African Swine Fever has spread throughout China over the past year, from isolated incidents, to widespread outbreaks across the country. At the outset, the industry seemed to be slow to process the devastating impact that living with ASF was going to have on the industry. Whatever vain hope there may have been that a panacea would appear, the grim reality of dealing with this risk has now fully seeped in.
While the government has moved to bring in policies to attempt to restrict the damage of ASF, such as slaughtering pigs within 3 km of the epidemic site, the industry has already contracted significantly, and now there is a shift in mindset to the new norm of pork production in China with the active threat of African Swine Fever.
The importance of pork in the Chinese diet, the importance of the pork industry to the Chinese rural economy is well understood, and therefore the stakes and commercial risks and opportunities are now very-much raised as to who can win in this lucrative market. Let’s analyse some of the key commercial opportunities that exist in both the short, medium and long-term.
Short-Term Opportunities: Pork shortages, bio-security, ASF expunging , new live pork trading routes
The result of ASF has meant that China has significantly less sows in most of its key agricultural provinces. According to MoA data, the number of reproducible sows is 29.74 million in the end of 2018, decreasing 14% compared to 2017. Of particular concern, Henan and Shandong sow numbers have tanked. Both provinces are part of the life-blood of China’s sow industry. Part of this is the direct impact of ASF, but part of it is due to the ban on the transport of live pigs across China. This was like a blow to the circulation of the swine industries ecosystem and the industry is struggling to react.
This has created larger price discrepancies between provinces, where Sichuan has been soaring and excess pork in Heilongjiang saw prices plummet over the Chinese New Year. While there have been obvious winners and losers in this new reality, the industry is quickly adapting and hedging its bets on the future direction of the industry. According to China Agriculture Outlook Report (2019-2028), it is anticipated that the overall pork price will have a rapid growth since May, 2019, and hit the peak level during New Year’s Day and China’s Spring Festival of 2020 .
With Chinese annual pork consumption normally reaching 54 Million tonnes, it is hard to give an exact estimation as to how significant the shortfall will be but looking at recent media reports and government-led actions, the first major short-term opportunity is for surging pork exports and the usual opportunities exists for US, South American and European countries. The bigger question for pork exporters is whether a new reality in China might mean that 30% of China’s pork consumption will be imported.
Anyone who follows the Chinese stock market will have noticed the exceptional growth in some of the Chinese livestock companies, such as Wen’s and Muyuan. Even in 2018, each of these major livestock companies recorded significant growth as the industry continues to consolidate, however there are many signs that these surges are over-optimistic and that the reality of their current situation is far less optimistic.
Suppliers into the swine industry in China, from vaccine producers, to feed producers to other consumables will all struggle with business in the short term. If the industry is to recover its sow numbers to anything near 30 Million sows, it will likely take place in early 2020, and no earlier.
ASF prevention measures have become a new commercial ‘opportunity’ in the short term. Firstly, biosecurity training, disinfectant solutions, even some Chinese companies have been promoting types of fermented feed that provide a guarantee of not containing any ASF (corn is one of the primary carriers and risks for ASF transmission).
It is likely that a combination of changing consumer habits and the negative consumer perceptions around ASF-infected pork will cause a slowdown in pork consumption. Also, with a sustained increase in imported pork consumption, the type of pork consumed in the daily diet may see more of a shift towards processed and frozen pork. This creates the potential for value-added opportunities for those in the processed pork business. Needless to say, ASF creates a great opportunity for other types of protein, from animal proteins such as beef, chicken and aquaculture, to the newer range of alternative protein sources that are becoming more established in Western markets.
Given China’s recent experience during the Trade Dispute with the US, it is likely that if China is to become more reliant on imported pork, China will use the One Belt One Road Initiative to develop integrated swine systems in countries using Chinese-led investment. Central Asia and Russia would be obvious locations to develop supply chains to feed China. This is already happening in beef, and ASF would propel China to take a similar route with pork.
Because China is so important to the global pork industry, there will be renewed incentives for major pharmaceutical players and indeed start-ups around the world to develop a vaccine for ASF. Current progress suggest that this will be a scientific challenge, but given the stakes and the commercial prize, the chances of a solution emerging within five years. Other options might include using gene editing to develop a resistant strain, though this seems unlikely and challenging from a regulatory perspective.
Within five years, swine integrators will have developed very stringent biosecurity measures and very swift actions to deal with possible ASF outbreaks. These practices are being developed as we speak, through trial and error by most of the large players.
Within ten years, it is likely that the Chinese swine industry will be significantly different to the one that is changing before our eyes. A worse-case scenario might be that ASF would mutate and become a threat to human health, therefore causing a huge global human health crisis. A more likely scenario might see swine farmers living with the constant threat of ASF, and solutions to eradicate become ever more mature, but global demand for pork will have been muted. A best-case scenario would see a vaccine that helps global pork producers to return to producing pork without the constant risk of ASF to destroying their business. In this scenario, it is likely that pork would still remain an important staple of the Chinese diet.
Either way, the pork industry will never be the same again!