Swine and Pork
Global pork exports are forecast to increase nearly 2 percent in both 1999 and 2000, due to Asian economic recovery, abundant pork supplies and low pork prices. Strong import demand from Japan and the inclusion of pork in the Russian food aid package are expected to boost U.S. pork exports nearly 3 percent in 1999.
Pork production for the selected countries covered in this report is forecast to increase nearly 2 percent in 1999, largely due to production gains in China, Canada, Brazil, and the European Union. Pork production is forecast to climb 1 percent in 2000, as increased production in China, Brazil, and Canada is expected to offset declines in the United States, the European Union, and Eastern Europe.
Pork consumption is forecast to increase 2 percent in 1999 to 76.5 million tons, due to abundant supplies and low global pork prices. The United States, China, the European Union, and Brazil laaccount for the greatest consumption gains, largely due to strong increases in production and dampened export opportunities. Consumption is forecast to increase 1 percent in 2000. Chinese and Brazilian pork consumption are forecast to increase 3 percent and 6 percent, respectively, while consumption in most of the world is forecast to remain steady or decline slightly.
Pork imports for the selected countries in this report are forecast to increase 7 percent in 1999. Strong import gains in Japan, the United States, Taiwan, and Korea are expected to offset weaker imports in Eastern Europe, Russia, and Canada. Pork imports are forecast to increase 1 percent in 2000, as continued economic growth strengthens Asian import demand.
Pork exports are also forecast to increase in 1999. Although Eastern European and Chinese pork exports continue to suffer from the loss of the Russian commercial market, U.S. and EU pork exports are boosted by food aid exports to Russia and rebounding exports to Asia. Pork exports are forecast to increase 2 percent in 2000. Canadian and Polish pork exports are forecast to increase significantly, while U.S. and EU pork exports are forecast to decline.
The pork industry has been slow to scale back production despite extremely low low hog prices this past winter. Beginning hog inventories climbed 2 percent to 62.2 million head in 1999, and pork production is forecast to reach a record 8.7 million tons in 1999. Beginning hog inventories are forecast to decline 4 percent to 59.6 million head in 2000, as producers are expected to reduce their herds in response to prolonged low prices and poor profitability. The large hog inventory and resulting increase in production are less likely to stress slaughter capacity than last year.
The structural transformation toward large hog farms has increased rigidity in the hog industry, as producers maximize capacity due to high fixed costs, and are therefore less inclined to liquidate their inventories in the short-run when prices decline. Furthermore, hog producers continue to enjoy abundant grain supplies and low feed prices, somewhat mitigating the effect of low hog prices. However, some smaller producers who survived last winter's low prices may be forced to liquidate their herds, continuing the trend toward industry consolidation.
U.S. pork exports are forecast to increase 3 percent to 572,000 tons in 1999, boosted by pork food aid to Russia and strong exports to Japan. Exports are forecast to decline 5 percent to 544,000 tons in 2000, due to strong competition from the European Union and uncertainties regarding food aid prospects. U.S. pork exports through August are 6 percent behind last year's pace at 254,073 tons (PWE), primarily due to the collapse of commercial sales to Russia and the delay in food aid shipments. Though U.S. pork exports slowed considerably to Russia, Canada, and Hong Kong, exports to other major markets surged. Excluding Russia, U.S. pork exports are 9 percent ahead of last year's pace. U.S. pork exports to Korea and Taiwan through August already surpassed last year's total export volume, while exports to Japan, our largest market, increased nearly 6 percent.
Pork imports are forecast to increase 18 percent to 375,000 tons in 1999, as large Canadian pork supplies flow south on the strength of the U.S. dollar and the lack of other overseas demand. U.S. pork imports are ahead of last year's pace, with Canada accounting for three-quarters of total U.S. pork imports. U.S. pork imports are forecast to decrease 3 percent to 363,000 tons in 2000.
U.S. live hog imports are forecast to drop 6 percent to 3.9 million head in 1999, and decline 5 percent to 3.7 million head in 2000 due to expanding slaughter capacity in Canada. U.S. live hog exports are forecast to jump 19 percent to 272,000 head in 1999, and climb 3 percent to 290,000 head in 2000 due to strong Mexican import demand.
