Could NAFTA negotiations shake-up the global pork industry?
Last month, the Trump administration notified Congress that the US plans to renegotiate the North American Free Trade Agreement (NAFTA).
This is the trade deal that also includes Mexico and Canada. Significant volumes of pork are traded between these three countries. The US is also the second largest global pork exporter. As such, renegotiation has the potential to considerably impact the pig industry worldwide.
In 2016, US pig meat exports (including offal) to Canada and Mexico amounted to over 1 million tonnes, 42% of the total export volume. Almost 380,000 tonnes of pig meat was also shipped from Canada to the US, around a third of Canadian pig meat exports.
The potential loss of tariff-free access for US pork to the Mexican market is a particularly important issue. Such an outcome seems likely if the US is not satisfied with the negotiations and decides to withdraw from NAFTA. Canada could maintain tariff-free access for pork shipments into Mexico and therefore be at a competitive advantage. On top of this, the EU is currently renegotiating the Mexico-EU trade deal with a commitment to conclude it by the end of this year. Tariff-free access could be granted to EU pork as a result of this, further damaging the export prospects of US pork. This would, however, represent a significant opportunity for the EU pig meat sector. In 2016 Mexico imported 1 million tonnes of pig meat of which 99% was supplied by the United States and Canada.
A recent report published by the National Pork Producers Council (NPPC) in the US suggests that, if a 20% tariff were applied to US pork imports into Mexico under the above circumstances, the US would eventually lose the entire Mexican market. Although alternative destinations are thought capable of absorbing some of the excess, a net loss in export volume equivalent to 5% of production is still anticipated. It is thought this would lead the US pig market to drop in value by 10%.
The changing dynamics of the global pork industry would also be felt by the UK. While there could be opportunities to capitalise on the Mexican market, the anticipated tariff-free status would only remain while the UK is part of the EU. Meanwhile, there could be more competition from US pork on the Asian markets to compensate for the loss of the Mexican market. A third of UK pig meat exports were shipped to China, Hong Kong and South Korea in 2016, and these markets could become even more important post-Brexit. As such, the NAFTA negotiations will be an important watch point for pig producers in the UK this year.
Bethan Wilkins, Analyst
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