Spotlight on ASF: Opportunities for key exporters
Last week we examined the potential size of the Chinese import gap this year, as China’s production becomes affected by African Swine Fever. In this article, we discuss opportunities for the key suppliers individually.
It seems likely that Chinese pork production will drop by at least 2.5 million tonnes this year. The latest commentary by Rabobank indicates a 5-10 million drop might even be feasible. On the global export stage, this is a very large supply gap. China only imported around 2 million tonnes of pork and offal in 2018, and the total volume traded worldwide only amounted to 9 million tonnes (excluding trade within the EU). How much pork might realistically be mobilised to China?
Due to the ongoing trade war between China and the US, the EU, Brazil and Canada are likely to be the first beneficiaries of any rise in Chinese import demand. In 2018, EU pig meat exports to China will total around 1.4 million tonnes, but this figure was 1.8 million tonnes in 2016. This suggests perhaps an additional 500,000 tonnes can be mobilised relatively easily, considering EU production is likely to be slightly higher than in 2016.
Brazilian shipments to China more than trebled last year, and Brazil’s domestic production is expected to rise by around 100,000 tonnes during 2019. If this product can be channelled into the Chinese market, this would mean Brazilian shipments to China increase by a further 60% on 2018 levels.
While Canada is a larger supplier than Brazil, expansion is more cautious and is not going to yield significantly more product than in 2018. Volumes to China have also not fallen away as much in the past two years as other suppliers, so how much additional product can be readily redirected into China from Canada is uncertain. Canada’s growing political tensions with China also have the potential to interfere with export prospects in the shorter term.
The chart below gives estimates of how much could feasibly be shipped, based on previous highs and potential growth from Brazil; clearly the volumes fall well short of the overall deficit:
Due to the product mix featuring cuts that are generally undesirable to most markets, and the commodity nature of the trade, the average price of shipments to China has always fallen below the overall average export price. In 2018, the average price for pork and offal shipments to China from the EU was €1.34/kg, 27% below the overall average. However, in 2016 when demand was particularly strong, the average price was just 17% below the overall average, at €1.57/kg.
The higher Chinese prices climb, the more pork will be made available to that market. If export prices were to rise by 50% in the EU, Canada and Brazil, this would cancel out the additional tariff placed on US pork by the Chinese authorities, making US pork competitive again. Considering the US needs additional markets though, as its production is set to expand by around 700,000 tonnes this year, US suppliers are likely to discount their prices somewhat to achieve a share of the Chinese market without the need for such an large price rise elsewhere in the world. Exactly how much the US can provide is complicated by the use of Ractopamine in its production; previously the US has sent 350,000 tonnes more than in 2018 (mostly offal), although how much of the additional production in 2019 would be suitable is uncertain.
Whatever happens, it’s clear the pork that could be fairly easily drawn to the Chinese market does not come close to making up the shortfall in Chinese production. What does this mean? In reality, Chinese consumers are likely to switch to other meats, limiting demand. Concern about ASF in pork, even though it has no effect on human health, is also expected to turn consumers away somewhat. Next week, we’ll discuss the anticipated decline in consumption in more detail.
Bethan Wilkins, Analyst
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