Global markets for animal protein were again rocked by disease-related disruptions in 2019 as outbreaks of African Swine Fever (ASF) led China to try and redraw the map on trade.
Having previously relied on a relatively small number of meat suppliers, Chinese authorities spent the year scouring the world for new sources of pork, poultry and beef.
This created new opportunities for countries and companies with little or no history of supplying meat to Asian markets. At the same time, the amount of animal protein required by China was so huge that prices were pushed up in most parts of the world – not only for pork, but also for beef and poultry.
Having first reached China in August 2018, ASF rapidly spread across the country – causing the loss of tens of millions of pigs. The disease also spread to several other Asian countries, including South Korea, Vietnam and the Philippines.
Within a matter of months, Chinese pork production capacity had fallen dramatically. Estimates suggest China will produce about 15% less pork this year with the USDA forecasting a further 25% reduction in 2020.
Figures from the Chinese agriculture ministry show that China’s pig herd – the largest in the world – shrank by more than 41% in the twelve months to October. Even if the disease can be brought under control, similar drops in the breeding herd will make it hard to rapidly rebuild output to previous levels. In the first half of 2019, Beijing managed to stave off steep price hikes by ramping up imports, releasing frozen pork stocks and encouraging consumers to switch to other types of meat.
By the summer of 2019 these efforts were proving insufficient however and within a matter of weeks prices of pork and pigs were at record levels.
Pig prices jumped from an average of RMB15 per kg in June to over RMB20 in August as supplies dwindled. Prices rose again to reach almost RMB28 in early October, generating record average profits of over RMB1,500/head.
Wholesale pork prices followed a similar pattern, surging to RMB47.10 per kg in November. This represents a huge 160% increase since the start of the year. At the time of writing, prices had eased back slightly against a backdrop of government reassurances that the worst is now over.
While consumer resistance may limit further increases however, prices will remain at relatively high levels as breeding herd losses mean Chinese pork supplies will fall short of demand for some years to come.
This year’s pork price hikes have encouraged Chinese consumers to switch to other forms of animal protein. Poultry output in China has been rapidly ramped up and is expected to grow by 17% year-on-year, limiting the country's overall meat output decline to 8%.
This switch means only a part of the shortfall in pork production will be met by imports.
Chinese imports of pig meat and pig offal nevertheless rose by about 25% to surpass two million tonnes in the first nine months of this year.
In value terms, the rise was even steeper with China spending more than USD4 billion on imports in the January-September period – up 42% on last year.
Faced with rising Asian demand, many countries in Europe and the Americas have been taking steps to boost production. These increases are unable to fully compensate for drops in Chinese pork production however. As a result, world meat production in 2019 is expected to fall for the first time this century.
The EU’s problems with ASF predate those in Asia but after a difficult few years, the bloc had some success in combating the disease in 2019. Having jumped to Belgium in 2018, the virus was contained to wild boar in a forested region and no cases were detected in domestic Belgian pigs. France also managed to steer clear of the disease despite infected boar being found within just a few hundred metres of its border.
Some countries in central and eastern Europe had less success as the disease spread in Romania, Bulgaria and Hungary. Even more worryingly from the industry point of view, ASF cases were found in western Poland within 40km of the German border. At the time of writing, Germany remains free of the disease – but any future outbreak in the country would have serious consequences for the entire EU pig industry.
For now the focus lies on better biosecurity but in the longer term, the industry will be hoping for news of a breakthrough in the development of an ASF vaccine.
For European pig producers, China’s ASF outbreaks and consequent need to buy more meat could not have come at a better time, as many began 2019 in a perilous financial position. After hitting a lowpoint in January, average prices for fattened pigs rose rapidly to reach record highs.
By late November, average pig prices were almost 40% higher than at the start of the year. While this was good news for farmers, it made life difficult for processors.
In countries such as Italy and Germany, the high cost of pig meat raw material pushed up the cost of making sausages, and processors struggled to pass these higher costs onto consumers.
