Canada is winning market share in China because U.S. packers and feed mills won’t remove ractopamine from feed, says American economist
Canadian pork will keep going through the front door to China while U.S. pork sneaks through back doors left open by Canada and the European Union, says a leading American hog market analyst.
American reluctance to eliminate ractopamine from hog diets and American sabre-rattling over China trade policy mean Canada will probably continue to be that giant nation’s preferred pork supplier.
“I think it’s created an opportunity for you,” Dermot Hayes, an Iowa State University economist, said about Canada’s booming pork exports to China.
“They’ll be a long-time buyer.”
As well, he urged Canadian hog farmers to examine why they aren’t receiving a premium over the average North American price because Canada is becoming the hub for offshore pork sales.
“If you’re the export hub, why aren’t you getting a premium for your hogs?” he said in a presentation during the Manitoba Pork Council annual meeting April 5.
Hayes, a long-time proponent of the argument that China will become a major sustained pork importer, said many parts of the American hog industry do not agree with him, hence their reluctance to eliminate the use of ractopamine.
“They don’t trust this market to continue,” said Hayes about major packers and feed mills in the United States.
They believe China will pop in and out of the market whenever it is short of pork, but it will not be a steady buyer similar to Japan.
Because of that, feed mills do not want to do the “deep cleanse” that would be necessary to guarantee ractopamine-free feed rations, and packers do not want to begin paying a premium for racto-free pigs.
However, Canada has gone almost entirely racto-free, so its sales to China have been booming. The EU has the same status and is also making good sales.
In 2016 China vaulted to become the second biggest buyer of Canadian pork by volume at 313,915 tonnes. By value, China was third after the U.S. and Japan, with sales worth $587.1 million
With only about 40 percent of the U.S. herd racto-free, most of the premium sales destined for China are coming from Canada and the EU. That leaves the U.S. to backfill the customers that Canada and the EU are now ignoring in order to meet Chinese demand, Hayes said.
The booming Chinese demand for pork imports will continue for at least a year and probably 18 months, he said. Whether it will continue beyond that depends on the choices Chinese hog farmers make about relocating to Manchuria in northern China.
Much Chinese hog production is in the populous regions of the country, but it is being pushed out. Chinese local and regional authorities were appalled by water pollution and the “dead pigs in the river” scandal and are forcing hog farmers on the edges of growing Chinese towns to close or relocate.
Manchuria has lots of land, grain, water and space, but farmers might not be willing to move there in order to remain farmers. Hayes said they are not moving en masse to Manchuria.
If they don’t move and production doesn’t boom in Manchuria to make up for slumping production in the central and southern regions, then China will probably remain a major pork buyer.
He said neither Japan nor South Korea wanted to become reliant upon imported pork, but they both did.
“If we don’t pick a trade war with them (China), if they don’t introduce new subsidies, it’s going to happen,” said Hayes.
North America can export pork to China because the domestic price of a live pig in China has been about double that of a pig in North America. North American pork can still bring a decent price for the producer even with a 20 percent import duty, a value-added tax and a 15 percent transportation cost.
China has been importing about 250,000 tonnes per month.
“We’ve never seen anything like this before,” said Hayes.
With the ractopamine issue ongoing, and China leery of relying upon the U.S. because of President Donald Trump’s frequent criticism, Canada is well-placed to keep reaping the rewards of premium Chinese pork sales and to leave lower-priced sales to the U.S. industry.
“China is importing so much pork and pork products from Canada that Canada is letting down its traditional customers,” said Hayes.
The best element of booming Chinese demand for North American pork is that it will allow the herd and packing industry to expand without swamping demand.
“There is room at least for the next couple of years for the expansion we’re seeing in North America to make its way to China,” said Hayes.