Who benefits most from China’s growing import demand due to African Swine Fever?
China is home to half the pigs in the world, and the African Swine Fever (ASF) that started in August 2018 is a perfect reminder that China increasingly should be treated as a market setter or major influencer in the global agricultural trade market. Li et al. (2019) provided an update on the evolution of ASF cases in China: Although the culled pigs remains modest at 1 million pigs, the official statistics from the Ministry of Agriculture and Rural Affairs of China show that since August 2018, China has lost at least 85 million head of hogs and almost 10 million sows (Figure 1), which is almost equivalent to the entire U.S. inventory. Several provincial reports showed a 35 - 40% reduction in hog inventory due to ASF. Currently pork still accounts for more than half of the meat consumed by the Chinese and the dominance of pork in the Chinese diet will continue for at least the next decade. The significant shortages in supply due to ASF and subsequent quarantine actions have resulted in an urgent need for China to buy meat products from the global market. This article examines how ASF in China has influenced China’s global meat and feed grain imports, and in particular, which countries benefit most from China’s growing import demand due to ASF.
China’s growing meat import demand due to ASF
An earlier article (Li et al. 2019) states that U.S. pork exports to China have exploded despite the high tariffs on U.S. pork products. Figure 2 shows that total cumulative sales of U.S. pork products to China have totaled 91,805 metric tons within the first six months of 2019, almost four times the total exports to China in 2018 (29,028 metric tons). The chart includes the period from May to December 2018 with zero exports of U.S. pork to China due to several rounds of escalations of the U.S.-China trade war (Li, Zhang and Hart 2018). As of the writing of this article, the total commitment of pork to China is at 1,805,220 metric tons for the first five months of 2019, this includes total exports plus outstanding sales of 1,713,415 metric tons. Given the high tariffs, the Chinese government is likely behind these purchases, either by directly ordering state-owned firms to buy or by waiving tariffs.
Figure 2 shows some evidence of meat substitution to chicken and beef when ASF in China understandably heightens the Chinese consumers’ concerns about the safety and quality of their domestically produced pork. U.S. beef was banned for exports to China in 2003 and this did not change until 2017 when both countries reached a new agreement. However, Figure 2 reveals that mostly because of tariffs, U.S. beef exports to China are at minuscule levels when compared to pork. Over the past 18 months, China imported broiler products in insignificant amounts, a trend that goes back to the 2009/2010 tires vs. chickens trade dispute.
U.S. didn’t get the lion’s share in China’s meat demand spurt
It would be misleading to just focus on Figure 2 and conclude that the U.S. is the major benefactor from China’s growing meat demand due to ASF, especially given the ongoing trade war. Figure 3 shows global pork and hog imports by China and even with the recent dramatic hikes in U.S. pork exports to China, the volume was less than 8% of the total pork bought by the Chinese from the global market. In particular, five European countries (Germany, Spain, Denmark, France and United Kingdom) accounted for more than half of China’s pork imports since January 2018. Narrowing to 2019 only, the U.S. still only accounted for 8% of global pork exports to China.
Unfortunately, this diversification away from the United States in China’s global agricultural imports is not a new phenomenon. This started well before the 2018 trade war. Figure 4 compares the total pork, beef and poultry exports from 1996 to 2019 from the U.S. to China, shown on the left panel, with the aggregate meat exports from the rest of the world (ROW) to China on the right panel. Unlike the previous charts, the United Nations comtrade data only contains exports data from January to May 2019 for the calendar year of 2019, and note that the imports reported by China may be less than exports reported by the U.S. in part due to transportation and logistics. Figure 4 shows that in 2001, the year when China joined the World Trade Organization (WTO), China bought more agricultural products from the United State than all other countries combined. However, over the past decade especially the past five years, the volume of U.S. pork exports has been dwarfed by competition from Europe, which was exacerbated by greater transportation connectivity between China and Europe via China’s Belt and Road Initiative started in 2013. In addition, U.S. poultry exports, mainly in the form of chicken feet, dropped to much lower levels due to the Chinese tariff retaliation in the 2009/2010 trade dispute surrounding tires. Lastly, notice the explosion of Chinese beef imports (patterned section) shown on the right panel since 2013, this beef is predominantly supplied by U.S. competitors such as Australia, Brazil, and Uruguay. This increase was the result of higher per-capita income growth in China, which led to a 20% growth in per capita beef consumption for every Chinese citizen over the past five years. Unfortunately U.S. beef was shut off from the Chinese market due to the 2003-2017 mad cow disease ban and the 2018 trade war.
ASF’s impacts on China’s feed grain demand
Another natural linkage with China’s dwindling pork production due to ASF is the subsequent reduction in China’s demand for feed grains. China currently, at best, could only produce 15-20% of soybean demand domestically. The deficit is mainly supplied by Brazil and the U.S. The 2018 trade war has further tilted China’s reliance on Brazil for feed grains. Figure 5 shows that the 25-30% reduction in Chinese hog inventory indeed led to a reduction in China’s imports of feed grains across the globe, which includes predominantly Brazilian soybeans as well as some barley, corn, and sorghum. Comparing the feed grain demand by China from January to May 2019 relative to the same period last year, which is mostly before the trade war, we found that China’s feed grain demand is down by about 15% for soybeans and almost half for soy meals. Given the ongoing stress imposed by ASF, there could be further impacts on the global feed grain and meat markets.
In conclusion, it is beneficial for U.S. pork producers to see significant growth in pork exports to China due to the substantial impacts from ASF, which has also compensated price losses from the trade war. However, a closer examination of the global meat trade reveals that Europe, not the U.S., benefits most from China’s growing demand due to ASF. This is in part due to China’s better transportation network reaching Europe via the new Belt and Road Initiative. U.S. pork, beef and poultry exports to China still have significant room for growth, and a trade deal with China would be a valuable first step.
Minghao Li, Tao Xiong, Yongjie Ji, Dermot Hayes, and Wendong Zhang. 2019. "African Swine Fever in China: An Update." Agricultural Policy Review. Winter 2019 Issue, Center for Agricultural and Rural Development, Iowa State University.
Li, M., W. Zhang, and C. Hart. 2018. "What Have We Learned from China’s Past Trade Retaliation Strategies?" Choices. Quarter 2.