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LIVESTOCK AND POULTRY
World Markets and Trade
March 1998
Swine and Pork
Classical Swine Fever in the Netherlands cut short the herd expansion in the EU following last year's strong prices. Danish hog production expanded and offset the greatly reduced live hog exports from the Netherlands. Japan's pork imports fell dramatically; the shortfall left in the Japanese market from the FMD outbreak on Taiwan was filled by increased Japanese pork production and a reduction in pork stocks. The FMD situation in Taiwan appears to be under control despite an outbreak in December 1997. However, producers have been reluctant in reducing their herd sizes due to a lack of compensation from the Government.
On January 1, 1998, projected hog inventories for selected countries covered in this report were 807 million head, up 2 percent from a year ago. Herd expansion in China and the United States, the two largest hog producing countries in the world, accounted for much of the gain. Over the course of 1997, herds in China and the United States expanded by 4 percent and 7 percent respectively. These gains were tempered by animal disease-related reductions in the Netherlands and Taiwan. In 1997, FMD in Taiwan resulted in a 26 percent decline in herd size and Classical Swine Fever (CSF) in the Netherlands reduced inventories by 20 percent.
Hog slaughter in 1998 is projected to be almost 1.1 billion head, as slaughter continues its upward trend. An increase in slaughter is expected in China where 20 million more head are projected to be killed in 1998 than in 1997. In the United States, slaughter is expected to increase by an additional 8.6 million head to over 100 million head. The sharpest decline in slaughter in 1998 is projected in the Russian Federation--a decline of 12 percent.
Pork production is projected to increase 3 percent in 1998 to 83.4 million tons, up from 80.9 million tons in 1997. Global pork production has been on the rise for the last several years. The largest gain is expected in the United States, as production is projected to expand a whopping 10 percent in 1998. Gains are also expected in China and Canada. Production in other major pork producing countries is also expected to slightly increase in 1998. Taiwan is the exception; production is slated to decline 8 percent in 1998.
Pork consumption reached a record 80 million tons in 1997, up from 78 million tons in 1996. Consumption is expected to grow over 3 percent in 1998, climbing to 83 million tons. In 1998, pork consumption in Taiwan is projected to recover from its 1997 FMD-related decline and soar to a record 915,000 tons.
Pork exports for selected countries declined 6 percent in 1997 to 2.5 million tons, driven downward by animal disease-related reductions in Taiwan and the Netherlands. The sharpest decline was in Taiwan where exports declined 82 percent in 1997. Other major pork exporters, namely the United States, Denmark and Canada, experienced strong growth in 1997. Prospects for 1998 point to modest growth or a decline in exports for most of the major exporters.
Pork imports declined in 1997 to 2.0 million tons, down 4 percent from the previous year. Lower Japanese imports accounted for most of the decline. The FMD outbreak on Taiwan reduced its exports to Japan, while other suppliers were unable to completely fill the void. The outlook for 1998 points towards a 5-percent increase in pork imports.
Hog and pig numbers increased in 1997 as herds expanded in response to favorable returns in 1996 and in much of 1997. On December 31, 1997, the hog inventory was up 7 percent from 1996. With lower feed grain prices in 1997, production costs fell but hog prices also fell as production rose. After peaking in May 1997 at $60/cwt, hog prices spiraled down and during the winter of 1998 they have been in the low $30/cwt range most of the time. A large increase in pork output and total meat output has kept hog prices under strong downward pressure.
Slaughter slipped
slightly in 1997, but is forecast to increase 9 percent in 1998.
Slaughter started to show large increases in the autumn of 1997.
The large increases have continued into 1998. Year-over-year
gains likely will begin to slow during the fourth quarter of
1998.
A considerable increase in hog imports from Canada in 1997 brought U.S. imports to record levels of nearly 3.2 million head, a 14 percent year-on-year increase. Almost all hog imports into the United States originate from Canada. The most recent reduction in the U.S. countervailing duty in 1996 has resulted in significantly higher levels of hog imports from Canada since then. This year, Canadian hogs came South in larger numbers due, in part, to attractive prices and to a strike at Maple Leaf, Canada's largest food processor, in November. The labor strike manifested itself in the December import statistics which indicate that in December alone, 361,000 head crossed the border. The Maple Leaf strike ended on March 6, 1998. Prospects for 1998 point to a 15 percent reduction in U.S. hog imports, forecast at 2.7 million head.
U.S. exports of live hogs dipped 3 percent in 1997 to finish at 55,000 head, influenced by a 5 percent decline in exports to our primary market of Mexico. Spurred on by low prices, hog exports are projected to increase to 80,000 head in 1998, with exports directed almost exclusively to Mexico.
Pork production rose one percent to 7.8 million tons in 1997. With projected higher slaughter rates, production is forecast to expand 10 percent in 1998. The marketing of heavier hogs is helping boost domestic production. With the high levels of pork output, cold storage stocks of pork have risen and now stand at record high levels. There are unusually large stocks of loins and bellies. Large pork supplies are expected to maintain pressure on hog prices, projected to average $13/cwt-$15/cwt lower in 1998 than they did in the previous year. The rapid rates of export growth in pork experienced in recent years fell in 1997 as U.S. pork exports posted a 7 percent gain, compared to a 23 percent gain in 1996. Expectations of greater export growth in pork due to Taiwan's absence from the Japanese market have not materialized. Exports to Japan declined a disappointing 9 percent in 1997, falling short of expectations due to competition, to Japanese consumers' distinct product preferences, and to the large stocks of frozen pork in Japan. Exports of U.S. frozen pork to Japan were down 26 percent in 1997 and U.S. frozen market share slipped. Exports of U.S. fresh/chilled pork to Japan fared better in 1997, evidenced in the 15 percent volume increase over 1996 with a gain in U.S. fresh/chilled market share.