Rapid expansion of Canadian slaughter facilities and processing plants in the western provinces of Manitoba, Ontario and Alberta have led to increased Canadian slaughter rates and decreased slaughter hog exports to the United States.
Canadian slaughter, which is estimated roughly 20 percent higher than a year ago, has translated into significant increases in Canadian pork production, and increased exports. Canadian exports to the United States, Japan, South Korea and Australia have made significant year-over-year gains, and are poised to reach record levels in 1999. Exports to the United States and Japan are 20 and 25 percent higher than a year earlier, respectively, while exports to South Korea and Australia have more than doubled. Canadian exports are expected to remain strong through 2000 given projections for record level pork production into 2001. Conversely, Canadian pork imports have fallen nearly 20 percent year-over-year in 1999 and are expected to continue to decline.
Hog trade between the United States and Canada continues to be dominated by U.S. imports of Canadian hogs. U.S. imports of Canadian slaughter hogs are projected to reach 3.9 million head in 1999, seven percent below 1998 imports, but well above the ten-year average of 2.3 million head. A shift in U.S. live hog imports from predominantly slaughter hogs to feeder pigs in 1999 may indicate a transition in U.S.-Canadian live hog trade. Some analysts believe that the 20-percent increase in U.S. feeder pig imports in 1999 may indicate a growing trend towards cross-border linkages between U.S. and Canadian hog producers. Canadian slaughter hog exports are expected to continue to decline as expansion progresses in the western Canadian packing industry.
Effective October 6, 1999, Canada implemented a revised Health of Animal Regulation which is expected to greatly facilitate the importation of U.S. slaughter hogs. While Canada had originally revised its import requirements in December 1998, onerous transportation and waste management requirements limited Canadian packer import demand and gains in U.S. trade. Analysts estimate that U.S. hog exports to Canada in 2000 may increase to nearly 50,000 head under the new regulations, as expanding Canadian slaughter capacity is expected to increase demand for hogs. Though this would represent a significant gain over total 1999 hog exports, estimated at 20,000 head, bilateral hog trade is expected to continue to favor Canada.
The U.S. and Canadian pork industries are becoming more closely integrated through increased cross-border investments in slaughter and processing facilities. A poignant example of cross-border integration is the acquisition of J.M Schnieder by Smithfield Foods in late 1998. The merging of U.S. and Canadian industries will most likely be reflected by even greater strategic coordination in allocation of resources and production, and further market penetration of products in across-the-border markets.
Mexican pork production is expected to reach 950 million tons in 1999, show no change from the 1998 production level. Production in 1999 is characterized by higher slaughter rates offsetting lower slaughter weights, small gains in domestic consumption and a trend toward consolidation within the Mexican industry. Pork production is expected to decrease in 2000, as continued reliance on higher cost imported feed grains and further consolidation within the hog sector will restrain industry growth.
Mexican industry reports indicate that higher hog prices in 1999 have not offset increased feed costs, as producers have had to pay higher prices for both imported and domestic soymeal, sorghum and corn. As a result, the trend toward consolidation within the Mexican hog sector has strengthened. Larger, more efficient producers, who have greater access to credit and who benefit from economies of scale, are better apt to survive economically and meet quality requirements demanded by the Mexican processing industry. Meanwhile, smaller-sized, inefficient hog producers continue to reduce their operations, or leave the industry altogether, due to higher input costs and greater competition from larger domestic producers and imports.
U.S. pork accounts for roughly 90 percent of Mexican pork imports. Mexico's pork imports are projected to reach 110,000 tons in 1999, roughly 14 percent more than 1998 total imports. Mexico's relative economic stability and a shortage of domestically produced pork, in addition to the quality, consistency and price competitiveness of U.S. pork, are expected to contribute to growth in Mexico's import demand. Processors and the hotel and restaurant industries account for roughly 80 percent of the import demand, with the remaining 20 percent imported by supermarket chain stores. Mexican pork imports are projected to remain stable through 2000 as domestic production is not expected to sufficiently meet demand.
