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China’s beef, broiler meat imports projected to rise

Increased domestic pork production contributing to declining pork imports.

China’s beef and broiler meat imports are projected to rise 11% and 7%, respectively, in 2018, according to the latest “Livestock & Poultry: World Markets & Trade” report from the U.S. Department of Agriculture’s Foreign Agricultural Service. However, despite robust Chinese demand, coupled with stagnant or declining domestic production, the report said the opportunity for importing both beef and broiler meat from the U.S. is limited due to restrictions.

USDA FAS

On the broiler side, the U.S. is currently not eligible to export broiler meat to China due to highly pathogenic avian influenza (HPAI) restrictions, the report explained.

China’s domestic production is forecasted to fall 5% to 11 million tons for 2018. This follows declines in 2017 and 2016 of 6% and 8%, respectively, due to recurring HPAI outbreaks.

“The impact on producers has varied,” USDA agricultural economist Tyler Cozzens said. “Some report only minor impacts due to improved biosecurity, while others have incurred higher losses due to depopulation, closures of traditional wet markets and soft consumer demand.”

China’s 2018 imports are projected to be up -- for the fifth consecutive year -- to a record 480,000 tons, a 7% increase from 2017.

According to Cozzens, the U.S. was, until 2009, the primary supplier of broiler meat, with nearly a 75% market share. However, China’s imposition of antidumping and countervailing duties in 2010 and HPAI restrictions in 2014-15 constrained – and then shut off – U.S. shipments, allowing Brazil to capture the top spot as China’s main supplier in 2010 with less than a 40% market share.

“By 2016, its market share had more than doubled to nearly 90% and is expected to continue to dominate as HPAI-related restrictions limit shipments from other major supplies,” Cozzens explained.

On the beef side, the U.S. regained access to China’s beef market in May after 13 years, but USDA said market requirements will initially limit the ability of the U.S. to capitalize on trade opportunities.

“China is the world’s second- and seventh-largest beef and broiler meat importer, respectively, accounting for 13% and 5% of forecast trade,” USDA said.

In the past 13 years since the U.S. lost access due to bovine spongiform encephalopathy, China has gone from an insignificant buyer to the world’s second-largest importer, but the country’s beef industry has been unable to boost production at the pace necessary to meet rising demand. As such, beef imports have grown sharply since 2013, reaching 820,000 tons ($2.6 billion) in 2016.

USDA reported that from 2011 to 2016, China’s domestic beef production grew 8% to 7.0 million tons (carcass weight equivalent) but was outpaced by even stronger consumption growth, which rose 20% to 7.8 million tons during the same period.

“China’s production is constrained by high costs, inadequate cold chain infrastructure, lack of investment and a fragmented industry of mostly small-scale producers located inland, which is challenged to service primary consumption centers in eastern China,” USDA agricultural economist Ryan Bedford said. “Unable to fully satisfy demand with domestic production, the country has increasingly looked to the international market.”

Prior to the ban, the U.S. was the lead supplier with two-thirds of a $15 million market share. Consumers have since steadily consumed more red meat and poultry, owing to both higher individual income levels and population growth, Bedford noted.

“Although traditionally the least-consumed meat, beef consumption grew faster compared to pork and broiler meat over the past five years as rising prices for broiler meat and pork (due to lower production) made beef relatively more affordable,” he added.

According to Bedford, most major beef exporters have increased the share of their total trade sold to China over the past five years and will work to maintain these gains.

“In several cases, notably Uruguay and Argentina, China has become an essential market,” he said. “Potential U.S. exports will also have to contend with price and exchange rate differentials, competitors’ already established trade services and China’s preference for lean versus marbled beef (which is a key U.S. beef attribute).”

China is expected to import 1.0 million tons in 2018, 11% higher than in 2017. Bedford said South American countries will remain the top suppliers as Brazil, Uruguay and Argentina maintain their strong export growth. Australia, which was previously the leading exporter to China, will remain limited by its reduced supplies as herd rebuilding continues, he added. U.S. beef, on the other hand, will compete with other high-end beef supplies from Australia and Canada but will be constrained by the terms stipulated in the protocol. However, Bedford said U.S. beef’s good reputation in China may find success in upscale markets.

Pork won’t fare as well next year, the report said, explaining that China’s pork imports are projected to decline for the second consecutive year in 2018. This is the result of domestic production gains that have reduced demand of imported pork. Domestic pork production is forecasted to grow 1% in 2017 and 2% in 2018.

“Buoyed by strong returns over the past few years, Chinese hog producers entered an expansionary period during 2017, which is forecasted to continue during 2018,” USDA agricultural economist Lindsay Kuberka said.

She explained that the industry continues to undergo significant consolidation, the result of strict environmental regulations aimed at curbing pollution from swine farms.

“Producers are fewer in number but larger, as producers respond to growing production costs with increased scale efficiencies,” she explained, adding that expansion is expected to drive up pork production during 2017 and 2018 after two consecutive years of declining output.

The increased domestic production means that China’s pork imports will decline considerably over the same period. However, they will still remain above historical levels, Kuberka said.

According to USDA, the European Union, U.S. and Canada will remain the principal suppliers, competing primarily on price.

“With relatively strong demand for processing, imports are unlikely to retreat to past levels, maintaining China as the world’s top importer of pork accounting for nearly one-fifth of forecast trade,” she said.

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