Though U.S. exports of pork to Japan finished strong in the latter half of 1997, they were not strong enough to counteract early losses. Export surges to Canada, Mexico, Hong Kong and the Russian Federation offset the decline to Japan, pushing exports to 422,000 tons in 1997. In 1998, U.S. pork exports are forecast to drop to 449,000 tons, down 5 percent from 1997, hampered in part by the dollar's relative strength against competitors.
Japan remained the leading market for U.S. pork in 1997, accounting for 50 percent of all U.S. pork exports by volume and 65 percent by value. Exports to Japan posted mixed results in 1997. While fresh/chilled exports increased 15 percent, frozen exports decreased 26 percent. Exports to Japan are projected to slightly increase in 1998, with gains projected to occur in the fresh/chilled market. Part of the reason that sales to Japan did not increase as expected in 1997 was due to Japan's high carryover of frozen pork stocks from the large surge in imports in 1996. Following Taiwan's departure from the market in March 1997, Japanese firms drew down these stocks. Even so, frozen stocks remained relatively high at the end of 1997. Stocks are expected to further decline in 1998, thereby stabilizing Japanese pork imports.
Canada and Mexico continued to be the second and third leading markets respectively for U.S. pork in 1997. Exports to Canada continued their upward trend, albeit at a slower pace than in 1996, and increased 40 percent to 54,000 tons. Mexico was also a strong market for U.S. pork in 1997, absorbing 9 percent of total U.S. pork exports. In 1997, U.S. pork exports also performed well in the Russian Federation, Hong Kong and Korea. Export prospects for 1998 are highly dependent on the dollar's relative strength and competition in the Japanese market.
Imports of pork into the United States during 1997 increased 2.5 percent, totaling 287, 000 tons. Almost all pork imports come from Canada and Denmark. Pork imports from Canada, the largest U.S. supplier of pork accounting for almost 72 percent of total imports, slipped slightly in 1997. However, imports from Denmark gained ground, increasing 5 percent. A 9 percent decline in imports is forecast in 1998 as domestic production expands.
Expansion in the Canadian hog sector continued in 1997, with a beginning inventory of 12.1 million head, up 1 percent from 1996. Through the early 1990's, hog inventories grew at an average annual rate of 4 percent. Beginning inventory in 1998 was 12.3 million head, an increase of 2 percent over 1997. Much of the increase in hog inventories continues to come from the Prairie provinces, mainly Manitoba and Alberta. A further expansion of 2 percent is expected for 1999.
Canadian live hog exports to the United States reached a record 3.1 million head in 1997, up 11 percent from 1996. High U.S. hog prices and a favorable exchange rate helped push more hogs south of the border. The strike and closure of several Maple Leaf processing plants in late 1997 resulted in a significant increase in hog exports during December 1997 into early 1998. However, with the resolution of the strike on March 6, 1998, hog exports are now forecast to only reach 2.8 million head, a decrease of 9 percent from 1997. Prospects for a rebound in producer prices had appeared bleak until a strike settlement was reached. Prolonged, weak price levels would have had a negative effect on production planning decisions, especially for small-to-medium-sized producers, thereby reducing the expectation for industry growth in 1998.
Canada continued to expand into the
export market in 1997, increasing pork exports to 410,000 tons,
an increase of 11 percent over 1996, the highest level ever. The
U.S. continued to be the number one destination for Canadian
pork, taking 56 percent of Canada's pork exports. However,
Canadian processors focused on other markets in 1997, and reduced
exports to the United States. Record U.S. pork supplies and lower
U.S. prices will most likely keep more Canadian pork at home in
1998 or it will be exported to other countries, mainly Japan.
Canada's share of the Japanese pork market increased from 6
percent in 1996 to 11 percent in 1997 as the absence of Taiwan in
the Japanese pork market opened up additional opportunities for
exporters. With new, modern processing facilities coming on line
in the near future, Canada's exports are expected to increase
further in 1998, particularly if the Canadian dollar remains weak
vis-a-vis the yen and other competitor currencies. However, pork
exports for 1998 are forecast to fall 5 percent to 390,000 tons
as the Japanese economy struggles to improve and larger U.S. pork
supplies will mean less need for imported Canadian pork.
Canadian imports from the United States continued to increase in 1997, reaching 54,345 tons, up 38 percent from 1996. Most of the growth in U.S. exports to Canada came from the fresh/chilled segment of the market. Of particular interest is the tremendous growth in boneless pork exports, which totaled 29,413 tons, up 63 percent from 1996. A shortage of boneless cuts in the Canadian market is being increasingly supplied by U.S. pork as Canada diverts product from the domestic market to the more lucrative export market. U.S. pork export potential in 1998 is expected to be dampened as exports to Canada are forecast to fall 7 percent to 50,000 tons due to an increase in Canadian pork production and a weak Canadian dollar.