Mexico's anti-dumping case against U.S. slaughter hogs remains unresolved. The case originates from a June 1998 petition filed by the Mexican pork producers council, el Consejo Mexicano de Porcicultura, alleging that U.S. slaughter hogs were being sold into the Mexican market below production costs. On February 1, 1999, SECOFI announced a compensatory duty which raised the U.S. export price to $1.08/kg ($0.49/lb), the Mexican reference price for slaughter hogs. On June 16, 1999, SECOFI revised the February 1, 1999, preliminary resolution to an applied rate of US$0.351 per kilogram (in addition to the 8-percent in-quota import tax). The new compensatory duty, based on the declared value of the corresponding Customs Import Declaration, became effective on June 17, 1999.
The compensatory duty and SECOFI's final decision in the antidumping case appears to have little impact on the flow of U.S. hogs into Mexico. Mexico's imports of live hogs from the United States increased more than five-fold in 1998 and have remained strong through 1999. U.S. slaughter hog exports to Mexico are projected to increase nearly 10 percent, as low U.S. prices anticipated in the third and fourth quarter 1999 will make Mexican purchases of higher yielding U.S. hogs more economically feasible.
The Changing Mexican Market
While Mexico is estimated to be more than 90 percent self-sufficient in domestic pork production, lack of an adequate infrastructure, distribution systems, and cold storage capacity have prevented the domestic pork industry from fully serving their market. These constraints have both helped and hindered U.S. pork exporters gain strength in the market. While shortages of quality domestic pork have stimulated demand for U.S. imports, only a few national distributors are capable of handling perishable items, and most food importers work with multiple distributors to supply regional markets.
Spot shortages of domestic pork coupled with attractive U.S. prices in 1998 and 1999 allowed U.S. pork to make inroads into the processing and retail sectors in the interior of Mexico. U.S. pork accounts for roughly 90 percent of Mexican pork imports, which is sold primarily in the duty-free border regions. In addition to distribution in the northern border area, U.S. pork exports are distributed to some major urban centers, including Monterrey, Mexico City, Ciudad Obregon, Guadalajara, and Hermosillo. Sausage and cold meat processors account for approximately 80 percent of the import demand for U.S. pork, with the remaining 20 percent purchased by supermarket chain stores.
The retail sector in Mexico continues to grow, linked to the increasing size of the Mexican middle class. Within the retail sector, supermarket and hypermart segments are growing, as is the number of convenience stores, with well-known U.S.-based chains now in the market. These changes in the retail sector are affecting consumer purchasing behavior, with their primarily middle-class clientele being more open to U.S. products and receptive to U.S. marketing techniques. Mexico has also seen strong growth in sales of U.S. consumer-ready products in Mexico's major national supermarket chains over the last five years. An estimated 36 percent of meat in Mexico is sold through retail stores, with the remainder sold through wet markets and the "underground" economy.
Both the growing reputation of U.S. pork and relative economic stability in Mexico are expected to contribute to growth in Mexico's pork imports, particularly for processing. Mexican processors, who have come to rely on the consistent, high quality of U.S. pork, are expected to continue purchasing fresh chilled and frozen cuts for further processing as they increasingly aim to fill supply shortages and cut rising domestic meat costs. Retailers are also expected to increase purchases of U.S. pork reflecting rising incomes and U.S. promotions of the healthfulness and high quality of U.S. pork. U.S. exporters have targeted loins and tenderloins as products with Mexican market potential.
China is the world's largest hog producer. Though backyard production accounts for 85 percent of the nation's hogs, commercial production is becoming more important. Chinese hog inventories are forecast to increase 2 percent to 396 million head in 1999, and climb minimally in 2000 to 397 million head. Pork production is forecast to increase 2 percent to 36.8 million tons in 1999, and climb 3 percent to 37.9 million tons in 2000. After years of rapid growth, hog production is currently constrained by low prices, resulting from slower economic growth, excess supplies, changing preferences by urban consumers, slowed exports, and growing imports.
