For many months, all eyes in the global pork industry have been focused on China's effort to contain the spread of African swine fever (ASF) and rebuild its swine herd to pre-ASF levels. This is understandable, given that China produces and consumes about half the world's pork and has become the dominant export destination for most of the world's pork-exporting countries. In its most recent semi-annual report on China’s livestock situation, the USDA Foreign Agricultural Service in Beijing forecast China’s 2021 pork production to increase by 14% year-over-year to 47 million metric tons (mt). But the pace of China's herd recovery has been very difficult to gauge due to ASF outbreaks periodically resurfacing in various parts of the country.
China’s hog prices recently eased, with domestic wholesale pork prices dropping below year-ago levels in mid-April. But in 2020, those prices bottomed in early May. The spread between domestic and imported prices continues to drive large import volumes into China, though the pork price spread between the U.S. and China is the narrowest since the first half of last year.
First-quarter U.S. exports to China/Hong Kong were down 20% from a year ago but still accounted for 30% of U.S. export volume. March export value topped $200 million, down 14% year-over-year but still the highest in 10 months. While 30% is a higher-than-usual ratio of U.S. exports destined for China/Hong Kong, the United States is less "China-dependent" than the other major pork exporters. As China’s hog industry rebuilds, it is especially important that the U.S. industry achieves further growth in other Asian destinations. While competition from other major pork exporters is intense, domestic production within these importing markets also plays a significant role in shaping U.S. export opportunities.
The situation in China draws the most attention due to its size, volatility, and uncertainty, but domestic production is also an important factor shaping imported pork demand in other Asian nations, including:
Prior to ASF's entry into China, Japan was perennially the largest value destination for U.S. pork exports. Europe is a major player in Japan's frozen pork sector, but in the chilled space, the U.S. industry competes primarily with Canadian, Mexican, and domestically produced pork. Domestic pork accounts for nearly half of Japan's total consumption and for more than two-thirds of its chilled pork consumption.
Last year, Japan’s total pork consumption increased slightly, boosted by consumers' preference for cooking it at home. Consumer survey data estimate at-home consumption of pork (including ham and sausage) reached 11 kg per household in 2020, up 8% from 2019. This offset a decrease in foodservice, which had accounted for about half of Japan’s pork consumption prior to the pandemic.
Japan’s 2020 pork production increased 2% year-over-year to just over 914,055 mt, though production in early 2021 has trended slightly lower. Japan is one of the few Asian countries that is still ASF-free, but classical swine fever (CSF) resurfaced in Japan in 2018. Two recent CSF outbreaks resulted in the culling of a combined total of nearly 50,000 pigs, but with vaccination programs in place CSF has not had a major impact on Japan's pork production.
All of Japan's major pork suppliers received another round of tariff rate reductions on April 1, the beginning of the Japanese fiscal year. Tariffs on U.S. pork, which vary by product, have mirrored those of major competitors since the U.S.-Japan Trade Agreement entered into force at the beginning of 2020. Prior to this agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Japan Economic Partnership Agreement had placed U.S. pork at a tariff disadvantage.
Japan’s imports of U.S. pork surged following the implementation of the trade agreement, especially for ground seasoned pork. Tariffs on ground seasoned pork were reduced to just 6.6% on April 1, down from 20% prior to the U.S.-Japan Trade Agreement and from 10% in the agreement's first year). Japan’s demand for U.S. pork is still strong, but shipping delays, labor limitations (which impact U.S. suppliers' ability to produce trimmed and value-added products) and higher U.S. prices have all impacted volumes in 2021. Despite these headwinds, U.S. exports in March were 40,746 mt, up 11% from last year and the largest since April 2015. Ironically, U.S. exports at that time were also impacted by shipping delays stemming from West Coast port labor negotiations.
ASF has taken a major toll on pork production in several Southeast Asian countries, including the region's two largest destinations for U.S. pork – the Philippines and Vietnam. The Philippines' swine inventory opened 2021 at 9.72 million head, down 24% year-over-year, and last year its pork production was down by a USDA-estimated 30%. While this decline has driven hog prices significantly higher, price increases have done little to incentivize herd rebuilding because persistent ASF outbreaks continue to create a high level of risk for producers.
Because the Philippines had the highest tariff rates of any major importer in the world – 30% on pork cuts within a 54,000 mt quota and 40% for volumes imported beyond the quota – it was unable to attract enough imports to offset the decline in production. In fact, the U.S. was the only major pork exporter to post an increase in exports to the Philippines in 2020. To address this problem, President Duterte ordered temporary tariff rate cuts that took effect April 7 and are to be in place until April 2022. U.S. pork/pork variety meat exports to the Philippines had already surged in the first quarter to more than 25,000 mt, tripling year-over-year and climbing by 86% over the strong fourth quarter 2020 volume), but the reduced tariff rates will bolster opportunities for further growth in this price-sensitive market. However, competition in the Philippines will also intensify, especially from European and Canadian pork. Canada’s exports to the Philippines soared to 46,000 mt in the first quarter, up 470% from last year.