A strengthening Mexican economy and cheaper grain prices helped bolster Mexican swine production in 1997. Beginning hog inventory for 1998 totaled 10.5 million head, an increase of 2 percent from last year. A further expansion of 2 percent to 10.7 million head is forecast for 1999. Key factors in this expansion is the continued integration of swine producers with slaughterhouses and producers' ability to purchase grain on the open market instead of state trade enterprises.
Pork imports in 1997 increased 28 percent from 1996 to total 41,000 tons, as a result of improvements in the Mexican economy. Much of the product was imported from the United States by Mexican sausage producers. The U.S. average share of the Mexican pork market has been 97 percent. Little or no change is expected in U.S. market share in 1998. Mexican imports are forecast to increase to 47,000 tons in 1998, up 15 percent from last year, as low U.S. pork prices are expected to favor relative prices between beef and pork.
Mexico's pork exports in 1997 totaled 21,000 tons, an increase of 62 percent from 1996. Minuscule at best in the early and mid-1990's, Mexican pork exports have taken off in the last few years. Pork processors have created new export opportunities through increased marketing activities. In addition, the recognition of hog cholera free status in several Mexican states has allowed for increased fresh/chilled pork exports to the United States and Japan. While nearly 70 percent of pork exports are destined for the United States, an increasing amount is finding its way to Japan. With the absence of Taiwan in the Japanese pork market, Mexican processors have been able to get a foothold into the world's most lucrative pork import market. Mexican pork exports are not expected to increase in 1998 over last year's level as improvement in the Japanese and other Asian economies remains uncertain.
Mexico's pork consumption has increased as the economy has grown. A 5 percent increase in pork consumption, to 960,000 tons, was seen in 1997 as pork supplies increased and the economy continued to strengthen. A further increase of 2 percent, to 976,000 tons, is forecast in 1998.
China has been largely insulated from the economic crisis rocking the rest of Asia. Meat consumption and hog inventories are both projected to increase in 1998. Pork consumption rose 5 percent in 1997 and is forecast to increase 4 percent in 1998.
Expansion in Chinese hog inventories continued its upward trend in 1997 with ending inventories up 3 percent from beginning inventories. Inventories are forecast to increase 5 percent by the end of 1998. In China, fluctuating grain prices appear to have little impact on producers' decisions to contract or expand holdings due to the structure of the Chinese hog industry. Approximately 85 percent of the swine producers in China are small family units holding 1-3 head. For these small producers, economic return is but one determining factor in the decision to maintain holdings. Hogs are a source of field fertilizer and a recipient of table scraps. When corn prices skyrocket, producers react by adjusting the hogs' diets, and feed the animals more table scraps and field waste, thereby slowing the consumption rate of feed concentrates.
China has been working to improve its domestic swine breeds and has received assistance from the United States and Canada. The assistance, in turn, has helped foster cooperation and industry linkages. The U.S. Feed Grain Council in China has been working with commercial swine producers in southern China to improve the efficiency of their operations through improvements in breeding and feeding.
The Chinese pork import market is a very small and underdeveloped market. Currently, imports are negligible. The U.S. swine breeding assistance efforts are also aimed at improving U.S. access to the Chinese market and increasing U.S. exports of feedgrains and pork. Since 1995, for example, when the Canadians began their lean pork project to improve the quality of Chinese pork, Canada's share of the Chinese pork import market increased significantly from 23 percent in 1995 to 82 percent in 1997 (January - September), at the expense of the U.S. share which slipped from 50 percent in 1995 to 18 percent in 1997 (January -September).
Historically, China has imported a negligible quantity of pork, relying on domestic production. Pork imports in 1997, though small, were up with Canada supplying most of the expanded market. Import levels in 1998 are projected to remain flat as the domestic industry expands. In June, China initiated a one year pilot project which permits meat imports from designated plants in Australia, Canada and the United States to enter China's retail market. To date, no meat has been imported under the project as imports are subject to a 45 percent tariff coupled with the 13 percent value-added tax (VAT).
China's pork exports are projected to continue its decline in 1998, dropping 40 percent to 90,000 tons as domestic consumption rises. Exports in 1997 and 1996 declined 22 percent and 17 percent respectively. Much of that decline stems from a drop in exports to Russia.
Food safety fears concerning beef, arising from BSE and E. Coli scares, led to increased pork consumption in Hong Kong in 1997 at beef's expense. Another recent food safety fear, "bird flu", has positively affected pork consumption in the first few months of 1998. The upward trend in pork consumption is forecast to continue in 1998, highlighted by a recent upswing in consumer demand for chilled pork.
Since Hong Kong produces only enough pork to satisfy approximately half its domestic demand, it relies on imports to meet much of its consumption requirements. Therefore, an increase in consumption points to an increase in imports.
Imports grew an estimated 23 percent in 1997, reaching 178,000 tons and imports are projected to climb to 205,000 tons in 1998, a 15 percent year-over-year increase. China, Brazil, and the United States are the leading suppliers of pork to Hong Kong. While Chinese and U.S. pork exports performed well in 1997, increasing 28 percent and 30 percent respectively, Brazil's export volume remained flat. China remained the leading supplier of pork to Hong Kong.