Chinese pork exports are forecast to drop nearly 40 percent to 100,000 tons in 1999 and remain at that level in 2000, due to dampened exports to Russia. China's live hog exports are expected to remain steady at 2 million head in 1999 and 2000, with the majority destined for Hong Kong. China's total pork imports are forecast to climb 17 percent to 48,000 tons in 1999, and increase 4 percent to 50,000 tons in 2000, due to growing demand for high quality pork.
U.S. pork exports to China through August are 15 percent behind last year's pace at 2,578 tons (PWE), while pork variety meat exports are nearly 60 percent behind at 440 tons. U.S. pork and variety meats also enter China as transshipments through Hong Kong, though U.S. exports to Hong Kong are also lower this year. However, EU and Canadian exporters are increasing exports and gaining market share, largely due to a more favorable exchange rate. Canada's investment in long term technical assistance programs is also likely to have boosted exports as personal relationships and after-sale service are also crucial to Chinese decision makers.
Hong Kong's domestic pork production continues to decline, and is forecast at 157,000 tons in 1999 and 154,000 tons in 2000. Nearly 90 percent of the live swine slaughtered in Hong Kong are imported from China, with the remaining share supplied by the domestic industry. Hong Kong relies heavily on pork imports to meet consumption needs, as domestic production fills less than half of the nation's consumption requirements.
Pork consumption in Hong Kong is forecast to fall 14 percent in 1999 to 315,000 tons, and decline one percent in 2000 to 312,000 tons, due to weak consumer spending and a shift to greater poultry consumption. In 1997 and 1998, domestic pork consumption jumped, partly due to E-coli in local beef and the bird flu crisis. Consumers are returning to previous consumption patterns as the meat safety issues settle down.
Hong Kong's 1999 pork imports are forecast to decline 12 percent to 221,000 tons, due to lower domestic consumption. Growing demand in China for pork re-exported from Hong Kong is expected to boost pork imports in 2000 roughly 6 percent to 235,000 tons. China's strong demand for transshipped pork and pork variety meats is expected to continue as long as low prices persist and the unofficial transport channel remains open.
China, the European Union, Brazil, Canada, and the United States are the leading suppliers of pork and pork variety meats to Hong Kong. Since the re-introduction of EU pork export subsidies in May 1998, the EU's market share in Hong Kong has increased significantly, largely at the expense of U.S. and Chinese exporters. From June 1998 through February 1999, the EU's market share doubled from 13 to 26 percent, while the U.S. share fell from 8 to 4 percent and China's share slipped from 45 to 31 percent.
Weak pork demand overseas is encouraging suppliers to target Hong Kong with their pork surpluses. As price has always been a key factor in local procurement decisions, the relative strength of the U.S. dollar makes U.S. pork less competitive in Hong Kong. U.S. pork exports of 10,906 tons (PWE) through August are 21 percent behind last year's pace, while U.S. pork variety meat exports are nearly 25 percent lower at 10,457 tons.
Korean pork production increased to record levels in 1998 due to favorable farm-gate prices, strong export demand, and price competitiveness relative to beef. While beginning inventories increased 9 percent in 1998, slaughter jumped 16 percent in response to strong domestic and export demand. Although beginning hog inventories declined 6 percent to 6.7 million head in 1999, they are forecast to rebound 1 percent to 6.75 million head in 2000. Pork production is forecast to decline 3 percent in 1999 to 946,000 tons, and climb slightly in 2000.
Pork is a staple meat in Korea, and consumption has been rising steadily during the past decade. Domestic pork consumption is forecast to climb 4 percent in 1999 to 977,000 tons, and increase 1 percent in 2000 to 988,000 tons. Driven by the large price differential between domestic and imported pork, Korea's pork imports are forecast to nearly double in 1999 to 124,000 tons, and rise 5 percent in 2000. Though the European Union dominates the import market, the United States is expected to double its market share to 20 percent in 1999. U.S. pork exports through August of 11,906 tons (PWE) already surpassed last year's total volume. U.S. exporters should benefit from an aggressive marketing campaign for chilled pork by Korean producers, as consumers shift away from frozen imported pork in favor of domestic and imported chilled pork.