This situation is likely to continue as producers in some EU member states are unwilling to expand because of onerous environmental regulations. With Asia absorbing so much extra meat, this will inevitably lead to a tightening of supplies. This is not true of all countries however, as Spain continues to ramp up production of all types of meat.
Higher Chinese demand should help see EU pig meat exports rise by at least 20% this year. A further 14% increase is forecast for 2020. This increase is facilitated by the authorisation of more pig meat plants by Chinese authorities.
The boom in pork exports does not extend to those EU countries that have been battling their own outbreaks of ASF. Key Asian markets such as China, South Korea and the Philippines still insist on banning pigs and pig meat from entire countries rather than affected regions. This means they are off-limits to pork from Poland, Belgium and seven other EU member states where ASF is present.
Despite a modest fall in pig numbers, EU pig meat production should grow slightly in 2019 (+0.4%), thanks to continuing efficiency gains. In 2020, additional production growth is expected (+1.5%); however, its magnitude will depend on how EU member states react to the high prices.
Meanwhile, further price increases are expected as demand from Asia continues growing. Processor organisation Clitravi expects prices to remain at high levels for at least two years.
This should lead European consumers to eat slightly less pig meat as high prices favour other meats, particularly poultry.
EU poultry meat production is expected to rise by about 2% both this year and next as the sector responds to rising demand. Exports are expected to increase by about 4% this year and a further 3% in 2020. Only a handful of EU countries have access to the Chinese market so growth in poultry exports will rely on sales elsewhere.
Imports will also rise, although volumes will be constrained by ongoing restrictions on some Brazilian suppliers and new quota arrangements for Ukraine, which come into force at the start of 2020.
EU beef producers have not benefited from price hikes seen elsewhere in the meat sector. This is despite the fact that production in the bloc is falling. Irish beef producers have seen their margins squeezed and their position is likely to get even worse once the UK leaves the EU.
On the plus side, some European countries are starting to get a foothold in the Chinese beef market following recent plant authorisations. This should help lift EU beef exports next year, but increased sales overseas may not be sufficient to offset declining demand in the bloc itself.
US pork suppliers are also benefiting from higher Chinese demand, although sales are constrained by high tariffs imposed by Beijing earlier this year. At the same time, ample supplies of hogs have been keeping a lid on prices.
Fourth quarter 2019 pork production in the US is forecast to end 6.5% above the same period in 2018, according to Adam Speck, market analyst at IEG Vu’s sister title IEG Vantage. First quarter 2020 pork production in the US is then forecast to increase 4% over Q1 2019.
Although production is again expected to set new records in 2020, pork prices are expected to improve significantly next year – partly due to a rise in export sales.
“US exports in the first and second quarters of 2020 are forecast to be up 21% on 2019, as this new year will have Mexico back as a full trading partner (after holding a strong tariff against US pork for H1 2019), along with China buying more product,” says Speck.
“The pork cutout is forecast for an increase of 15-18% for Q1 over 2019, on the bolstered exports despite the increase in Higher Chinese demand should help see EU pig meat exports rise by at least 20% this year” he notes. However, one reason that the cutout will appear strong is of the depressed market experienced in Q1 2019 from hampered export relationships.
For the US beef sector, production is forecast up nearly 3% in 2020 on higher slaughter and heavier weights. Exports are forecast up 6% percent as the US expands market share in top markets Japan, South Korea, and Taiwan. US beef sales to Japan are set to be boosted by the signing of a free trade agreement. US beef exporters will also benefit from improved access to the EU, which is ring fencing part of its hormone-free beef quota from the start of 2020.
Meanwhile, US poultry exporters will be looking to rebuild sales to China following the recent lifting of an avian-flu related ban. US suppliers will be competing with Brazil and Thailand, but all three countries should be able to expand sales as Chinese imports of poultry are expected to rise by about 20% in 2020.
Markets in South America have also been buoyed by opportunities in China this year. As the continent’s biggest producer, Brazil has been the biggest beneficiary – with soaring beef and pork shipments helping lift prices to record levels.
Faced with shortages of slaughter-ready cattle, Brazilian meat packers were having to pay the equivalent of USD3.60 per kg to buy animals in late November - more than a third higher than the average paid the previous month. This was reflected in steep hikes in the price of Brazilian beef, both domestically and on export markets.