Though frozen pork is the largest import category, totaling 117,000 tons in 1997, chilled pork is starting to become popular in Hong Kong. Albeit starting from a relatively small base quantity, chilled pork imports experienced steep increases in 1996 and 1997, a 338 percent increase in 1996 followed by a 123 percent increase in 1997. Fresh/chilled imports from the United States doubled in volume in 1997 from 1996 levels. Total pork imports from the United States more than doubled in 1997, spurred on by a 59 percent jump in frozen imports. For the last few years, Hong Kong has ranked as one of the leading markets for U.S. pork exports.
Hong Kong's other import market of interest, swine offal, grew 38 percent in 1997 compared with the previous year. Hong Kong re-exports over half of the swine offal to China. Leading offal suppliers in Hong Kong include the Netherlands, the United States, Denmark and Canada. In 1998, offal exports to China are expected to increase, but not at the previous years' high rates.
The crisis confronting the battered Taiwan hog industry is foot-and-mouth disease (FMD). FMD, which first hit the island in March 1997, continues to affect Taiwan's hog industry as a new outbreak hit in December 1997, after a five month hiatus. The December outbreak, seemingly under control, may be attributed to farmers' reluctance to vaccinate their stock against FMD--given the low pork prices and the lack of compensation for the vaccinations.
Taiwan's hog situation entering 1998 is vastly different from 1997 due to FMD. Beginning hog inventories in 1998 are down 26 percent to 8 million head. Slaughter declined from 14.3 million head in 1996 to 11.7 million head in 1997. And, slaughter is projected to further decline in 1998 to 10.5 million head.
The post FMD restructuring of the hog industry has proven to be a slow process, resulting in a hog surplus due to farmers' reluctance to reduce herd size. Beginning November 1, 1997, authorities implemented a new program to reduce 1998's pig production (market pigs) to 9.8 million head, a level which meets Taiwan's domestic demand. Under the program, farmers are required to bring two sows and five piglets for rendering with each truckload of fat pigs brought to auction markets. Farmers are not compensated for their losses stemming from the culling, but they are compensated for the rendering cost and some of the indirect costs such as transportation and personnel costs.
Despite the low prices, hog farmers appear hesitant to quit the once highly-profitable hog industry as many intend to weather the profit downturn. A 50-percent cut in tariff rates for feedstuffs should benefit producers. In February 1997, prior to the initial FMD outbreak, hog auction prices averaged $79/cwt. Domestic hog auction prices plunged last March and April. Although prices have regained some ground, they still do not cover production costs as hog auction prices hover at approximately $43/cwt. Oversupply maintains pressure on the prices.
Taiwan's pork production dropped 20 percent in 1997 to just over 1 million tons and is forecast to drop another 70,000 tons to 930,000 tons in 1998, its lowest level since 1989. Pork consumption in Taiwan virtually stopped immediately following the FMD outbreak. During 1997, consumer confidence gradually strengthened, inducing consumption rates upward, but consumption still fell to 843,000 ton, 6 percent below the 1996 level. Low domestic prices in 1998, generated by abundant supplies, are expected to energize consumption and spark an increase of nearly 9 percent to 915,000 tons in 1998. Pork remains the preferred meat in Taiwan.
The December FMD outbreak delays the target date to 2003 for Taiwan to export raw pork again. Prior to the initial FMD outbreak, Taiwan directed 30 percent of its pork production to exclusively supply Japan with its distinct, preferred style of pork. When FMD closed off many of its traditional markets, Taiwan authorities looked for new, raw pork markets in countries such as Bulgaria and Russia. Donating pork to North Korea has also been raised as an option.
In 1998, Taiwan hopes to export 50,000 tons, a fraction of the 388,000 tons it exported in 1996. Some of that export volume is expected to go to Japan, the result of a recent Taiwan-Japan protocol which allows heated processed pork (ham and sausages) exports to Japan. Taiwan authorities hope that some pork will be exported to Japan as early as the first half of 1998.
Virtually no pork imports entered Taiwan in 1997 and
only a negligible quantity of imports is forecast in 1998. The
import situation could change following Taiwan's accession to the
WTO. Upon joining the WTO, Taiwan is scheduled to provide full
access for many banned pork cuts and establish a tariff-rate
quota for pork cuts, bellies, spare ribs and pork variety meats.
Prior to its WTO entry, Taiwan agreed to grant the United States
immediate market opening of 5,000 tons (PWE) for selected pork
cuts and 7,500 tons for pork variety meats. In 1997, the United
States exported 2,400 tons (PWE) of pork and 572 tons of pork
variety meats to Taiwan. The new agreement could provide U.S.
pork with export opportunities in 1998.
The March 1997 FMD outbreak in Taiwan combined with a sluggish economy negatively affected pork import levels and pork consumption and positively affected production. Prior to the outbreak, Taiwan supplied 41 percent of the Japanese pork import market. The supply vacuum, created by Taiwan's departure from the market, was simply not filled in 1997, causing a sharp decline in imports. After the FMD outbreak, many Japanese firms drew down their sizable frozen stocks which they had accumulated due to the pork safeguard system, rather than import.
