March 10, 2021
African swine fever (ASF) has dramatically impacted pork production in the Philippines. According to the Philippine Statistics Authority, the country’s total swine inventory opened 2021 at 9.72 million head, down 24% from a year ago. Pork production was down by a USDA-estimated 30% in 2020, and this drop in domestic output has led to very tight pork supplies and high pork and hog prices. But high prices are doing little to incentivize herd rebuilding, with persistent ASF outbreaks creating a high level of risk for both commercial and backyard operations.
While the Philippines has historically been largely self-sufficient in pork production, it is still a significant importer of pork – especially for cuts used in further processing. However, the Philippines has the highest tariff rates of any major importer in the world – 30% on pork cuts within a 54,000 metric ton (mt) quota, and 40% for volumes imported beyond the quota. These high tariff rates have made it impossible for importers to fill the void left by the decline in domestic production. In fact, the United States was the only major pork exporter to post an increase in exports to the Philippines in 2020, with volume up 15% to just under 47,000 mt. Imports from other top suppliers such as Spain and Canada declined, and Germany – once the market share leader in the Philippines – has been shut out of the market since 2019, following a finding of Polish pork products in a shipment from Germany. With ASF now present in Germany, imports of German pork are unlikely to resume anytime soon.
When domestic production plunges and imports face high costs of entry, pork consumption suffers significantly – especially in a very price-sensitive market where disposable income is low. The Philippine government has turned to retail price ceilings on pork shoulders, hams and bellies sold in wet markets and supermarkets in the Manila metropolitan area. But these mechanisms do not boost consumption and are viewed as a further disincentive for the pork supply chain, which feels its product is being singled out for excessive government intervention. Wholesalers in wet markets have also taken “pork holidays,” avoiding selling pork on certain days because it is not profitable under the price ceiling.
On a more positive note, this situation is causing the Philippine government to take a hard look at its high tariffs on imported pork. A number of proposals have been debated over the past several weeks, ranging from temporary elimination of import duties to far more modest reductions in tariff rates. According to Philippine Agriculture Secretary William Dar, the Cabinet-level Committee on Tariff and Related Matters is set to recommend to President Rodrigo Duterte that the tariff rate for imported pork within the 54,000 mt quota be lowered from 30% to 5% for three months, and that the rate for imports beyond the quota be lowered from 40% to 15% for the same three-month period. After three months, these rates would increase to 10% and 20%, respectively, for the following nine months.
This proposal has drawn a mixed reaction from importers. The Philippine Meat Importers and Traders Association (MITA) voiced objections to the short three-month duration for the first round of tariff rate cuts, stating that it will not adequately accommodate orders for imported pork. But MITA also noted that consumers will benefit from price relief made possible by the lower duties on imported pork, even at 10% after the initial round of rate cuts concludes.
Philippine producers, long accustomed to the protection provided by high tariffs, are generating opposition to the proposed rate cuts, claiming that no consumer benefits will be realized and that imports will greatly harm domestic production. These are predictable arguments, but do they stand up under scrutiny?
South Korea has eliminated most tariffs on imported pork from all of its major suppliers, a process that began with a free trade agreement with Chile in 2004. Today, most pork products from the United States, the European Union, Canada, and Chile enter Korea duty-free, yet last year Korea's pork production was record-large at nearly 1 million mt, with self-sufficiency rebounding to more than 70%. Korea's domestic producers have benefited from very strong per capita pork consumption, which increased from 22.6 kilograms in 2012 to more than 29 kilograms in 2018 and 2019. In the post-FTA era, the only time Korea's pork self-sufficiency rate slumped severely was during the devastating foot-and-mouth disease outbreak of 2011, when Korea lost about one-third of its domestic swine herd.
In the price-sensitive market of Colombia, the free trade agreement with the United States – which entered into force in 2012 – has also enabled larger overall consumption of pork. In fact, from 2012 through 2019, per capita pork consumption in Colombia climbed from 4.44 kilograms to 8.33 kilograms – an increase of 88%. During this same period, Colombia’s pork production increased by an impressive average of 9% per year, from 177,000 mt in 2012 to 312,000 mt in 2019 – a cumulative increase of 76%.
These real-life examples show that high import tariffs designed to protect domestic pork production are often counter-productive. For comparison, Philippine pork consumption increased by just 8% from 2012 to 2019, reaching 12.4 kilograms, with self-sufficiency easing from 91% to 88% even with high import duties in place. Consumption plummeted to about 8.5 kg in 2020, due to the combination of lower production and smaller pork imports. Philippine consumers eat large volumes of processed meat products, and imported pork raw material faces competition from mechanically deboned chicken meat, which is subject to just a 5% import duty.
With its current proceeding, Philippine officials have an opportunity to not only address rising pork prices during the country's current supply crunch but to also recognize the value of establishing the Philippines as a more accessible and reliable export destination for the world's major pork suppliers – which will greatly benefit Philippine consumers.
Sources: U.S. Meat Export Federation Staff, who are solely responsible for the information provided, and wholly own the information. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.
Data sources: Trade Data Monitor and USDA Foreign Agricultural Service's Product, Supply and Distribution (with per capita consumption converted using USMEF estimates in product weight)
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