After the crisis, Chinese pork stock recovers

After the crisis, Chinese pork stock recovers

China recovered its pork stocks and, last year, reached a record of meat production. In the global market, fewer pork imports are expected from China, and in the beef and poultry sector, the Asian giant remains firm.

In 2019, China suffered a major outbreak of African Swine Fever (ASF), which is a highly contagious and deadly viral disease that affects both domestic and wild pigs of all ages. While the condition is primarily found in sub-Saharan Africa, in recent years it has spread throughout China, Mongolia, and Vietnam, as well as within parts of the European Union. It’s worth mentioning that this disease is not a threat to human health and cannot be transmitted from pigs to humans.

The main consequence of the outbreak of this disease in China, was a significant decrease in the pork stock, from 428 million heads at the end of 2018 to 310.4 million at the end of 2019. In other words, China suffered a loss of 117.5 million animals (↓ 27%), strongly affecting local production and, consequently, the possibility of internal supply to meet the demand for the main meat consumed by the Chinese population.

In accordance with the high demand for this product, in the 2020/21 period, rapid and efficient recovery of pork stock levels was observed; that jump from 406.5 million heads in 2020, to 449.2 million heads at the end of 2021, a number that exceeds that of 2017 although it is below the maximum of 480.3 million in 2012. According to USDA estimates, by 2022 stocks are expected to continue to increase, reaching 460 million heads; 2.4% higher than the previous year. These high levels of recovery are due not only to Chinese efficiency in handling the problem but also to the increase in the number of breeders.

Regarding the country’s meat production data, the disruption in the pork market affected the availability of animal protein in a population that has been steadily increasing domestic consumption of meat in general terms. In 2019, pork production fell to 42.5 Mil MT, meaning a decrease of almost 12 Mil MT in production, according to data from the official Chinese statistical agency. Likewise, in 2020, production volumes continued to fall, reaching a floor of 41.13 Mil MT.

If we analyze the evolution of beef and poultry meat production in the Chinese market, we can see that they managed to compensate only partially the lower production volumes of pork between 2019 and 2020. In the case of beef, in 2020 there was a slight bounce-back compared to 2019 but without exceeding volumes from previous years; while in the case of poultry meat, a relatively rapid reaction stands out with an increase of 2.4 Mil MT in production, reaching 22.3 Mil MT in that year.

This production trend of China’s main meats held for the year 2021, at the same time that the recovery of pork stocks already had a significant impact on the generation of animal proteins. In the last year, the production of pork increased more than 10 Mil MT to 52.96 Mil MT and with expectations of increasing it by 5% in the current year. This way, due to the increased production of pork substitutes and the current recovery in said market, in 2021 a record was reached in the production of the main types of meat.

These higher production volumes and the prospects that they continue to rise are expected to cause a further decrease in imports from this country, recalibrating the volatile international market among the main importers and limiting increases in cattle prices.

The increase in production and the consequent decrease in imports is further reinforced by conflicts in the country’s supply chains due to its COVID-0 policy, which drives shortages of refrigerated containers and delays scheduled shipments, increasing costs and challenging product delivery dates.

Interestingly, according to a FAS/USDA report, the top 20 publicly traded hog producers would have reported losses totaling nearly USD 80 billion in 2021, and due to this financial retrenchment and excess supply of sows, significant quantities of sows were sent to slaughter to increase cash flow.

This is in line with the regulation imposed by the Asian country that requires producers and provinces to maintain the national inventory at approximately 41 million sows. These measures could further accelerate concentration in the pig sector. This year, inventories, along with more efficient breeding sows, are expected to improve production rates.

Globally, imports of beef and poultry in 2022 will continue to rise, driven by higher consumption and firm demand from China and the main importing countries. Meanwhile, in the case of pork, global imports are set to fall by 3.3 Mil MT in 2022 due to lower demand from China. In this case, given the recomposition of pig stocks and the increase in production mentioned above, in the first 6 months of the year, Chinese imports have been limited while competing with low domestic prices for pork, added to a return of the MFN tariff applied to imports of frozen pork, going from a provisional 8% to 12%. In this regard, live pig imports in 2022 are expected to decline further as the sow herd stabilizes.

Finally, COVID-19 restrictions are expected to reduce pork consumption in the HRI (Hotel, Restaurant, and Institutional) sector where chilled and frozen pork is consumed. The report released by the USDA in March 2022, shows that consumers diversified their consumption of meat during the period of “high” pork prices after the African swine fever outbreaks and that these changes in preferences appear to have persisted even as pork prices declined in 2021.

While if a perspective is contemplated towards the year 2031 compared to the year 2018 – before the event that seriously affected the stocks of pigs in China – in general terms, a sustained increase in the per capita consumption of meat by the more populous country in the world is expected. Recovery and a slight increase of 2% in pork meat and a strong increase in the consumption of beef (↑ 41%) and poultry (48%) are projected.

Regarding the impact of this situation on the global market, the USDA projects that between 2018 and 2031 imports will increase by 278% in pork, 179% in beef, and 291% in poultry.

In 2021, China committed to a free trade agreement with Uruguay; and on February 23, 2022, the Asian giant updated the list of beef products available to import from Chile, including certain bovine by-products. More than 80% of Chile’s beef exports go to China.

Therefore, there are great opportunities for meat exporting countries, where Argentina is a central player in the case of beef and is developing significant potential in the pig market. Public policies and institutional incentives to increase production will be key, to ensure an adequate supply of the domestic market and take advantage of our competitive advantages to monopolize a growing market share in these three meat sectors.

Source: https://bcr.com.ar/

Photo: REUTERS/Stringer

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