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Study explores China’s impending ‘new era’ of protein

Research firm defines African swine fever as "single largest shakeout ever in the pork chain."

The National Pork Board collaborated with the U.S. Meat Export Federation and the National Pork Producers Council on a new report that digs extensively into the growing short- and long-term protein needs facing China and how U.S. pork can position itself to meet that demand, particularly as China faces the devastating impact of African swine fever (ASF).

The new report, “Pork 2040: China Market Assessment,” also reveals how the Chinese pork industry and supply chain will change as a result.

“In terms of pig numbers and production, in the space of three years, ASF will have turned the clock back several decades. It represents the single largest shakeout ever in the pork chain and heralds a new era in Chinese production and consumption of meat,” the report said.

As the future unfolds, the report said China will be the driving force behind world pork trade for the foreseeable future -- well into the long term -- driving world pork and pig prices.

The research study was conducted by global research firm Gira using Pork Checkoff dollars and funds from the Emerging Markets Program of the U.S. Department of Agriculture's Foreign Agricultural Services. It outlines critical insights that exporters of U.S. pork can use now to position themselves for long-term success in the Chinese market.

Gira estimates that pork imports alone will peak at more than 3 million tons by 2022, with offal reaching another 1.5 million tons. Imports are projected to fall slowly thereafter as Chinese production recovers and as the government tries to maintain impetus in the developing, modern industry.

“Pork is a critical part of the Chinese diet, with per capita consumption nearing 88 lb. per person per year,” said Norman Bessac, vice president of international marketing for the Pork Checkoff. “This report will help exporters position U.S. pork as the supplier of choice, thereby building value for all U.S. pork producers.”

According to the report, pork consumption in China peaked in 2014 and will continue to see a slow decline as the Chinese population grows to its highest level in 2030. As the availability of other proteins – specifically fish, chicken and beef – increases along with increased disposable income, consumers will look to diversify center-of-the-plate protein options.

The research also outlined how U.S. pork is poised to help fill the urgent short-term protein needs that ASF is creating in China due to the decrease in China’s domestic pig population. However, by 2025, China's pork production will have rebounded, and farms will have had time to rebuild and modernize. The report outlines key steps pork exporters can take now to increase exports to China in the short term and defines a strategy to meet long-term demands. A few highlights from the report include:

  • Short term – With the current ASF outbreak, the U.S. export industry will need to work hard to capitalize on the potential market share it can garner. The demand in the short term will be for pork cuts, variety meats and carcasses. Exporters also should use the benefit of time to build loyalty with both Chinese processors and consumers.
  • Long term – As 2025 approaches and Chinese domestic production rebounds, Chinese pork will replace most of the import growth seen during the ASF outbreak. However, U.S. exporters can use these next five years to build customer relationships and value around their products and to differentiate themselves as a preferred supplier in the long term.

“The Pork Checkoff is committed to adding value for pork producers,” said National Pork Board president David Newman, a pig farmer representing Arkansas. “One of the ways to build value is to expand U.S. pork exports in developed and emerging markets. This market research and future studies will help key decision-makers to define and develop these markets.”

Domestic production reset

According to the report, ASF has exploited every fault and flaw in the existing pork sector in China.

“Poor biosecurity, long-distance transport of live pigs, a shortage of veterinary staff, facilities and expertise, the national government’s desire to manage information and the local government’s engrained instinct to hide embarrassing problems -- all of these have contributed to the disastrous spread of the plague,” the report explained.

Despite the catastrophic situation, many pork sector players are viewing the crisis as an opportunity to decisively restructure and modernize the industry.

The report relayed that China’s top 10 pig producers controlled only 4% of the market in 2012, but by 2018, the share had reached 7.7% and, by 2020, is expected to be close to 20%.

“The big operations will be able to expand because they can afford better biosecurity, while smaller operations will close or be acquired,” the report said. “The government’s goal is to have the top 10 produce more than 50% of all pigs by 2025 to improve biosecurity, food safety and production efficiency.”

ASF makes this development look more than probable, creating world-level breeder and slaughterer corporations, the likes of which probably will not exist anywhere else, the report added.

The largest farm category – 10,000 head and up – has been the fastest growing and is expected to be producing more than half China’s pigs by 2030, the research found. However, some growers are saying, with ASF probably now endemic in China, the big units have become too risky. As such, smaller facilities in the 3,000- to 9,999-head category are being recommended.

While large-scale farms will be able to utilize the best modern technology, thus reducing the cost of production in China, the report said the cost still will be higher than the U.S. cost of production due to both the cost of importing feed and a lack of soft skills. This gap will close as these farms become more established, but the report said it will remain even in 2040.

“The overall Chinese pig herd will shrink by at least 25% over the next 20 years, and that will also be the case for many individual provincial herds. However, the herd’s profile by province will also change as the industry modernizes and as Chinese cities continue to develop,” the report said.

By 2030, the report said it should be known whether such a disaster could ever happen again in the Chinese meat industry.

“We believe it will be most unlikely, given the industry consolidation we are likely to witness soon,” the research firm stated.

Still, a full recovery won’t be in place until at least 2025 – or maybe a little bit earlier if an effective vaccine comes to market, it said.

All things considered, by the end of 2049, the Chinese pork supply chain should look very much like those in the U.S. and parts of the European Union, Gira suggested. The only thing that may be different is that the operators potentially may be much bigger.

The advantage China’s transformed supply chain may have over importers is that it will be more modern and perfectly adapted to the evolving needs and perceptions of Chinese consumers countrywide, the report noted.

“If any doubt persists about this forecast, the reader should look at how the top two Chinese dairies have already developed, in a market that is even more heavily reliant on imports,” the report said.

In addition to the full report, which is available at pork.to/international, the Pork Board has also created a free marketing toolkit that includes ideas U.S. pork exporters can use to build their business in China.

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