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Hog farm barns pigs FDS operation.JPG National Pork Board

Study: ASF could carry $50b price tag for U.S.

Economists study two hypothetical scenarios to estimate potential disease impact on ag industry.

A new study conducted by agricultural economists at Iowa State University estimated that the economic impact of a hypothetical African swine fever (ASF) outbreak in the U.S. could cost the swine industry as much as $50 billion over 10 years.

Export sales of U.S. pork reached an all-time high of $6.95 billion metric tons (5.89 billion lb.) in 2019, with exports accounting for 26.9% of the market. The export market returns an average of $53.51 per head back to U.S. pork producers.

“Pork production in the U. S. exceeds domestic consumption by 25-30%, so it’s important to have export markets open, as they are imperative to the vitality of the American pig farmer,” said Iowa State University agricultural economist Dr. Dermot Hayes, one of the authors of the study.

For the study, a baseline scenario was established to represent the status quo where no ASF disease exists. Two scenarios -- a two-year scenario and an all-years scenario -- were compared to the baseline to estimate the impact of industry downsizing on the U.S. economy. The two-year scenario assumed that the U.S. quickly gets the disease under control and re-enters export markets within two years. The all-years scenario, on the other hand, assumed that the disease spreads to feral swine, the U.S. is unable to eliminate the disease over the 10-year projection period and exports never resume.

According to the study, if ASF were identified in the U.S., export markets would immediately close to U.S. pork, including ASF-positive countries such as China and the Philippines, which prohibit the importation of pork from any country with the ASF virus. In this scenario, it was estimated that U.S. live hog prices would drop 40-50% in order to sell the surplus of pork intended for export. Further, the oversupply of pork in the domestic market would lead to price reductions of other proteins, and lower demand for grain would reduce feed prices.

The long-term impacts on the U.S. swine industry are dependent on each scenario. Revenue losses for the two-year scenario would result in $15 billion in losses, while the all-years scenario would result in $50 billion in losses. In the two-year scenario, there would be minimal job losses at the end of 10 years, the study suggested. The all-years scenario, however, would mean a loss of 140,000 jobs at the end of 10 years, 22,000 of which would be lost in Iowa alone.

As for how ASF would affect the U.S. industry as a whole, the study said exports would resume before any industry downsizing would occur in the two-year scenario. In the all-years scenario, industry reduction would occur after about five years and would remain at a lower output.

“Ensuring a two-year scenario versus the all-years scenario means a $35 billion difference to the industry because we avoid downsizing,” Hayes said.

The study found that in an all-years scenario, prices would fall by about 47% during the first year but stabilize at 1.8% lower than the baseline due to the lack of pork exports. Pork revenue, the study found, would drop below the baseline and never recover.

In the two-year scenario, prices would decline by 47% but would regain baseline levels as soon as pork exports begin to recover. Pork revenue in the two-year scenario would see an initial drop but then recover to baseline levels in the last three years of the projection period.

The results showed that cattle prices, using 1,100-1,300 lb. Nebraska direct steers, would initially decline by more than 4% in the first year in the all-years scenario because meat consumers would move toward the less-expensive pork. From there, prices would start to recover over the projection period after the pork industry adjusts to the outbreak in the long run. As in the case of hog prices, the study found that cattle prices would eventually return to slightly above baseline levels. Similar results would occur in the two-year scenario, but prices would increase faster than in the all-years scenario after the initial drop because pork exports would start to recover in the third year of the projection period. In the two-year scenario, cattle prices would go back to baseline levels by the end of the projection period, results showed.

The economist found that beef production would initially decline slightly relative to the baseline in response to the lower prices resulting from the drop in domestic use before recovering to close to baseline levels. However, stronger export demand for beef from the international market due to a declining pork supply, especially in the first few years, would help mitigate the reduction in prices in the earlier years and the faster recovery of prices over the projection period.

According to the study, the impact on poultry prices and production would not be large, with broiler prices remaining close to baseline levels in both scenarios. However, like in the beef sector, the poultry sector would lose some domestic market share to the less-expensive pork, with domestic use declining by an average of 1% in the first couple of years in both scenarios relative to the baseline. After that, domestic use for poultry in the all-years scenario would be about 0.4% lower than the baseline, on average, while use in the two-year scenario would return to baseline levels.

Some of the declines in domestic use, the study noted, would be offset by increased demand from the rest of the world.

“In the first two years, poultry exports are, on average, over 8% higher than the baseline. The higher export demand puts upward pressure on broiler prices,” the study found. However, the price increase would be dampened by the lower domestic demand.

In the all-years scenario, prices will remain less than 1% higher than the baseline. As with prices for hogs and cattle, broiler prices will converge to baseline levels in the long run in the two-year scenario. Poultry production will also increase in response to the higher poultry prices and settle at about 1% higher than the baseline in the all-years scenario and at baseline levels in the two-year scenario by the end of the projection period.

Implication for the pork industry

The study results indicated that the costs associated with an ASF outbreak in the U.S. are significant and require risk mitigation and safeguards to protect against importing the disease.

“Movement data will be needed for people, pigs, vehicles, equipment and feed for each site within your operation,” Dr. Howard Hill said. “The data will need to be shared quickly with state and federal animal health officials, your veterinarian, as well as neighboring producers, to help each other contain the disease.”

Having immediate access to electronic data for all types of pig movement is a crucial step to stopping the spread of ASF. This information will be required to prove negative status of farms, so the industry can maintain business continuity.

“Keep in mind that, at any point in time, we have more than 1 million pigs on the road being transported in the United States. We need a method to quickly identify infected pigs and the pigs that have been in contact with infected pigs so they can be euthanized. This would allow the industry to regain export markets before downsizing occurs, thus saving billions in losses,” Hill said.

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