After several years of rapid growth, Korean pork exports are expected to remain steady at 115,000 tons in 1999 and 2000 as growth in Japan's imports slows. Korea exports more than 10 percent of its production, with nearly all exports destined to Japan. Korea is shifting its focus to greater chilled pork exports in order to capture the higher end of Japan's table pork market.
Taiwan's hog sector appears to have stabilized after the rapid contraction that followed the outbreak of foot-and-mouth disease (FMD) in March 1997. Beginning hog inventories fell from 7.97 million head in 1998 to 6.54 million head in 1999, largely due to a government farm buyout program aimed at helping livestock producers cope with the anticipated negative impact of meat imports after WTO accession. The program aimed to reduce pig production by 24 percent from 1998 levels. However, strong profitability is encouraging farmers to increase herd sizes, and is expected to boost hog inventories 1 percent to 6.6 million head in 2000.
Pork production and consumption are forecast to decline 1 to 2 percent in 1999, and rebound 2 percent in 2000. No significant pork exports are expected for 1999. Taiwan will not be able to claim FMD-free status for at least a few years, as sporadic and localized FMD cases have continued to occur, with the latest reported in April 1999.
Taiwan's pork imports are forecast to nearly triple in 1999 to 60,000 tons, and remain strong in 2000 at 65,000 tons, as high domestic pig prices and low U.S. pork prices ensure strong profits for importers. U.S. pork exports to Taiwan of 21,211 tons (PWE) through August surpassed last year's total exports, primarily due to short domestic supply and Taiwan's WTO access agreement. The U.S. WTO accession quota is expected to be filled, and imports of non-quota items, such as frozen picnics used in processing, have grown significantly. The United States exported 4,698 tons of pork variety meats to Taiwan though August, which is roughly equal to last year's total exports.
Taiwan established a global quota of 1,160 tons of pork bellies and 2,500 tons of pork offal for countries other than the United States beginning July 1, 1999. Though Canada and Korea may become serious competitors, European pork will not be able to enter the market until EU plants have been approved for export to Taiwan.
Japanese pork production is forecast to remain unchanged in 1999 and 2000 at 1.3 million tons. Pork consumption is forecast to rise slightly in 1999 to 2.1 million tons and remain at that level in 2000. Since Japanese pork production only meets 60 to 65 percent of consumption needs, Japan relies heavily on imports to satisfy demand. In the last two years, Japan's large pork stocks were drawn down nearly 60 percent in order to bring inventories down to more reasonable levels. As a result, imports fell as stocks met consumption needs. In 1999, however, Japan's pork imports are forecast to increase 13 percent to 814,000 tons to meet consumer demand and to avoid further depletion of stocks. Imports and stocks are forecast to remain level in 2000. According to official Japanese import statistics, Japan imported 81,009 tons of U.S. pork through June, which is 6 percent ahead of last year's pace.
Japanese chilled pork imports are ahead of last year's pace due to better than anticipated retail pork demand. Although the United States remains the largest supplier of fresh/chilled pork to Japan with more than two-thirds of the import market, Canada and Korea are expected to continue gaining market share. Benefitting from proximity and government export promotion loans and incentives, Korea is shifting its focus to greater chilled pork exports in order to capture the higher end of Japan's table pork market. Canadian chilled pork exports are gaining from aggressive branded promotions, a relatively weak Canadian dollar, and newly operational processing plants which produce pork to Japanese specifications.
Japanese frozen pork imports are ahead of last year's pace, as importers replenish frozen pork inventories for processing and imports surged when the gate price and the associated tariff were lowered slightly after April, in accordance with the Uruguay Round agreement. The EU and Canada are realizing the greatest market share gains in frozen pork, benefitting from low prices and favorable exchange rates. The pace of pork imports, particularly frozen, is expected to slow down during the second half of 1999, as processors acquire sufficient levels of frozen raw material.