Two distinct categories makeup the Japanese pork import market--frozen pork and fresh/chilled pork; Japan imports three times as much frozen pork as fresh/chilled. Japanese import data for 1997 indicate that pork imports plummeted 22 percent from 1996 levels. Total frozen imports fell 21 percent and total fresh/chilled imports fell 24 percent. According to Japanese data, the United States had 27 percent of the total Japanese pork import market, second behind Denmark with 28 percent. Exports of U.S. pork to Japan started slowly in 1997, but finished strong. Even with the year end rally, U.S. exports to our leading pork market still fell in 1997.
In 1997, the United States was Japan's leading supplier of fresh/chilled pork with 69 percent of the market, up from a 46 percent share in 1996. Canada and Korea, the other leading suppliers in the fresh/chilled market, also improved their competitive position in 1997 finishing the year with 12 percent and 8 percent of the market respectively.
Denmark, a minor player
in the fresh/chilled market, dominates the frozen market--the
larger of the two pork markets. Japanese data show that Denmark
gained ground in 1997, garnering 38 percent of the frozen market.
The United States lost some ground in the frozen market, as
volume dropped 27,000 tons to 98,000 tons, but still managed to
acquire a 13 percent share of the market. The vagaries of the
Japanese safeguard system for pork account for much of the U.S.
decline in the frozen market. Denmark is projected to increase
its share of the frozen market in 1998, while the U.S. frozen
share could slip. The other major players in the frozen market,
Canada, Korea, and Mexico, increased frozen exports in 1997 and
are positioned to do well in 1998.
Japan's pork imports are forecast to increase 1 percent in 1998, a downward revision of the last estimate due, in part, to the sluggish economy. In 1998, most gains for imported pork are likely to occur in the fresh/chilled market, as large frozen pork inventories remained at the end of 1997. Overall, U.S. pork exports are expected to slightly increase in 1998. Competition may be fierce in the Japanese market as Denmark, the United States, Canada, Korea and Mexico all vie to increase market share. Currency fluctuations, such as the Korean won's steep devaluation and the weakening of both the Danish kroner and the Canadian dollar against the U.S. dollar, could weaken U.S. export performance.
Pork imports into Japan are governed by a gateprice (minimum import price) and a safeguard against surges in imports. Under the current gateprice system, importers and exporters negotiate a container of product whose average price per ton equals the gateprice. By equalizing the gateprice, both parties minimize duties, but end up with a container blend of high and low cost products which may or may not meet domestic demand. Combined with the gateprice, there is a safeguard mechanism which protects against import surges by triggering a 24 percent increase in the gateprice when the 19 percent import growth limit (calculated quarterly) is exceeded. A higher gateprice deters imports of lower-priced product, such as frozen hams and bellies, leading Japanese processors to increase their imports when the gateprice is low to ensure adequate supplies. This system caused a rapid buildup in frozen pork stocks in 1995-1996 as a hedge against price fluctuations.
In 1997, the threat of triggering the safeguard dissipated following Taiwan's departure from the Japanese market. Taiwan's continued absence from the market reduces the likelihood of triggering the safeguard, in effect stabilizing the prices of lower-valued pork imports. After the FMD outbreak, many Japanese firms drew down their stocks rather than import. In 1998, the safeguard is not expected to be a factor and Japan's import levels are expected to a return to a more even keel.
The challenge for competitors in the Japanese market is to provide a product which satisfies the distinct preferences of Japanese consumers. The Japanese prefer a product which meets cut specifications and exhibits specific meat quality characteristics (e.g. color and texture). Whereas Taiwan supplied Japan with a product virtually indistinguishable from the domestic product, the style of pork preferred by the Japanese is only available on a limited basis in the United States.
Regarding Japan's hog situation, beginning inventories in 1998 are down 3 percent from 1997. Slaughter rose 1 percent in 1997, up to almost 17 million head, and slaughter is projected to increase 1 percent again in 1998. Although previously on a steady decline, Japanese pork production rose 1 percent in 1997--the first time in years--and is forecast to increase another 1 percent in 1998 to 1.3 million tons. The production increase, though slight, in turn raises domestic supplies of fresh/chilled pork. Pork stocks declined in 1997 from 255,000 tons to end at 200,000 tons. Over the course of 1998, stocks are projected to further decline to an estimated 147,000 tons. Pork consumption fell almost 2 percent in 1997 and is projected to remain flat in 1998.
The on-going financial turmoil in Korea is likely to transform the country into a net exporter of pork in 1998 for the first time in five years. The depreciated won, which makes Korea's pork prices attractive, is expected to be a driving force behind the forecast 1998 export surge. Pork exports are forecast to increase 24 percent in 1998, reaching 87,000 tons--much of that increase headed to Japan.
As for imports, the financial crisis coupled with record pork production are expected to reduce imports, propelling them downward 22 percent in 1998 to 60,000 tons. This February, USDA extended GSM-102 credit to Korean importers of U.S. red meat. Of the $100 million credit allocated to red meat, approximately $13 million went to purchases of U.S. pork. Korea has been one of strongest growing U.S. markets for pork. In 1997, the United States exported roughly 12,200 tons to Korea, a 9 percent increase from 1996. The financial crisis and the U.S. dollar's strength vis-a-vis the won weaken 1998 export prospects.
