Swine and Pork
Global pork exports grew 1 percent in 1998, and are forecast to increase 1 percent in 1999, as economic woes constrain consumer demand overseas. However, U.S. pork exports jumped 23 percent in 1998 due to abundant supplies and low domestic pork prices. Strong import demand from Hong Kong and Japan, and the inclusion of pork in the Russian food aid package are expected to boost U.S. pork exports 9 percent in 1999.
Pork production for the selected countries covered in this report increased more than 5 percent in 1998, largely due to strong production gains in China, the United States, Korea, and the European Union. High profitability of hog farming in recent years spurred expansion in production. Pork production is forecast to climb 1.5 percent in 1999, due to continued, albeit slower, production gains in the aforementioned countries.
Pork consumption increased about 5 percent in 1998 to 75.3 million tons, due to abundant supplies and low global pork prices. The United States, China, the European Union, Korea, and Brazil accounted for the greatest consumption gains, largely due to strong increases in production. Consumption is forecast to increase 2 percent in 1999, as increased production and large stocks keep pork competitively priced.
Pork imports for the selected countries in this report increased 1 percent in 1998, and are forecast to remain flat in 1999 due to global economic woes and dampened consumer demand overseas. Strong import gains in the United States, Eastern Europe, and Hong Kong were largely offset by falling demand and weaker imports in Russia, Korea, and Japan. Imports are expected to fall in Russia and Eastern Europe in 1999, while low pork prices boost Japanese and Hong Kong imports.
Pork exports increased 1 percent in 1998, and are forecast to increase 1 percent in 1999. Taiwan will remain unable to return as a major exporter due to the FMD outbreak in March 1997, and subsequent cases since that date. Eastern European exports fell 30 percent in 1998, and are forecast to decline 30 percent in 1999, largely due to plummeting demand in Russia and increased competition from the European Union. The United States, Canada, and the European Union increased exports in 1998, and continued large supplies and low prices are expected to further boost their exports in 1999.
U.S. hog prices fell to a 26-year low in 1998, largely due to a 10-percent increase in slaughter. High profitability in recent years, booming exports and structural transformation in the pork industry have contributed to the increase in pork production. In the fourth quarter of 1998, hog supplies exceeded slaughter capacity, thereby enabling packers to bid down live hog prices to 57-year lows in December. Beginning hog inventories climbed 9 percent in 1998 to 61.2 million head, and increased 2 percent in 1999. Hog slaughter is forecast to decline roughly 1 percent in 1999 to 99.75 million head, while the average hog price is forecast to increase 4 percent this year.
Hog imports jumped 30 percent to 4.1 million head in 1998, with Canada accounting for nearly 100 percent of the hogs. The climb in Canadian hog exports to the United States was due to abundant hog supplies in Canada, the strong U.S. dollar, and on-going labor problems in the Canadian packing industry. U.S. hog imports are forecast to decline slightly to 3.8 million head in 1999, due to the opening of a new slaughter plant in Manitoba, and other plant expansions.
U.S. hog exports more than quadrupled to 229,000 head in 1998, primarily due to low U.S. hog prices. Mexico accounted for more than 90 percent of U.S. exports. U.S. hog exports could increase to 250,000 head in 1999, but export gains will largely depend on the outcome of the Mexican anti-dumping suit against the United States, the strength of the Mexican economy, and U.S. hog prices.
U.S. pork exports reached 557,000 tons in 1998, up 23 percent from the previous year, despite increased production by competitor nations, and dampened consumer demand overseas. The United States was able to remain competitive in export markets due to abundant domestic supplies and low prices. Last year's U.S. pork exports surpassed the previous year's levels for five of the seven largest markets, with Canada and Korea being the exceptions. U.S. exports to Japan, the leading importer, exceeded 1997 amounts by 7 percent, while exports to Mexico climbed 72 percent. U.S. pork exports to Russia in 1998 were 41 percent above 1997, although the pace of exports to this market slowed to a trickle after the economic crisis began in August 1998.
U.S. pork exports are forecast to increase 9 percent to roughly 606,000 tons in 1999. U.S. pork exports will be boosted by the inclusion of 50,000 tons (pwe) of pork in the Russian food aid package, while exports are expected to remain strong to Hong Kong and Japan. Exports are also expected to increase to Taiwan as a result of its WTO accession agreements, and a shortfall in Taiwanese production. U.S. pork exports to Mexico this year will depend largely on the economic situation and U.S. pork prices. Exports to Canada will be constrained due to large Canadian pork supplies and the strong U.S. dollar.