Brazilian beef exports reached 1.5 million tonnes in the first eleven months of 2019 – a rise of 13% on the same period last year. More than 40% of this total went to China and Hong Kong.
The world will continue to buy more Brazilian beef in 2020 but the scale of any increase will be limited by supply constraints. Brazilian pork markets were equally bullish this year – with prices for live pigs hitting unprecedented levels as exports rose.
Brazil shipped almost 600,000 tonnes of pork in the first eleven months of 2019, a rise of 16% when compared to the same period last year. Exports to mainland China were up 50% on year and well over half of all Brazilian pork shipments now go to either China or Hong Kong.
Argentina has also continued to regain lost ground on global meat markets, shipping large volumes of beef and for the first time emerging as a pork supplier to China. Chilean exporters have been doing well too - ramping up pork sales to China by 70% in the first ten months of the year.
Canada’s fortunes were more mixed in 2019 as its pork and beef was temporarily shut out of the Chinese market. Problems first arose when China found shipments containing the controversial feed additive, ractopamine. They then worsened when Beijing said other consignments had been sent with forged veterinary certificates. By November these problems were resolved and China reopened its market to Canadian beef and pork.
Canadian exporters are now making up for lost ground and taking advantage of a price advantage over meat from the US, which is subject to higher Chinese import tariffs.
Canada was not the only country affected by ractopamine issues however. Brazil had faced a similar shut-out in Russia in 2018 and although this was partially lifted in 2019, many Brazilian suppliers are still banned from supplying the Russian market due to concerns over the drug.
At the time of writing, Moscow has also just suspended some suppliers from Paraguay and Argentina for the same reason.
Looking forward, ractopamine looks likely to be used less and less as producers in North and South America bow to commercial imperatives to satisfy the demands of countries where the additive is banned.
Regionalisation key for Russia
Meanwhile, Russia continues to expand as a producer of pork despite ongoing problems with ASF.
The country’s meat sector is undergoing a transformation as small backyard producers give way to large commercial operations with higher levels of biosecurity.
Increased output has enabled the country to make some progress as a supplier of both pork and poultry to overseas markets. But further progress really depends on changes to the way Asian markets deal with animal disease outbreaks.
Moscow has recently been pressing China to allow imports of pork from parts of Russia that are free of ASF. This would require Beijing to ditch its policy of banning pork from entire nations when they are affected by the disease and instead recognise regionalisation as recommended by the World Organisation for Animal Health (OIE).
France has made similar calls and recently signalled that China’s policy may soon change. This would potentially have big implications for exporters across the world as it would reduce the impact of ASF outbreaks like the one that affected a limited area in Belgium.
All eyes on Asia
Meanwhile, Asian demand is again likely to be the key driver keeping meat prices at high levels in 2020. China, Philippines and Vietnam will all be buying more animal protein over the next few months even if they manage to contain ASF outbreaks.
This will help drive up global trade flows for all types of meat. Major exporters such as Brazil, EU and US will inevitably have most to gain. But new players will also start to emerge as they secure access to key export markets in Asia.
Inevitably all eyes will be on China and efforts to rebuild its pork industry in the wake of the devastation caused by ASF. Beijing has already announced several measures to help boost production and officials say the breeding herd is slowly starting to recover.
The pace of this turnaround will depend on the country’s ability to prevent further large-scale losses to ASF. But China appears to be learning lessons from the EU and Russia and taking meaningful steps to improve biosecurity.
With hog prices on the rise, record profits are likely to encourage many producers to re-enter the market. The scale of previous losses is such that hog numbers are unlikely to return to previous levels for several years. However, as large-scale commercial producers rebuild the industry on more modern lines, average slaughter weights are likely to rise significantly – meaning China could be able to produce more pork from fewer pigs.
With poultry production also rising, China should eventually become less reliant on overseas suppliers and reduce animal protein imports to the kind of levels seen before the arrival of ASF. This turnaround will take some time however – meaning 2020 should be another year of high demand and elevated prices.