Regarding Korea's hog situation, inventories increased 9 percent in 1997, reaching 7.1 million head at the beginning of 1998. In 1998, hog inventories are forecast to decline by year's end. The sudden rise in the cost of imported feed accelerated hog slaughter in the last month of 1997 and into 1998. If the cost of feed supplies remains high, farmers may market lighter pigs. Slaughter is forecast to rise almost 7 percent in 1998.
For the last 20 years, Korea's pork production has been rising steadily. In 1998, production is expected to climb 7 percent to 900,000 tons, another record-setting level. Swine producers have been expanding breeding stock for the purpose of increasing meat production to boost exports. However, for producers to capitalize from the won's depreciation, feed prices, which represent almost 50 percent of input costs, will have to stabilize.
Pork consumption has risen in Korea due, in part, to the relatively high cost of beef and to food safety concerns related to beef. On a per capita basis, Koreans consume twice as much pork as beef and Koreans prefer pork bellies. In 1997, pork consumption totaled 878,000 tons. In 1998, consumption is forecast to edge up to 884,000 tons, a 1 percent increase.
EU hog and pork production in 1997 was rocked by the severe outbreak of Classical Swine Fever (CSF) in the Netherlands, as well as several other member states. Entering 1997, EU hog inventories were set to expand because the BSE crisis the previous year, as well as increased world demand, had brought about a modest expansion. However, this was brought to a stop on February 4, 1997 as reports of CSF started filtering out of the Netherlands. By year's end, nearly 11.0 million head of hogs had been destroyed, either as a direct result of CSF or as a preventative measure. As a result of swine fever, beginning inventories were 115.9 million head in 1998, a reduction of 1 percent. Most of the decline in inventories was in the Netherlands, as it was the hardest hit by CSF. Spain, Germany, and Belgium were also hit by the disease mainly as a result of imported hogs from the Netherlands prior to the discovery of the virus. Of these three, Spain suffered the most loses with 750,000 head destroyed, roughly 4 percent of its pre-CSF inventories.
The void left by the
Netherlands in the live hog export market created opportunities
for other EU countries to step up their export efforts and also
bolstered producer prices. Denmark has been the largest
participant, increasing its live hog exports to 1.2 million head,
a 69 percent increase over 1996. Germany was the number one
destination of live hogs from Denmark, representing 92 percent of
its total exports. In addition, prices for hogs and pork
increased tremendously during the early and middles stages of the
outbreak, with average EU prices rising as high as $81.71/cwt.
The highest prices received by producers was in mid-May 1997:
Germany - $91.54/cwt; Belgium - $90.29; and the Netherlands -
$89.33. Hog prices began to decline by early to mid-June,
hovering near their pre-CFS levels.
In spite of these large losses, total EU pork production declined less than 1 percent in 1997, to 3.1 million tons as production levels were maintained due to an increase in average carcass weights. Pork production in the Netherlands totaled 1.4 million tons in 1997, a decline of 16 percent over 1996. The decline in Dutch pork production was nearly offset by increases in the UK (12 percent), Denmark (6 percent), and France (2 percent). An increase of 6 percent is forecast in Dutch pork production for 1998, assuming the CSF situation is brought under control. In 1998, the EU is expected to increase hog production which will push prices back down to pre-CSF levels. In addition, further price declines could occur if speculation over the release of beef intervention stocks are realized.
External EU pork exports reached 811,000 tons, up 7 percent from 1996, as the absence of Taiwan from the Japanese pork market created additional opportunities for Denmark. Pork exports in 1998 are forecast to increase to 861,000 tons, 6 percent higher than 1997, as more pork is available for export.
Total EU pork consumption remained virtually unchanged in 1997, totaling 15.2 million tons. Increases in consumption were seen in Belgium-Luxembourg (4 percent), the United Kingdom (4 percent), and Sweden (3 percent); however, these were offset by declines in the Netherlands (3 percent), Germany (2 percent), and marginal declines in the rest of the EU. In 1998, pork consumption is forecast to increase 1 percent in virtually all EU countries as hog inventories expand and pork supplies increase.
The Netherlands
The impact of CSF in the Netherlands was devastating. Beginning hog inventories in 1997 were at a record 14.3 million head. By the beginning of 1998, this record level had dwindled 20 percent to 11.4 million head. This is the lowest level for the Dutch hog inventory since 1984. The total number of animals destroyed on contaminated farms was 650,092 head. Another 1 million head were destroyed as a preventative measure, while 8 million head were removed under a buy-out program implemented to compensate farmers for healthy pigs that could not be transported to markets or slaughterhouses. In total, 9.7 million head were destroyed, representing 65 percent of the Dutch swine population prior to the outbreak.
As a result of CSF, the Dutch Government proposed a reduction in the swine herd in an attempt to avoid a similar incident in the future. A smaller, less densely populated herd would help prevent the spread of CSF or other porcine diseases, thereby containing the outbreaks in smaller areas. Originally, the proposal called for a 25 percent across the board reduction in pre-swine fever inventories. This would have resulted in a swine herd of 10.7 million head. Their current proposal is for a phased-in reduction of 10 percent in 1998 and 15 percent in 2000. These two reductions would result in a swine inventory of 12.8 million head in 1999 and 10.9 million head in 2000.
