China’s pork industry is off to a less than prosperous start in 2019, which could yield big returns for imports

It has been anything but a happy new year for Mainland China’s pork industry, which saw a Henan province-based frozen dumpling company have its stock pulled from online stores across the country last week after traces of African swine fever virus were found in products.

Elsewhere, northwestern China provinces found traces of the virus from several pork products made by a number of companies.

The news is part of a larger issue affecting the country’s domestic pork industry, which has been fighting against African swine fever for the past six months. While the virus poses no threat to human consumption, since August 2018, outbreaks have been reported in more than 20 provinces around the country, and more than one million pigs have been culled.

The virus, passed through contaminated feed or exposure to infected animals, has a near-100 percent fatality rate and there is no vaccine.

"China got so desperate for pork that in November 2018, the country started buying pork products from the United States in spite of the import tariffs," says Jimmie Jeremejev, managing director at LehmanBush. "It is the largest pork producer and consumer in the world, and the outbreak of virus is hampering domestic production."

China is home to half the world’s population of pigs. Pork accounts for two-thirds of China’s meat consumption and is considered such an important food staple that the government maintains a pork reserve.

"With the threat of African swine fever, Chinese farmers rushed their herds to market early," says Bobby Afshar, managing director at LehmanBush. "That led to a glut on the market, despite the extra demand from Chinese New Year. The result? The average wholesale price of pork in the last week of January was down 15 percent from the same period in 2018."

According to Jeremejev and Afshar, the impact for the domestic industry is really going to be felt during the second half of 2019, where the presumption is that unless the virus is eradicated from farms, a pork shortage is going to set in. This is also going to have mirror effects in the U.S. market.

Whereas the tariffs actually made pork products extremely cheap in the U.S. marketplace because of an inability to sell to China, should supply begin to thin in the Middle Kingdom, the latter half of the year will see an uptick in U.S. pork imports.

In the wake of African swine fever, China could dip into its reserves if pork production does not return to acceptable levels, but imports will have an increasing role to play in satiating China’s demand for the meat product.

The European Union and the United States are the second- and third-largest pork producing regions of the world, behind China. Additionally, the EU and the U.S. are the top-two exporters of pork.

"We expect consumption of imported pork to increase substantially in China during the 2019 fiscal year," says Jeremejev. "If you are a pork producer outside of China, the year of the pig should be extremely prosperous."