China’s meat import move risks stoking consumer anger

Canada supplied 12 percent of China’s pork imports in 2018 and even more this year, which makes the government’s decision to stop all Canadian meat imports that much more surprising.  |  Jason Lee photo

China’s rejection of all Canadian meat is a stunning act considering forecasts that pork prices there will rise 70 percent or more in the coming months, topping records hit in 2016, as its hog herd staggers under the onslaught of African swine fever.

Pork is by far the most important meat in China and accounts for a hefty portion of its consumer price index so soaring prices could lead to consumer anger and unrest, compounding the worries from a slowing economy as the trade war with the United States slows exports and production.

To cut off a major pork supplier like Canada, when American pork is already restricted by a 62 percent tariff, is like cutting off your nose to spite your face. Canada supplied 12 percent by dollar value of China’s pork imports in 2018. This year we were supplying even more.

In the first four months of this year, Canada exported $310 million of pork to China, up 80 percent over the same period last year. Beef exports to China and Hong Kong totalled $115.4 million, up 70 percent.

China’s communist leaders are unburdened by democratic norms like free elections and opinion polls but will they be able to ignore for long an unhappy population, angered by mismanagement of a crisis?

The latest problem is that China says it found fraudulent documents accompanying meat from Canada’s ractopamine-free certification program.

It is troubling if true. The RCMP and the Canada Border Security Agency are investigating the allegation and as of last week authorities had questions about whether the meat in question actually came from Canada.

China’s meat blockage must be viewed in the context of its multiple pressures on Canada, including the detention of two Canadians in China and the blocking of canola imports, to get Ottawa to free Meng Wanzhou, a top executive of China’s tech giant Huawei, now detained in Vancouver awaiting an extradition hearing on an American arrest warrant.

Canada’s farmers are feeling the pain of reduced exports but China’s people too will soon pay the price for Beijing’s hard line.

The country’s own agricultural ministry estimates that pork prices will jump more than 70 percent from the previous year because of shortages caused by the culling of the herd to try to limit the spread of ASF. The cull and other measures are having only modest success.

Inflation in China is on the boil, in part because pork prices are already almost 30 percent higher than last year at the same time and the real pork shortage won’t hit until the second half of the year. It built up a surplus of pork from herd culling in the early months of the ASF outbreak, but that is now being rapidly consumed.

China’s pork imports in May were near a three-year high and were up 63 percent from the same month last year.

In that month, it was already cutting off some Canadian exporters and had the tariff on American pork, so hog producers in the European Union and Brazil reaped the benefit. China is also pulling in meat from other South American countries, Russia and India. Imports of lamb, beef and chicken are also much increased.

Last week, China introduced new loans and incentives to hog producers to encourage them to restock their operations. Chinese officials had been previously reluctant to do that because of the threat of being hit again by ASF, lack of funds to buy scarce and expensive piglets, and the general upheaval in the industry since Beijing launched a major restructuring several years ago. The restructuring was designed to shift production from small operations in the country’s south to large ones in the north to address environmental problems.

Also last week, China’s agriculture ministry bravely said ASF is now “effectively controlled” and production of other meats such as poultry are in good supply. Poultry production is up 16 percent year on year.

However, many observers believe there will be no quick solution.

Jim Long, head of hog genetics company Genesus, which has strong business contacts in China, says the hog and pork shortage is just beginning.

ASF is still sweeping China and neighbouring countries and he says industry participants in China believe the sow breeding herd will ultimately decrease by half. An analyst with Economist Intelligence Unit believes pork prices in China will rise by 80 to 100 percent in the third quarter compared to the same point last year, significantly higher than the official forecast of 70 percent.

If China’s disputes with Canada and the U.S continue, the North American players should be able to backfill world demand that is being unfilled as other exporters concentrate on China, but likely at less profitable rates.

I should also note a Bloomberg news story that explained how China’s ban on Canadian canola and canola meal is hitting its massive fish farming sector. Much of the meal from canola in China goes to fish farmers. Canola meal prices have leapt higher since the full ban came into effect, raising the cost of producing farmed fish and likely the price paid by consumers.

Ultimately, the Canada-China situation is really an outgrowth of the key conflict between China and the U.S. over China’s place in the world, including who will succeed in the fast-developing digital economy of 5G networks and other new generation technology.

Currently, China’s leaders are willing to suffer short-term pain for what they hope will be long-term gain, but at what point will Beijing determine that the pain has become unbearable and it is time to make a deal?

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