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Offsetting Impact of Swine Flu: Releasing Reserves and Increased Importation

  •   9 Oct 2019
  •    Jocelyn Sun
  •   173  Views
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    Takehome:

    • The price of pork sold in China increased significantly in 2019, especially from Mar. to Aug.
    • A total of 10,000 tons of reserve pork were released into the market on Sept. 26th, to fill the gap between demand and supply, bringing the total number of released reserves of pork to 30,000 tons.
    • The first batch of Argentine pork exports to China were approved, amounting to 300 tons.

    On September 26, the Ministry of Commerce [1], together with the National Development and Reform Commission, the Ministry of Finance and other departments, released pork reserves onto the market, amounting to 10,000 tons of pork. This is the third time that the central government released pork into the market in September (the first two times were on 17th and 24th[2] respectively).

    Decoupling of Supply and Demand

    Since the beginning of this year, pig breeding in China has been affected by African swine fever, which has caused a sharp decline in pork supply, and a huge increase in price. On Sept. 24, according to the monitoring data released by the Ministry of Commerce, it showed that from Sept. 16 to 22, the price of pork reached 36.39RMB/kg. To clarify, the chart below shows the average price of pork over the last 2 years in major Chinese cities across China's 22 provinces.

    Currently, the price of pork in the Chinese market has risen a lot, meat imports have increased significantly, and frozen meat stocks remain at a high level. Going forward, the Ministry of Commerce has pledged that to pay close attention to changes in pork supply and demand and respond appropriately by releasing further reserves if necessary.

    Good News for Oversea Enterprises

    Production is no longer enough for the domestic market and China is now looking to the international market to offset the decline in domestic production. According to the latest data from GAC, China imported 182,000 tons of pork in July this year, up 13.56% from the previous month and 106.69% from the same month last year (94,000 tons more than the same month last year).

    Referring to Zhongtai Securities' research, China's pork imports surged 36% in the first seven months of this year.

    The shortage of supply is proving lucrative for some countries. For example, on Aug. 23, the first batch of Argentine pork exports to China officially set sail, amounting to 300 tons. The shipment is expected to arrive in Shanghai in early October. Argentine pork exports to China are expected to total 18,000 tons this year.

    China's pork imports from Brazil have exploded since 2018. According to GAC's data, China imported 150,000 tons of Brazilian pork in 2018, accounting for 12.5% of all imports. The price of Brazilian pork remains a major advantage offering a unit breeding cost of 6.64RMB/kg.

    Editor's Insight

    Pork dominates China's meat market making it extremely important in terms of food security.

    According to Zhongtai Securities' analysis, although China imported 1 million tons of pork in July, imports have not been able to offset the huge losses caused by the swine flu epidemic. China's total pork production last year was 54 million tons. Therefore, relying on imports to balance supply and demand is impossible. The positive impact of increased imports should not be overestimated, because the gap between domestic supply and demand cannot be eliminated in the short term and will continue to drive up the price of pork in China.

    These issues are compounded by geopolitical issues. The United States and Canada were previously two of the major exporters of pork to China (33.5% and 16.7% respectively in 2018). The impact of the trade war and other political tensions have negatively affected exports to China (meat exported by Canada also had the problem of bogus documents [3]). This means that China is likely to seek cooperation with other countries such as the EU and other South American countries.

    Reference Link

    [1] Ministry of Commerce Notification
    [2] MRM Notification
    [3] Canada investigates suspected foul play in pork shipment that led to China ban
     

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