Pork imports climbed 12 percent to 319,000 tons in 1998, due to large Canadian and Danish supplies, the strength of the U.S. dollar, and the lack of overseas markets. Canada and Denmark accounted for 73 and 18 percent of total U.S. pork imports, respectively. U.S. pork imports are forecast to decrease less than 1 percent in 1999.
Canadian hog inventories are expected to increase 3 percent in 1999. Pork production is forecast to rise 5 percent as investments in the Canadian hog processing industry are expected to lead to significant increases in processing capacity.
Canadian exports of live hogs reached an all-time high of 4.1 million head in 1998, with feeder pigs accounting for roughly one-third of exports. Much of the increase in 1998 live exports was the result of more attractive market prices in the United States. Labor disputes and plant closings in Ontario and Alberta also contributed to large number of hogs crossing the border. Live hog exports in 1999 are estimated at 3.8 million head given that Canada's new slaughter and processing facilities, due to come on-line in mid to late 1999, are expected to retain more of Canada's herd for domestic slaughter.
On December 3, 1998 the Canadian Food Inspection Agency (CFIA) amended its Health of Animals Regulations to permit the importation of U.S. live swine for immediate slaughter from certain U.S. states. The amendment provides an exemption for U.S. slaughter swine from the current testing and quarantine requirements, provided the hogs are slaughtered immediately. Canada is working to address other issues, such as waste disposal and sanitary concerns, in order to streamline trade between U.S. hog farmers and Canadian slaughter facilities. Given this change in regulation and an anticipated increase in demand for slaughter hogs in western Canada, Canadian imports are forecast to increase in 1999.
Exports of Canadian pork to Asia and Russia fell in 1998, but were offset by increased exports to the United States, raising total exports 2 percent. Based on anticipated increases in Canadian pork production, Canadian pork exports are forecast to increase 8 percent in 1999, with the major export market again being the United States. Uncertainty about the future of the Russian economy and increased competition among world pork producers for Asian export markets in 1999 are expected to continue to dampen Canadian exports to these regions.
The Canadian hog industry has pursued a strategy of expansion since 1995, when the national transportation subsidy for grains was removed. Capitalizing on a strong infrastructure, low feed grain prices and more flexible environmental regulations, large hog producers have intensified expansion efforts in western Canada since 1997. Consolidation within the Canadian hog industry, specifically the slaughter industry, has resulted in the squeezing out of many smaller, less efficient producers. According to Canadian industry reports, three companies now account for about half of total Canadian hog slaughter. The trend towards further concentration of hog production and processing is expected to continue.
The Mexican hog industry is expected to remain relatively static in 1999, with minimal changes in production and consumption. Hog inventories, which increased 2 percent to 10.7 million head by the end of 1998, are expected to remain constant in 1999. In spite of a forecast increase in hog imports, 1999 pork production is not expected to vary from the 1998 production level of 950,000 tons.
High production costs and high interest rates, and the impact of a weak peso on debts held in U.S. dollar terms, strained the Mexican hog industry through much of 1998. Moreover, limited supplies of domestic corn and sorghum have created a heavy reliance on imported feed among Mexican livestock farmers.
Consolidation has been prevalent within the Mexican hog sector as production costs are more easily met by larger producers who benefit from economies of scale and better access to credit. This trend is expected to increase as inefficient producers continue to leave the industry. The Mexican hog industry is characterized by three kinds of producers: large, highly integrated producers; mid-sized producers; and, subsistence level producers. These groups represent roughly 50, 20 and 30 percent of the hog industry, respectively. Consolidation is expected to have the greatest negative impact on the mid-sized group.
Consumption and imports increased 2 percent and 9 percent, respectively, in 1998. Modest economic growth in 1999 is expected to result in slight increases in consumption and import demand. Consumption is forecast to remain stable while imports are forecast to increase 3 percent.
Live hog imports are forecast to increase nearly 10 percent in 1999 as low U.S. prices make Mexican purchases of higher yielding U.S. hogs more economically feasible. Imports may be tempered, however, by the combined effects of a weaker peso and higher U.S. hog prices forecast for the third and fourth quarters of 1999.
Concerns over competition from U.S. hog imports are also widespread among Mexican producers. On October 21, 1998 the Mexican Commerce Secretariat (SECOFI) initiated an anti-dumping case against imports of slaughter hogs from the United States. The petition was filed in June 1998 by the Mexican pork producers council (el Consejo Mexicano de Porcicultura) who allege that U.S. slaughter hogs were being sold into the Mexican market at below production costs. Mexico's imports of live hogs from the United States increased more than five fold in 1998. The Mexican government is expected to make a final decision on the ongoing dumping investigation by spring 1999.