There has been strong farmer
opposition to the proposed plan. However, some concessions have
been made that would allow farmers to "earn" or
slightly increase their herd through lower phosphate production
on the farm. Consideration of this plan is expected to occur
within the next several months and many advocates believe it will
pass. However, it must also win approval from the EU Commission.
The Netherlands has historically been a supplier of piglets and slaughter hogs to surrounding EU countries, mainly Germany. Approximately 2.2 million head or 39 percent of total Dutch exports were to Germany, followed by Spain, which imported 1.3 million head or 23 percent of total Dutch exports. Transportation bans were imposed as a control measure to the spread of CSF on March 2,1997, thereby eliminating the Netherlands from the live hog export picture. Total Dutch swine exports for 1997 only reached 990,000 head, a reduction of 83 percent from 1996. Dutch analysts are forecasting a rebound in hog exports to 1.5 million head in 1998, an increase of 52 percent over 1997; however, the picture remains cloudy as confirmation that the epidemic is over has yet to happen. Since January 1998, there have been numerous outbreaks of CSF reported in the Netherlands, with the latest occurring on March 14, 1998, as well as new cases in Germany. Preventative measures remain in place, including the transportation ban, and will remain in effect until the disease is eradicated.
Dutch pork consumption fell 3 percent in 1997, as a result of lower supply and higher prices induced by the CSF outbreak. The average price paid by Dutch consumers in 1997 increased 9 percent over 1996. A rebound in consumption of 2 percent is forecast for 1998 as supplies increase and prices return to normal levels.
Denmark
While the hog cholera situation was wrecking havoc with its neighboring countries, Denmark was reaping the benefits of higher producer prices and increased demand for its hogs. The higher hog prices paid to Danish producers over the last few years have stimulated investment in production capacity resulting in a moderate rise in hog inventories. Beginning hog inventories in 1997 were 11.1 million head, up 3 percent from 1996, a new record level. The Dutch hog cholera outbreak in 1997 prompted further expansion in the Danish hog inventories with 1998 at 11.4 million head, an additional 3 percent over 1997. Prospects for 1998 are expected to remain positive as an additional 600,000 pigs will be added to the herd.
Traditionally, Danish hog producers have had long-term contracts with Danish slaughterhouses and could only sell a portion of their output to other slaughterhouses. However, these ties are apparently becoming weaker as demand for piglets remained unfettered in Germany. Danish hog exports reached 1.2 million head in 1997, up 69 percent from 1996. Of that total, 1.1 million head or 92 percent of total Danish exports were to Germany. The vast majority of these exports were piglets with the remainder being pigs for immediate slaughter. Virtually all German slaughterhouses are operating with excess capacity, prompting offers to Danish producers that more than offset their transportation costs. As a result of the increased pressure from the Germans, some Danish slaughterhouses are increasing payments to producers in order to retain an adequate number of hogs for their own operations.
Danish pork production continued to grow in 1997, increasing 6 percent over 1996. An additional 5 percent increase is expected in 1998 as producer prices remain high. External export levels in 1997 reached 470,000 tons, up 17 percent from 1996, as the FMD outbreak in Taiwan left a void in Denmark's primary market, Japan. Danish exports to Japan, through November 1997, were at an all time high of 196,925 tons, an increase of 13 percent over 1996. Although the export picture is presently cloudy due to the sluggish economic situation in Japan, Danish pork exports to Japan are expected to grow 3 percent in 1998.
Pork consumption in Denmark declined marginally in 1997 to 340,000 tons, as poultry consumption continued to increase and pork was diverted from the domestic market to the export market. No change is forecast in pork consumption for 1998.
Germany
The CSF epidemic in the Netherlands was felt hardest in Germany, as its traditional source of piglets and slaughter hogs disappeared. In addition, Germany was plagued by its own CSF outbreaks throughout the year, resulting in the destruction of 175,368 head or 1 percent of its pre-CSF inventories. Beginning hog inventories in 1997 reached 24.3 million head, an increase of 2 percent over 1996. A further increase of 2 percent is forecast for 1998 as producer profit margins are expected to be favorable due to higher prices and lower production costs.
Because Germany was no longer able to import hogs from the Netherlands, it began increasing imports from Denmark, France, and Belgium. However, live hog imports in 1997 only totaled 1.5 million head, down 62 percent from the average. German imports in 1998 are forecast to return to near its pre-CSF levels of approximately 3.0 million head, assuming Dutch hogs become available for export. Pork production in 1998 is forecast to increase 3 percent to 3.7 million tons. Pork consumption declined slightly in 1997 to 4.4 million tons because of higher prices, but is forecast to increase 2 percent in 1998 as pork supplies increase.
France
French hog inventories continued to expand in 1997, increasing 3 percent to 15 million head. A further expansion of 1 percent to 15.2 million head is forecast for 1998. Pork production rose 2 percent in 1997, totaling 2.2 million tons. A further increase of 2 percent is forecast for 1998, as a result of an increase in the pig crop and a dramatic decline in live hog exports, especially piglets. Live hog exports in 1997 rose to 343,000 head, its largest level in 4 years and nearly double the level of exports during the previous year, as France helped fill the void left by the Netherlands. Live exports are forecast to return to pre-CSF levels in 1998 as the Netherlands overcomes its problems. French external pork exports in 1997 increased 1 percent to 140,000 tons. Most of the increase was to Russia and Japan. Exports for 1998 are forecast at 160,000 tons, up 14 percent over last year. Pork consumption increased to 2.0 million tons in 1997, up slightly from 1996, as higher pork prices slowed consumption. A further increase of 5 percent, to 2.1 million tons, is forecast for 1998, as abundant supplies in France and the EU pushes pork prices down.
