Can the World Make Up the Shortfall in Chinese Pork?

10 July 2019

China so dominates the global pork market that it is important to ask: Can the rest of the world bridge the gap in Chinese pork production caused by African swine fever?

The short answer is, not likely, according to a Gro Intelligence analysis of pork production capacity in the rest of the world. And the shortfall caused by China is expected to last for years before the disease is contained and herds can be rebuilt.

The chart above shows how China (green line) is far and away the world’s largest producer of pork, representing about 60% of total world production (yellow line). Other major producers are the US, Brazil, Russia, and Canada (other colored lines). The USDA forecasts a 10% decline in Chinese production in 2019 due to African swine fever.

China is by far the largest producer of pork, and it consumes nearly all it produces. It has more than half the world’s hog herd and produces some 60% of all pork meat. The country has been roiling hog markets since African swine fever was initially reported to have jumped from its African origins to China’s Liaoning province in August 2018, resulting in widespread destruction of hogs. The disease’s outbreak in China is credited with CME hog futures rallying 73% in one month during February-March, before easing somewhat. Infections have also been reported from Vietnam to Eastern Europe to North Korea. The US National Pork Producers Council canceled the 2019 World Pork Expo in June for fear the meeting may spread the disease.

Chinese pork production is forecast to drop by 10%, or 5.5 million tonnes this year, according to USDA Production, Supply, and Distribution (PS&D). Other forecasters are more pessimistic. Netherlands-based Rabobank, a multinational banking and financial services company, projects China will lose 30% of its pork production this year, or 16 million tonnes. Other forecasters predict even more severe outcomes.

The US ranks second in world pork production, followed by Brazil, Russia, and Canada. Other countries make up the balance. If the USDA’s forecast for 2019 Chinese production is correct, countries other than China would have to increase their combined production by a record-breaking 16% in order to maintain global trendline growth. If Rabobank is correct, the rest of the world would have to increase production by a huge 47%. Given typical year-over-year growth in pork production is around 1.5% and the non-Chinese world has not been able to reach even 5% annual growth in the past 20 years, closing such a gap is unlikely even with additional powerful rallies.

So how much of the Chinese shortfall in pork can the rest of the world realistically fill? About 54%, we calculate. To arrive at this figure, we assumed that each major producing country would match its best year-over-year growth rate of the past two decades, collectively amounting to 7.4% growth worldwide. This would entail a standout performance by Brazil which would need to manage a 15% expansion in production, its strongest since 2002. Russia would need to expand production by 14%.

Countries outside the top five producers, collectively constituting 16% of global production, would need a 4% increase in production, the most rapid since 2006. We considered these smaller producing countries collectively in order to better control for outlying jumps in production.

Achieving these ambitious growth targets would leave a manageable global shortfall of 3 million tonnes, based on the USDA forecast for Chinese pork production. That is significantly larger than the previous record 2.3-million-tonne, year-over-year decline in 2007, caused by both a cyclical hog scarcity and outbreaks of blue ear disease. In order to fully offset China’s losses as predicted by USDA, the rest of the world would need to more than double its strongest annual growth rate.

Of course, as pork prices in China rise, consumers will look to meat substitutes. In 2018, chicken made up 16% and beef 11% of China’s total consumption of the three types of meat. Such spillover suggests China’s pork problem will be a global boon for meat, and increases to Chinese imports and domestic investment are reported to already be underway.

China’s pork trade balance is sensitive to fluctuations in its domestic production. The left chart shows exports and the right chart imports. China, represented by orange lines in both charts, could set new import records this year as African swine fever decimates the country’s hog herds. Note the spike in Chinese imports in 2016 as China restructured its pig industry.

 
Contact sales