In the meantime, SECOFI has imposed a compensatory duty which effectively raises the import price for slaughter hogs to $1.08/kg. The compensatory duty, which is designed to balance the price of imported hogs with that of domestic hogs, appears to have had very little impact on slowing the flow of U.S. hogs into Mexico. By the end of February 1999, U.S. hog exports to Mexico were estimated at approximately 84,000 head, nearly four fold greater than in 1998.
Chinese officials have acknowledged that their national animal inventory and slaughter data in recent years have been inflated by as much as 20 to 30 percent. This publication contains revised data for 1996 through 1999. Data for the previous years may be revised at a later date as it becomes available.
Chinese hog inventories are forecast to increase 1.5 percent to 395 million head in 1999, while slaughter climbs 1 percent. Hog inventories expanded 4 percent in 1997 and 7 percent in 1998. However, hog production is currently constrained by declining prices, resulting from slowed exports, growing imports, excess supplies, and changing preferences by urban consumers. Pork production and consumption are forecast to increase nearly 3 percent in 1999.
Chinese pork exports reached an estimated 164,000 tons in 1998, with Hong Kong and Russia comprising the majority of exports. Pork exports are forecast to decline 2 percent in 1999 to 160,000 tons. China's live hog exports are expected to remain level at 2 million head, with the majority destined for Hong Kong.
China's total pork imports are estimated at 32,000 tons in 1998, and forecast to increase 9 percent to 35,000 tons in 1999. U.S. pork exports to China jumped 91 percent to 5,240 tons in 1998, while pork variety exports increased 52 percent to 1,301 tons. U.S. pork and variety meats also enter China as transshipments through Hong Kong.
After remaining level for two years, Hong Kong's domestic pork production is forecast to decline 2 percent in 1999 to 172,000 tons. Consumers are gradually shifting from fresh pork in outdoor markets to chilled/frozen pork from supermarkets, thereby putting downward pressure on domestic slaughter. Hong Kong is increasingly reliant on imports to meet consumption demand, which is forecast to climb 2 percent to 388,000 tons in 1999.
Hong Kong's total pork imports for 1998 are estimated at 247,000 tons, 31 percent higher than the previous year, due to low global pork prices and abundant supplies by leading exporters. China was the largest supplier to Hong Kong, followed by Brazil, the Netherlands, the United States, and Canada. U.S. pork exports to Hong Kong reached 21,500 tons (pwe) in 1998, exceeding the previous year's levels by 11 percent. U.S. pork variety meat exports to Hong Kong climbed 2 percent in 1998 to nearly 21,000 tons. Growth in Chinese demand and continued low pork prices are expected to boost Hong Kong's transshipments to China in 1999.
Hong Kong's pork imports are forecast to increase 10 percent to 271,000 tons in 1999, due to low global pork prices and strong transshipments to China. Hong Kong will continue to source products offered at the most competitive prices. Brazil and the Netherlands may continue to gain market share due to devaluation in the Brazilian currency and large Dutch supplies. The EU is likely to target the Hong Kong market more extensively in 1999, due to abundant supplies and dampened consumer demand in Russia and other Asian markets.
Taiwan's hog sector has been contracting since the outbreak of foot-and-mouth disease (FMD) in March 1997. Hog inventories are forecast to fall from 7 million head in 1999 to 6.8 million head by 2000, down from a peak of 10.7 million head in 1997. Pork production and consumption are forecast to decline 1 percent in 1999 to 880,000 tons and 925,000 tons, respectively. As production is declining, consumption gains have been met through reduction of stocks and growing imports. Taiwan will not be able to claim FMD-free status for at least several years, as there were a handful of FMD cases reported in 1998, with the latest occurring in March 1999. No significant pork exports are expected for 1999.
In October 1998, Taiwan's government announced a program to offer financial incentives for farmers to exit hog production permanently. However, participation has been weak due to current high hog prices. The November 1998 hog census indicated a drop in pig numbers since the May survey, thereby spurring an increase in hog prices and production. The jump in hog prices in January 1999 was also due to strong seasonal demand before the Chinese New Year and the government's crackdown on smuggled swine offal.
U.S. pork exports to Taiwan jumped 460 percent to 13,421 tons (pwe) in 1998, primarily due to the pork belly import quota under Taiwan's WTO access agreement. In February 1998, the United States and Taiwan signed a bilateral market access agreement in the negotiations of Taiwan's accession bid to join the World Trade Organization (WTO). The agreement allows import access of various U.S. livestock and poultry products prior to Taiwan's entry into the WTO, and includes annual quotas of 5,000 tons of pork belly and other previously banned cuts and 7,500 tons of swine offal. Imports of these banned items were opened to the United States under quota and will be open to all foreign suppliers which meet Taiwan's quarantine requirements under a tariff rate quota after Taiwan accedes to the WTO.