Vietnam's herd-rebuilding efforts have made more progress, though ASF is still having a significant impact in the Vietnamese market. Vietnam’s live hog prices eased again in April to about $1.45/lb, down 10% from last year, but still above the recent lows posted in November and December. The relatively high price level, which compares to an annual average of $0.94/lb in 2019, suggests that Vietnam's pork production remains well below pre-ASF levels.
U.S. exports to Vietnam surged in 2020, with muscle cut exports climbing nearly 500% year-over-year to 21,676 mt. With muscle cuts making up a much higher percentage of the product mix, total export value to Vietnam nearly tripled to more than $50 million. One of the factors driving this growth was Vietnam's decision to reduce its Most Favored Nation (MFN) tariff rate on frozen pork cuts from 15% to 10% in the second half of the year, which helped level the playing field for U.S. pork. But the rate returned to 15% on Jan. 1, putting the U.S. back at a significant disadvantage. For 2021, Vietnam’s duty on frozen pork from Canada and other members of the CPTPP is 7.5% and the rate for imports from the European Union is 11.3%. The MFN rate applied to U.S. pork variety meat is 8%, while the rates for Canadian and EU variety meats are 2% and 6.4%, respectively.
Canada’s exports to Vietnam more than doubled in 2020 to about 24,000 mt, and first-quarter 2021 exports were up 34% to 10,740 mt. But Russia is now Vietnam's largest pork supplier, exporting 25,000 mt in the first quarter – up nearly 400% year-over-year and following exports of 63,000 mt for all of 2020.
After peaking in 2018 at more than 240,000 mt, U.S. exports to South Korea declined in each of the past two years. This was due in large part to rising domestic production in Korea, as well as a COVID-related decline in foodservice demand.
ASF has been present in Korea since September 2019. But after an initial wave of outbreaks reported on hog farms, ASF cases have been mostly confined to wild boar near the border with North Korea and the disease has had minimal impact on production. In fact, last year Korea's pork production was record-large at nearly 1 million mt, with self-sufficiency rebounding to more than 70%.
Similar to Japan, Korea’s domestic pork industry benefited from demand for at-home consumption. But unlike Japan, Korea’s imports of chilled pork remain relatively small and thus domestic pork cuts dominate the retail sector. Korea’s domestic ham and loin cuts also compete with imported pork as ingredients in further processed products. Korea’s hog carcass prices averaged $2.17/lb in late April, up 13% from a year ago on continued strong demand.
Most pork products from Korea's major suppliers – including the United States, the European Union, Canada and Chile – enter the country at zero duty through bilateral trade agreements, but duty-free access for imported pork has not dampened Korea's production. Korea's domestic producers have capitalized on rising per capita pork consumption, which increased nearly 30% from 2012 to 2019. U.S. exports to Korea achieved something of a rebound in March, reaching the largest volume in 12 months at 17,079 mt, valued at more than $50 million. Korea is importing more belly cuts from the U.S. and other suppliers in 2021, but imports in other categories remain below year-ago levels.
Competitor eligibility also influences trade patterns in Asia
Many Asian markets closed to imports of German pork following the first confirmation of ASF in Germany in September 2020. While German agricultural and trade officials are pressing their Asian counterparts to resume imports from areas of the country free of ASF, only Hong Kong and Vietnam have agreed to regionalization. So, German pork remains absent from major destinations such as China, Japan and Korea. The Philippines has also been closed to German pork since late 2019 following findings of pork from Poland in a shipment arriving from Germany.
While Canadian pork is eligible for export to China, imports have been suspended from several Canadian plants. This was reflected in Canada's first-quarter exports to China, which declined by about one-third year-over-over, dropping by more than 50,000 mt. Conversely, Canada's exports increased significantly to the Philippines, Vietnam, and Korea.
U.S. pork exports were record-large in March at nearly 295,000 mt, valued at a record $795 million, driven in part by strong growth in several Asian markets. But competition in Asia is robust, both from domestic pork and other foreign suppliers. To ensure sustained success in the region, USMEF's in-market staff continues to identify growth opportunities in the retail, foodservice, and processing sectors in both established and emerging markets, while emphasizing the quality and consistency of U.S. pork to prospective customers.
Source: USMEF, who is solely responsible for the information provided, and wholly owns the information. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset. The opinions of this writer are not necessarily those of Farm Progress/Informa.