China’s pork consumption has dropped by 10-15% year to date, driven by food safety concerns related to the African swine fever (ASF) outbreak, according to a Rabobank report.
While the losses in China’s pig herd due to ASF are very difficult to estimate, Rabobank said they range from 20% to 70%. Data from China's Ministry of Agriculture & Rural Affairs (MARA) pegged the sow herd as being down 22% through April, but Rabobank said this is one of the most optimistic estimates it has seen.
Still, hog and pork prices struggled in April and May after a brief surge in March, which the bank said raises significant questions about the size of the herd.
“Two obvious explanations for the stagnant price performance include the panicked release of frozen pork from storage before the mandatory authority inspections start on 1 July and panicked hog liquidation in some newly disease-affected regions in the south,” noted Chenjun Pan, Rabobank senior analyst of animal protein. “In our view, however, the more likely explanation, albeit one that can be easily overlooked, is declining consumption.”
Rabobank believes pork consumption in China has been weak due to consumer and processor concerns over food safety, Pan added.
According to MARA, hog slaughter by large-scale slaughterhouses in the first four months of 2019 was down 8% year over year. However, given the circumstances, Rabobank said it should have dropped by about 10-15% in the first four months of the year.
Since pork prices have been flat, which Pan said suggests that supply and demand are relatively well balanced at the moment, Rabobank was able to estimate that consumption is down by 10-15%, on average.
Rabobank said it believes the changes in pork consumption vary greatly between the different channels of the supply chain.
“In general, retail channels are relatively resilient to the implications of ASF, while the B2B [business-to-business] channels – food processing and foodservice – have seen the strongest response to ASF,” the bank explained.
Those channels, according to Rabobank, have watched consumers shift from pork to poultry or other animal proteins.
As such, Rabobank said chicken breast meat has seen large price increases this year, up 44% year over year in May. In contrast, the prices of beef, sheep meat and chicken meat in food retail markets have increased more modestly, up 6%, 11% and 8%, respectively, on the year.
This implies that pork substitution is mainly occurring in B2B channels and is largely based on the consumers’ perceived food safety concerns, Pan said.
Further changes expected
While the consumption changes so far have been due to food safety concerns, Rabobank said this is only one driver of reduced pork demand. The other driver will be price.
“As the price factor driver is not yet in the market, we see scope for further changes in pork consumption in 2019,” the bank said. “We believe price will influence overall consumption levels and the preference for imports over locally produced pork (with demand for imported pork set to grow).”
As with food safety concerns, the report said the response to higher prices will differ between the various channels.
“Looking forward and reflecting on the current situation with ASF and our outlook for its impacts this year and next, it is possible that we have seen the peak in pork consumption. We hold the view that it will take over five years for China’s pork production to recover fully from ASF. This will be time enough for consumers to get used to less pork and more other proteins in their dishes, accelerating the trend away from pork consumption as seen in recent years,” the bank said.
Even with the declining pork share, though, Rabobank still believes pork will remain a major protein consumed in China.