In 1998, the United States exported 4,144 tons of pork belly and 6,938 tons of pork offal, marking the successful implementation of the "down payment" quotas. Exports of the products are expected to increase in 1999, and unused 1998 quota amounts will be added onto the 1999 quota. However, Taiwan imported non-quota U.S. pork cuts (primarily picnic shoulders) during the last 6 months of 1998 due to high domestic hog prices and low U.S. pork prices. Total 1999 pork imports will depend heavily on domestic hog prices, as quota pork imports are only price competitive when local hog prices exceed NT$5,500/100 kg, and non-quota imports are profitable when prices exceed NT$6,000/100 kg. Due to short domestic supply, swine offal imports are expected to be strong through 1999. Strong pork imports should continue during the first quarter of 1999 due to high domestic prices.
Japanese pork production and consumption are forecast to remain roughly unchanged in 1999, at 1.3 million tons and 2.1 million tons, respectively. As Japanese pork production only meets 60 to 65 percent of consumption needs, Japan relies on imports to satisfy demand. Japan's pork imports declined 1.5 percent to roughly 505,000 tons in 1998, as pork was taken out of stocks to fulfill consumption needs. The United States gained market share and became the largest supplier to Japan in 1998 due to large supplies and low prices. Korea doubled its exports to Japan in 1998, and accounted for roughly 18 percent of total Japanese pork imports. However, Japanese trade sources expect Korean export growth to slow down as they are approaching export capacity.
Taiwan has been absent from the Japanese market since their FMD outbreak in March 1997. Since that time, Japan's pork imports have dropped as the nation has drawn from stocks to maintain consumption levels. Stocks have fallen 57 percent in the last two years, and are forecast at 111,000 tons in 1999. Japan is expected to resume higher import levels in 1999 in order to avoid further depletion of stocks.
Japanese pork imports are forecast to increase 10 percent to 793,000 tons in 1999, largely due to the decline in pork stocks. Japan will require an additional 70,000 tons of imports in order to maintain consumption levels without further depleting stocks. Hotel and restaurant industry demand for chilled/fresh pork is expected to grow steadily. Low U.S. pork prices and the recent strength of the yen against the U.S. dollar are likely to boost U.S. pork exports to Japan in 1999. However, most of the additional import demand this year is expected to come from the frozen sector for ham and sausage making and the hotel and restaurant industry. The European Union, Korea, and Canada may benefit more than the United States from the increase in Japanese import demand this year as they are better able to meet Japanese frozen pork specification requirements.
EU swine inventories increased to approximately 117 million head in 1998, while pork production reached 16 million tons. EU 1999 beginning hog inventories are forecast to surpass 1998 levels by 4 percent, to roughly 121 million head. This increase, however, will be limited to the first half of 1999, with hog numbers up 5 percent, and will be offset by a marked fall in the second half. Much of the increase is due to a more than 20 percent increase in the Dutch hog inventory, in addition to considerable increases in the German and Danish inventories. Germany, Spain, France, Denmark and The Netherlands combined account for roughly 70 percent of EU hog inventories.
EU pork production in 1999 is forecast to rise to 21 million tons, or roughly 24 percent over 1998 production. Heavy increases in 1999 pork production are attributed to heavier slaughter weights and increased slaughter. High EU hog inventories, the loss of important export markets and record low hog prices in 1998 are expected to pressure farmers to reduce herd sizes in 1999. Prices are expected to remain low through most of 1999, albeit with some gradual increases as hog inventories start to decline late in the year.
In late 1998, the European Commission implemented market support measures in response to growing pressure from struggling EU hog producers. Prices, which had dipped to record lows, pushed receipts below the cost of production while the loss of the Russian export market in August 1998 exacerbated the problem of high domestic pork production. In September 1998 private storage aid (PSA), a temporary storage scheme which removed pork from the domestic market, was designed to relieve some pressure on domestic prices. Export restitutions to Russia and the former Soviet republics also enabled EU exporters to regain exports in the latter part of 1998 and early 1999.
PSA stocks, due to be released into the EU market by April 1999, are expected to increase pork supplies available in the domestic market, thereby adding further pressure to already low prices. The continued release of these stocks over time is expected to prolong the surplus flow of pork into the EU domestic market in 1999. Private storage aid, which was initially limited to 70,000 tons in September 1998, was calculated at more than 200,000 tons at the end of February.
