The sheer scale of China’s African swine fever crisis is already having a big impact on the global pork markets. Alistair Driver looks at how this could change the long-term global dynamics of the industr
China’s African swine fever crisis is set to deliver a significant boost to the global pig industry, including, we hope, eventually in the UK. But while the impact on the market is already being seen, at least in most parts of the world, the long-term implications are less clear, as the Chinese authorities, industry and public try to get to grips with this unprecedented situation.
The numbers that have emerged over the past few weeks are staggering – official figures suggesting around 130 outbreaks, with just over one million pigs culled, do not do justice to the scale of a problem it is now evident has been massively under-reported.
Figures from China’s agriculture ministry show the sow herd was 21% down in March compared with a year earlier, while the overall herd has declined by 10% year-on- year to 375.25 million head and slaughterings are down by 5%.
It is not just the direct impact of the virus that is taking its toll. More than 80% of farms that have been hit are deciding not to restock as ‘panic’ hits farmers, Chinese Agriculture Ministry official Wang Junxun told a conference in Beijing, Bloomberg reported.
And the disease situation is only getting worse, sources from inside China are saying. Another indication of what is happening on the ground is that pig feed volumes are estimated to have dropped by 40%, equivalent to 300 million pigs, according to commodity markets analyst Arlan Suderman.
Official figures in major pig-producing region Shandong suggest a 33% decline in pig feed volumes, but the true figure, based on sources in China, could be higher than 50%, Mr Suderman said.
“I have never encountered anything of the scope of African swine fever before (in 40 years),” he told Bloomberg.
As a result of the shortages, wholesale pork prices in China are currently about 20% up on a year ago and are forecast to reach record levels in the second half of the year.
IMPACT ON PRODUCTIVITY
Estimates as to the ultimate impact on production vary significantly. The US Department of Agriculture is now forecasting a 10% drop in Chinese output in 2019 to 48.5m tonnes, in stark contrast to its October forecast of a 1% rise. With China currently producing about half the world’s pigmeat, this, the USDA predicts, will cause a 4% drop in global pork production in 2019 to 10.5m tonnes, despite a 4% increase in the US and a 6% rise in Brazil.
The USDA predicts a 41% increase in Chinese import levels, to 2.2m tonnes, with the EU expected to be a major beneficiary, increasing its overall exports by 11% to 3.3m tonnes. The US (+5%) and Brazil (+23%) are also set to gain.
Global food consultancy Gira goes further, forecasting a 20% decline, three times higher than its previous forecast, reflecting concern the disease is out of control. This could result in Chinese pork imports of four million tonnes, it predicts.
Meanwhile, Rabobank is projecting an astonishing 25- 35% year-on-year fall in Chinese pig production. This would equate to losses of up to 200m pigs, approximately three times the entire US pig population.
With not enough pork or other proteins in the world to fill the gap, Rabobank estimates that China could be faced with a supply gap of about 10m tonnes in 2019.
Danish Crown chief executive Jais Valeur described recent events as a ‘game-changer’ that has seen exports to China from Europe’s biggest pork processor double since February, with much greater demand for parts of the carcase not traditionally sent there.
Eurostat data appeared to reinforce this, showing that EU fresh and frozen pork shipments to China were 16% up, alongside a 2% rise in offal exports, in the first two months of 2019. The apparent increase in Chinese imports has been widely credited with helping EU prices soar by, on average, around 30p/ kg since early February.
UK pork exports to China were 28% up year-on-year in February, although producers, to their understandable ire, are yet to feel the China effect. However, price rises are ‘inevitable’, given that UK pork was effectively cheaper than EU pork in April, AHDB analyst Bethan Wilkins said.
In fact, prices are rising virtually everywhere else in the world, particularly in the US, which, according to some reports, has also seen a surge in pork exports to China. US pork prices have nearly doubled since February and lean-hog futures have reportedly risen by around 60% over the last month.
Jim Long, president of Genesus Genetics, predicts that the situation could result in ‘record hog prices in the USA and most if not all pork producing countries over the next while’.
However, confusingly, separate official data from the IHS Maritime & Trade Global Trade Atlas and China Customs show Chinese pigmeat imports, including offal, actually fell by 8% to 550,000 tonnes, in the first quarter of this year, with a 21% reduction in offal exports outweighing a 3% in other types. Notably, these figures showed a big decline in US exports to China, most likely the result of the ongoing trade dispute.
This gap was partly filled by big increases in export volumes from Canada, Brazil, Spain, the Netherlands and the UK, which increased export volumes by 50%, 8,000 tonnes.
AHDB analyst Duncan Wyatt stressed, however, that these official figures do not always match what the trade is saying. “I am expecting April and May data to show a meaningful increase in shipments, given shipping times and when prices started to pick up in the US and EU,” he said.
The figures are, nonetheless, a warning to treat some of the headline numbers with caution.
UNCERTAIN LONG-TERM EFFECT
Indeed, the longer-term effect on trade is far from certain. China is estimated to have about 200,000 tonnes of pork in its reserves, although this is unlikely to come close to filling the gap.
There will be plenty of competition. The possible removal or reduction of US trade tariffs would be a game- changer, while it has just been announced that Argentina has been approved to export pork to China from 25 plants.
Nonetheless, the availability of pork on the export markets will still be a limiting factor, as will price, if China’s productivity shortfalls are on the scale predicted. “Product from the UK will only be exported to China if it fetches a higher price on that market – this is unlikely for cuts which are more popular here,” Ms Wilkins said.
This will apply to a degree to all exporting nations, which will not want to leave their traditional markets short of product. It clear that the entire import gap will not be filled by imports. “Therefore, it seems falling per capita pork consumption can be expected in China. Prices cannot rise indefinitely, and this may eventually limit the import pull,” Ms Wilkins added.
There will be a switch to other proteins in China. Chinese chicken producers are already looking to ramp up production, while some consumers have already switched to chicken out of a misplaced fear of contracting ASF, said Rabobank analyst Christine McCracken.
Ms Wilkins added: “There remains the risk that some switch away from pork consumption could become permanent, which may be a concern in years to come.
“In the long-term, ASF will also force a significant restructuring of the Chinese pig industry. Modern, intensive production will likely displace farms that cannot afford good biosecurity at an even faster rate. This may help the industry move closer towards self-sufficiency over the next decade.
“So while opportunities for exporters look good in the short-term, in the mid- to long-term, they may not be sustainable.”
- 1,357 ongoing ASF outbreaks and 124 new outbreaks were notified in the latest OIE report period, from March 20 to April 11;
- 97% of all losses, 7,317 of 7,536 animals, occurred in Asia, mostly from China;
- In Europe, 183 losses were notified from Romania and Ukraine while in Africa, 36 losses were reported from South Africa; and
- Cambodia reported its first outbreak.
Opinions vary on how ASF will affect Chinese production:
- USDA -10%
- Gira -20%
- Rabobank -30-35%