Pork production in the European Union remains high in 1999, with total production projected to reach nearly 17.3 million tons, roughly 100,000 tons more than last year. Germany, Denmark, the Netherlands, France and Spain continue to be the major EU producers, with Dutch and Danish pork mostly destined for export markets. While pork production is forecast to decline throughout most of the EU in 2000, output in Spain, Denmark and Germany is projected to expand. These increases are expected to all but compensate for declines in production elsewhere, bringing total EU production in 2000 to roughly one percent below 1999. A recent proposal introduced by the Dutch government calling for limitations on the national herd size in the Netherlands could lead to a further reduction in EU production in 2000.
Total EU exports are projected to reach 1.094 million tons in 1999, slightly more than total 1998 exports of 1.093 million tons. The relative stability of EU exports over the past two years, in spite of burgeoning global pork supplies and continued economic instability in Russia, is largely attributed to the EU's most aggressive support campaign of the EU pork industry since 1990.
Export subsidies, which increased five times between late 1998 and early 1999, encouraged EU pork exports and supported EU domestic prices by lifting excess pork off the domestic market. High subsidies, which enabled the EU to significantly undercut world pork prices, led to distortions in international pork trade and likely impacted U.S. pork producers and exporters through losses in price competitiveness and market share. Current use of export subsidies is well ahead of last year's pace, with the EU already having used 35 percent of this year's commitment level within the first eleven weeks of the July 1999/June 2000 WTO year.
Private storage aid (PSA) temporarily lifted surplus pork from the domestic market and offered financial assistance to EU producers during the 1998/1999 price collapse. Unlike intervention stocks, PSA pork is limited to a maximum of six months storage, after which the product must either be released into the domestic market or exported. The release of approximately 180,000 tons of PSA pork through early 2000 is expected to negatively impact the EU pork industry by adding to already high levels of EU pork production. Pressure to liquidate pork surpluses through exports could result in a resurgence of EU export subsidies in late 1999.
Public apprehension in the EU over the impact of livestock production on the environment, animal welfare and the "consumer's right to know" have gained importance in 1999. It is expected that, as these issues continue to gain importance, they will impact pork production in the EU through increased costs of production and losses in efficiency. These issues are expected to be among the many focal points in the upcoming WTO round of multilateral trade negotiations.
The Russian hog sector continues to decline, and a recovery is not expected in the near future due to weak demand, high credit costs, and inadequate domestic grain supplies. However, the contraction of the swine sector has been tempered by government support and private sector interest in the industry. Local governments are implementing strategies to boost hog production, such as state support to small farms and the introduction of pedigree swine breeds. As a result, the contraction of the swine sector has slowed considerably.
Beginning hog inventories in 1999 were 16.4 million head, and are forecast to decline to 16 million head in 2000. Pork consumption is forecast to drop 3 percent to 1.83 million tons in 1999, and fall another 5 percent to 1.75 million tons in 2000 due to lower availability of pork products and the declining purchasing power of Russian consumers. Russian pork consumption is only 50 percent of levels 10 years ago. The processed meat sector is also declining, as it suffers from financial constraints, inadequate meat supplies, and weaker consumer demand because of lower incomes.
Russia's total pork imports are forecast to decline 7 percent to 350,000 tons in 1999, and remain at that level in 2000. Pork food aid and heavily subsidized EU pork shipments will comprise the majority of the nation's pork imports in 1999. The majority of the food aid, consisting of 100,000 tons of EU pork and 50,000 tons of U.S. pork, will be shipped in 1999 with the remainder delivered in 2000. U.S. pork exports to Russia through August of 1,050 tons (PWE) are 97 percent behind last year's pace. However, 50,000 tons of U.S. pork food aid is scheduled for shipment during September, October, and November. The U.S. pork aid consists of carcasses, bellies, hams, picnics, shoulders, and trimmings.
Imports will continue to constitute a high percentage of Russian meat consumption. Since the ruble crisis in August 1998, U.S. commercial exports to Russia have slowed to a near trickle, while EU pork exports have remained strong due to EU export subsidies accounting for up to 60 percent of the EU carcass price. High subsidies allowed EU exporters to severely undercut not only U.S. pork, but also U.S. poultry, traditionally the most price competitive of U.S. meat exports.
For further information, contact Melissa Schmaedick, (202) 720-7715 or Kim Svec, (202) 720-8252.