Export refunds have been an important aid in boosting EU exports in late 1998 and early 1999, reportedly returning exports of fresh/frozen pork to near pre-August 1998 levels. EU exports totaled just over 1 million tons in 1998. Restitutions for processed pork have also been increased, suggesting that the EU hopes to have similar success in boosting export trade of these products. However, the EU's WTO commitments to subsidy limitations are expected to temper the extent of further increases, as well as limit the duration of export assistance in 1999.
While Russia has been the focus of restitution increases, trade has been minimal since the August 1998 financial crisis. Most of the increase in exports has been to the former Soviet Union (FSU) republics. Although current export restitutions do not apply to Eastern Europe, EU exports to this region also increased in late 1998 and early 1999. Many of the Eastern European nations have reacted negatively to the influx of EU pork and have increased import tariffs to protect domestic industry. EU pork exports are expected to increase slightly in 1999. EU food aid to Russia, forecast to total 100,000 tons, will help lift surplus pork stocks from the domestic market. Export restitutions and low prices are expected to entice exports markets in other FSU republics, as well as parts of Asia in 1999.
Public apprehension in the EU over the impact of livestock production on the environment, animal welfare and "the consumers' right to know" are expected to gain importance in 1999. Many of these issues are currently being addressed in the Agenda 2000/Common Agricultural Policy (CAP) reform efforts and are expected to be carried over into the upcoming WTO Round discussions.
The decline in the Russian hog sector has slowed, with 1999 hog inventory remaining roughly level with 1998 at 16.5 million head. The disappearance of state-supported collective farms, an inadequate financial credit system, and inefficient management practices have contributed to the decline in production this decade. The livestock sector will continue to be negatively affected by deteriorating farming conditions and structural and market inefficiencies. The devaluation of the Russian ruble in mid-August 1998 and the ensuing economic woes are exacerbating the situation. Russian pork consumption has been falling steadily this decade, and consumption levels in 1999 of nearly 1.6 million tons are 30 percent lower than in 1995.
Russia's total pork imports declined nearly 25 percent in 1998 to 380,000 tons, largely due to a dramatic decline in imports since the Russian ruble crisis in mid-August. Despite minimal exports in the fourth quarter, U.S. pork exports to Russia reached 41,419 tons in 1998, thereby surpassing 1997 levels by 41 percent.
Russia's total pork imports are forecast to decline more than 20 percent to 300,000 tons in 1999, with food aid accounting for more than half of the amount. However, U.S. pork exports to Russia are expected to increase significantly in 1999, as the U.S. Food Aid Package to Russia includes 50,000 tons of pork. The European Union food aid package to Russia contains 100,000 tons of pork. Furthermore, due to large burdensome stocks, low prices, and dampened consumer demand overseas, the EU is likely to heavily target Russia with export subsidies during 1999.
Brazil's swine sector remained relatively stable in 1998 in spite of the country's unsteady economy. Beginning stocks grew marginally in 1998 while pork production increased nearly 9 percent to 1.7 million tons. Gains in 1998 pork production are attributed to increases in the slaughter rate and slaughter weights. Beginning hog inventories for 1999 are roughly 1 percent lower than 1998 beginning stocks. Pork production is expected to grow moderately at 2 percent to 1.1 million tons.
The devaluation of the Real in January 1999 is expected to benefit Brazilian hog producers. A weaker Real will give Brazil a price advantage in export trade, while domestic demand for cheaper protein alternatives to beef is expected to increase. Increases in imported feed grain may, however, temper these gains. Due to the devaluation, imported feed grains will become relatively more expensive in 1999, thereby increasing the cost of production.
Nearly 70 percent of Brazil's pork trade is with Argentina and Hong Kong. It is expected that exports to these two countries will increase in 1999. Exports to Russia, Brazil's third largest export in 1998, are not expected to be significant in 1999 due to uncertainty over Russia's ability to import commercially. Because of Brazil's continued foot-and-mouth disease status, it is unlikely that exports to other countries, such as the EU, Mexico, Canada or Japan will increase. For 1999, pork exports are estimated to increase 10 percent to 95,000 tons.
In order to boost exports and expand export share, pork exporters are finalizing a market promotion program similar to USDA's Market Access Program. Brazil's program provides funds for market development and market research overseas, and it is funded in half by the government and half by the association of pork exporters. The program is currently estimated at US$3.8 million.
For further information, contact Melissa Schmaedick, (202) 720-7715 or Kim Svec, (202) 720-8252.