United Kingdom
Beginning hog inventories in the UK for 1997 were 7.6 million head, an increase of 3 percent over 1996. In 1998, an increase of 2 percent, to 7.8 million head, is forecast. Pork production reached 1.2 million tons in 1997, an increase of 12 percent over 1996, due to increased sow productivity and higher carcass weights. A further increase of 2 percent is forecast for 1998 as carcass weights are expected remain high. Toward the end of 1998, a slight reduction in slaughter is expected as contraction in the breeding herd filters through. External pork exports rose 17 percent to reach 35,0000 tons in 1997. Exports in 1998 are forecast to decline 14 percent as uncertainty over the sluggish Japanese economy continues. Pork consumption increased 4 percent to 1.4 million tons in 1997, as a result of lower prices. A 2 percent increase in consumption is forecast for 1998 due to a further decline in hog and pork prices.
Belgium
In July 1997, an outbreak of CSF was discovered near the border with the Netherlands. To counter the spread of the disease, 100,000 hogs were destroyed and transportation/breeding bans implemented, with producers compensated for their loses under the current EU CSF regime. This represented 1 percent of hog inventories prior to the outbreak. In an effort to avoid a future CSF threat, the Belgian Ministry of Agriculture plans to reduce its producers' dependency on imported piglets. This will be achieved through the payment of premiums to producers of closed holdings and to hog fattening farms who buy piglets from a limited number of Belgian breeding farms. Beginning hog inventory in 1997 was 7.1 million head, down 1 percent from 1996. Another slight reduction occurred in 1998. As a result, pork production fell slightly in 1997 to 1 million tons. For 1998, pork production is forecast virtually unchanged from last year. A 4-percent reduction in exports in 1998 will help bolster consumption to around its 1997 level of 605,000 tons.
Spain
Spain was also plagued with CSF outbreaks beginning in April 1997. Nearly 1 million hogs were destroyed as a result, representing 5 percent of pre-CSF inventories. Spanish authorities immediately closed the borders to imports from the Netherlands and Germany, and instituted transportation and breeding bans in the affected areas. Inventories grew 1 percent in 1997 and totaled 18.7 million head at the beginning of 1998, mainly as a result of lower live hog exports and a 5-percent increase in the pig crop. A modest 3-percent increase in 1998 is forecast. Pork production in 1997 totaled 2.3 million tons, up slightly from 1996. A slight increase is forecast for 1998. Spanish pork exports received a boost from the Dutch CSF outbreak as additional opportunities in the Netherlands were made available to Spanish exporters. Total pork exports for 1997 were 182,000 tons, an increase of 12 percent over 1996. Pork exports in 1998 are forecast to remain unchanged from 1997. Pork consumption in 1997 also increased slightly to 2.2 million tons, and is expected to remain virtually unchanged in 1998.
Declining since the early 1990's, Russian hog inventories are forecast to slow down their rate of decline in 1998. Although hog inventories declined significantly in 1997, from 19.5 million head to 16.5 million head, inventories in 1998 are forecast to hold fairly steady compared to past years, increasing to 16.8 million head by year's end.
Pork production declined 6 percent in 1997 to 1.6 million tons, down from 1.7 million tons in 1996. Pork production is forecast to decline again in 1998, down to 1.4 million tons. Production appears to be stabilizing along with hog inventories as rising grain production moderates the respective rates of decline.
Russia's domestic processing industry has been facing a variety of difficulties ranging from a decline in swine numbers, underutilized processing facilities, a lack of uniformity of swine carcases (e.g. high fat content in domestic pork) and stagnant sausage production. Some of the difficulties have prompted structural change. For example, problems with middlemen in the processing industry have resulted in a trend toward vertical integration both between processors and retailers and between farms and processors. Another change is that new companies, set up by former state farms, factories, and trading companies, have begun to process meat.
Imports reached 444,000 tons in 1997 as domestic production declined. The United States and Romania expanded their shipments to Russia, while shipments from China and Poland dropped considerably. Declining U.S. prices supported the rise in U.S. pork shipments to Russia. Expectations for 1998 indicate that imports will strengthen and finish at 488,000 tons. Sausage imports are expected to rise over the next several years, as domestic production continues to decline. In terms of taste, Russians prefer all meat sausages.
Pork consumption has been declining over the last several years; this downward trend is projected to continue in 1998. Whereas pork and beef consumption levels have been trending down in Russia, poultry consumption has been on the rise--spurred by attractive prices.
In December 1997, the Russian government issued a resolution which adds the minimum duty for each group of selected imported products. The resolution does not change the rates of customs duties. In the case of fresh and frozen pork, the new duty rate is still 15 percent, but not less than 0.25 ECU/kg. The resolution is intended to help prevent the under-invoicing of imported goods and products. The new combined rates became effective on February 1, 1998.
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