Pork is the most consumed meat in the world, averaging about 40% of global meat consumption.
The United Nations Food and Agriculture Organization is projecting global pork consumption to increase 23 million metric tons per year by 2010, and global pork exports to increase by 1.34 million metric tons per year. (One metric ton = 2,204.6 lb.)
If a U.S. pork carcass averages roughly 122.5 lb. (primal and subprimal cuts), it will take 18 head to equal a metric ton. Therefore, the projected growth in global exports will require the equivalent of 24 million more hogs per year by 2010.
Competition to fill this demand will be intense. Specifically, Brazil, Canada, and Denmark seem very well positioned to challenge the United States for global market share.
|Pigs born alive/sow/year||1||4||1||3|
|Manure and odor management||4||1||2||3|
|Animal welfare attributes||1||4||4||4|
|Domestic transportation costs||1||4||2||2|
|Flexibility and customer service||1||4||2||3|
|Trade access strategies and promotion||1||4||2||3|
|Ability to gain trade access||1||4||1||3|
|Utilization of trade access||2||4||3||1|
|Ranked such that 1 = most competitive, 4 = least competitive|
Canada, now the world's second largest pork exporter, stands second only to the European Union (EU) countries. Denmark leads all EU countries in pork exports.
Canada and Brazil are aggressively targeting exports. Between 1994 and 2001, Canadians increased export volume by 144%, while Brazilians increased volume by a whopping 891%. U.S. and EU exports increased by 194% and 43%, respectively, for the period.
While growth in domestic demand is critical to the economic well-being of the U.S. pork industry, production needs only increase about 1%, conservatively, to meet the domestic needs of our growing population. Therefore, if the U.S. pork industry is to grow, it will be reliant on exports.
The growth in pork exports over the past 15 years has boosted producers' gross income by $3.1 billion. In other words, exports have contributed an average of nearly $210 million each year, or $2.27/market hog.
A key factor is increased utilization of the whole hog. While the average export price for U.S. pork variety meats remained in the narrow range of $0.41 to $0.49/lb. during the decade ending in 2002, the average revenue per head increased from $0.97 to $1.62.
Market Share Challenges
Food safety, animal disease and environmental constraints remain key competitive issues in the global market.
We've seen how foot-and-mouth disease (FMD) outbreaks have eroded market share for Denmark, Taiwan, Korea and the United Kingdom. Likewise, FMD still precludes Brazil from exporting to some markets.
Similarly, the Netherlands still hasn't regained full market access after the 1997 outbreak of hog cholera.
Pseudorabies and the lack of trichinae testing on every hog still lock the U.S. out of some markets.
Pork production in Denmark and the Netherlands, particularly, and to a lesser extent the U.S. and Canada, is now also hampered by environmental constraints.
Other competitiveness issues include cost of production, animal welfare requirements, the application/regulation of new technologies, government subsidies, customer service, product quality, transportation costs and logistics.
If U. S. producers are to gain a share of the growing global demand for pork, it is important to understand how we stack up against our major competitors in key areas.
To shed some light on global competitiveness issues, a checkoff-funded evaluation was conducted on a number of competitive attributes of four major pork-producing countries — Brazil, Canada, Denmark and the U.S. (see Table 1).
The evaluation showed that, while the U.S. pork industry has a significant competitive advantage in some areas, the advantages could quickly erode if advances are made in other countries.
It is important to understand that, while these rankings are subjective, they reflect the consensus opinion of a broad cross section of industry representatives who reviewed the study results during a February 2003 competitiveness workshop.
Rearranging the Rankings
While the U.S. has continuously set new export records, the playing field is starting to change. Export growth can no longer be taken for granted.
Brazil, for example, has a number of competitive advantages that position them to be significant competitors in the future. While their very low cost of production is currently overshadowed by their FMD status, a change in that status would open doors to major importers such as the U.S. or Japan. Brazil's low feed and labor costs and a lack of environmental regulations would make them highly competitive, driving significant increases in production.
Brazil has declared their intent to become the world's largest pork exporter. The same companies that made Brazil the world's second largest poultry exporter also own the pork industry.
Canada is determined to be a major player in the export market. They have a relatively low cost of production and a good reputation for safety and quality. Moreover, their high animal health status gives them access to markets that the U.S. cannot supply.
For Canada, no market is too small. They push hard to gain access to markets like Australia or Cuba, then supply products to meet the customer's needs, even in the relatively small markets.
Country-of-origin-labeling (COOL) in the U.S. will create added impetus for the Canadians to grow their export market share, providing an outlet for pigs that otherwise would have been finished and processed in the U.S.
Denmark seems to be facing an uphill battle in terms of cost of production, environmental constraints and the ability to ship chilled product around the world. However, they have a fully integrated, producer-owned industry with an excellent reputation for quality and service and the ability to react rapidly to problems.
Denmark also has access to a huge internal market in the EU, plus they can turn to government subsidies when times are tough. The Danes continue to demonstrate that quality, service and working together can overcome a relatively high cost of production.
The U.S. is blessed with a significant pork infrastructure that has a low cost of production, good animal health status, unrivalled food safety system and aggressive export sector. But exports still represent only 8% of U.S. production, so the domestic market continues to drive many production and processing practices.
The U.S. position on exports is yet to be determined. We can fight head-to-head with other countries, or we can find a unique positioning based on our strengths.
Understanding World Markets
U.S. producers need to be aware that pork is easily moved around the world. And there are many countries besides Denmark, Canada and Brazil that would like to increase their share of the world market.
The U.S. currently produces between 97 and 100 million pigs per year. Is this the optimum, profitable level for our industry, or would 105 -110 million pigs provide more opportunities? If growth is the goal, how long should we take to achieve the higher numbers without severely impacting market prices?
In the end, the answers to these questions are intertwined. Growing consumption around the world provides opportunities for industry growth. Improved competitiveness provides opportunities to grow export demand. Greater demand drives increased production.
Still, the U.S. can no longer be all things to all customers. We need to decide where we want to play.
Positioning for Exports
The competitiveness workshop demonstrated that global competitors are creating their own positioning, working from their strengths to grow exports.
It is imperative that U.S. producers establish the global market share they want to achieve, then design the strategies and tactics to achieve it. Strategies such as animal health status, cost of production, sow productivity, environmental constraints, market access, pork quality and customer service must be considered.
We must address the areas where we rank third or fourth in the chart, while maintaining our number 1 and 2 rankings, if we are to remain the competitive force that increased export volume an average of 14.5% per year since 1991.