The perfect storm is reshaping the global meat market
n less than a year, every single province in China was hit by the disease and the losses for the world’s largest pig herd are to be tremendous, according to estimates from USDA and Rabobank,
A hike in prices
China is going to lose about 40% of its national pig inventory (200 million head), a number equal to annual pork supply in the EU and 30% larger annual US pork production.
Besides that, it is not the only Asian country affected. Following the events in China, the disease has spread in Vietnam and Cambodia raising questions about what the future may hold for the swine industry in this region.
“Sizable breeding herd losses will delay the Chinese pork industry’s recovery. Rebuilding efforts will be further complicated by the risk of recontamination, despite available financial resources. The disease has spread to Vietnam, where we expect production losses to exceed 10%. ASF has also entered Cambodia and could move further into Southeast Asia, with more production losses to follow”, explained Justin Sherrard Global Animal Protein analyst for Rabobank.
This unprecedented shift in trade will likely create unexpected product shortfalls in markets previously served by these suppliers, creating short-term market volatility that will ultimately result in higher global protein prices. In the Chinese market, prices are expected to hike by 70% by the end of the year.
A secular shift towards lower Chinese pork consumption will support increased demand for poultry, beef, seafood, and alternative proteins that will shape global production trends, said the analyst.
Large suppliers
The deficit in the market can go to 10 million tonnes of pork and China is looking for large suppliers to fill this gap. The EU, the US, and Brazil appear best placed to respond to increased import demand for pork and other animal proteins into China and Southeast Asia.
Nevertheless, Europe has its own ASF situation, with the disease becoming endemic in Russia, Poland and the Baltic states. Other states have also reported ASF outbreaks since last year and the risk of the disease spreading through the continent can limit the volumes that European exporters can send to China.
Also, the US is engaged in a trade war with China and tariffs imposed on American pork makes the product less competitive. Still, there are signs that despite the current tariffs (62%) China is ready to import high volumes of US pork.
„We expect to see strong prices for all countries that can export to China for a long time. There is strong indication part of US packing industry is gearing up to send half carcasses to China. Wholesale pork in China is currently averaging $3.03/kg. Pork like all commodities will move to the highest priced market”, believes Jim Long, President and CEO of Genesus Inc.
On the other hand, Brazil expects to get clearance for other 78 meat plants to export on the Chinese market starting in the second half of this year, despite the fact that Brazilian meat industry has been caught in different scandals involving tainted meat and corruption.
Unusual crisis
Not only China is impacted by the ASF effects but also European states that are trying to rebuild their herd. There is already a piglet crisis in the EU, according to one of the farmers association in East Europe. Mary Pana, president of Romanian ACEBOP believes that big producers in the EU are interested now in fattening the animals and to export it later in the Chinese market.
"In Romania, we desperately need a law to encourage animal reproduction. In the pig sector, part of the farms have been affected by ASF virus and those that are modernized are waiting for the law to pass. Piglet importers are complaining about the fact that they are confronted with unfair or blocked contracts. Also, the prices have skyrocketed last months, up by 25-30%", she explained during a meat industry seminar in Bucharest, SIIC'19. In 2018, Romania's overall pig inventory decreased by 8.7%, the same percent as in breeding sows.
The country has been hit by multiple ASF outbreaks in 2018 and due to a high rate of backyard pigs the disease has spread fast in different regions. Not even at this point, the Romanian government presented a strategy to limit the effects of possible recontamination.
Human factor vs wild animals
In Europe, the virus has spread mostly through the wild boar population, according to an FAO expert on biosecurity. „Hunting the wild boars to stop the virus from spreading may not always be the best idea. Animals may run on long distances and keep spreading the disease”, believes Eran Raizman, a member of FAO Regional Office for Europe and Central Asia, commenting on the solutions adopted in Poland, Romania and even in Belgium.
On the other hand, ASF spreading to Asia may be the result of the human factor. „There is a lot of tourism in that area. People go often across borders or from one region to another and they often carry food with them. I think that is how the disease has spread all over China, in every region and in the neighbouring countries”, says Eran Raizman.
In Russia, the disease spread by wild boars is lasting for 10 years now and has lead, ironically, to a consolidation of the sector, big players in the market increasing their production along with tighter biosecurity measures, whilst small farms have closed the gates. How long will it take to wipe ASF from the map no one knows but one thing is certain. Is going to change the face of the industry as well the global meat market in the areas affected.
Consumption in China
China’s consumption of pork meat is at 35 kilos per capita currently and there are two scenarios that can be developed in this situation. “The Chinese have a profound fear of famine. During the tough communist era, in the past, they have been forced to endure a lot. So, they will do everything to be sure that they will not starve. But, at the same time, if they drop their consumption of pork by 5 to 10 kilos per capita in the next period we will not have this pressure on prices. Or they could import the pork they need currently and the whole global market is going to see, for a while, a hike in prices”, thinks Emilio Becker, economist and analyst for the meat industry.
In his opinion, the sector will experience further consolidation with big players in the market been the fittest to resist this storm. The process hasn’t started yet due to the fact that “private companies have not yet entered this game. All the imports that are made now in the Chinese market are made through governmental arms but we will see soon that private producers will play the game,” added Mr Becker.
The gold nugget
For every big producer in the meat industry, China is the wild card to play and not only on pork but also for poultry, beef and sheep sectors. Australia’s beef exports in China have increased by 69% during the first three months of the year and New Zealand is exporting 28% more lamb in this market.
The European pork producers are advantaged in this scenario but only Spain and France have increased their pig inventory in 2018. The US pork industry is also a big force, despite the trade barriers existing right now. But there is also room for Canadian exporters who are targeting the Chinese market for the next years.
In the last decade, China has been the second market for Canadian pork exports, right after the US but the ranking may change as the Asian country increases its pork imports due to the ASF outbreaks started in August last year.
"China, again, is going through some challenges right now with African Swine Fever so they will be relying heavily on their import pork partners for supply and Canada is one of those suppliers so we are looking for our volume to grow in China.
Other good news for us is that we’ve started pilot projects with some Chinese end-user customers for chilled pork which is quite exciting for our industry. We’ve always done well in the frozen sector but this opens up a new category of trade us which we think will build over time and we’ll be working with our Chinese end-user partners to fully optimize that opportunity for Canada," declared Michael Young, Vice-President Technical Services and Marketing Programs with Canada Pork International.
2018 was the second highest year in terms volume for Canadian pork exports, with 1.2 million tonnes shipped worldwide.
On the other hand, the outbreaks reported in South East Asia (Vietnam and Cambodia) are factors that could create a real dark scenario as the disease may spread further in the region. According to FAO and OIE experts, farmers in Asia have limited knowledge of this disease and its specific epidemiology having only recently been introduced to the region. Despite public awareness campaigns, most of the countries and stakeholders in Asia are unprepared for ASF introduction and spread.
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