bans on trade from some German plants likely influenced this. Following from this, the US was proportionally less affected, with shipments only declining 29% on Q2 2016.
Conversely, Canadian pork shipments were 16% higher compared to 2016 for the quarter as a whole. However, the discovery of Ractopamine in Canadian pig trotters shipped to China in May, and the reputational damage it could cause, could threaten exports moving forwards. Indeed, in June Chinese imports of Canadian pork were 37% lower than in June 2016 and 42% lower than the previous month. The food scandal in Brazil has also impacted on its trade with China and shipments in June were down as much as 76% on a year earlier. To find out more about the Brazilian export position click here.
Despite challenging circumstances, UK pork shipments to China have continued to grow year-on-year. While the UK still only occupies a small market share, this grew to 5% during June as the UK was the only significant country to expand shipments both over the previous month and compared to June 2016. The good reputation of UK pork may be supporting demand, even when domestic product becomes more plentiful.
For offal, the cooling in demand has been somewhat smaller than for muscle cuts. At 269,000 tonnes, imports were 24% less than in Q2 2016, with the US, Denmark and Germany bearing most of the decline. Shipments from the UK also fell 13% year-on-year, suggesting exports of muscle cuts are becoming relatively more important for the UK on the Chinese market.
So, how might the Chinese market pan out in the rest of 2017? The latest forecasts are not optimistic; the latest Rabobank report anticipates Chinese production could recover 1-2% for 2017 as a whole, and with global pork prices elevated, import demand may continue to slow. Equally, the FAO-OECD global outlook report published in July expects a 25% decline in Chinese pork imports in 2017, although in reality this may prove to be on the pessimistic side.
The Chinese pork price slide has actually plateaued somewhat in recent weeks, and poultry prices have reportedly shown some recovery. As such, as the difficult summer demand season closes, it is still possible that import requirements could pick up again. Although, it seems unlikely imports in the year 2017 will surpass 2016 levels.
On the whole, this could leave competition intensifying amongst exporters for the remaining Chinese demand. As such, current high EU prices could come under further pressure. This downwards pressure could ultimately also affect the UK market, despite progress in China being good so far this year. Looking further forwards, it is important to remember Chinese production is expected to continue recovering. This could impact on future import demand, and so China may not be relied upon to support the global pork industry indefinitely. However, it should also be noted that forecasts of future import demand varying considerably, and for example the Chinese Meat Association is expecting further increases by 2020.
Bethan Wilkins, Analyst
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