In the past number of weeks, a clearer picture around the impact of African swine fever (ASF) in China has emerged. With the outbreak intensifying across China, production forecasts have changed considerably over the past six months, on the back of a significant drop in breeding pig numbers which should lead to Chinese pigmeat imports breaking record levels over the next eighteen months.

Pig prices in Ireland

These developments have helped to boost Irish pig prices recently. Over the past two months, prices have risen by 24c/kg deadweight to €1.61/kg for the week ending 5 May, which is around 15% higher compared with the corresponding week during 2018.

Looking ahead, the latest EU piglet price indicates greater confidence within the sector, with prices almost 40% higher since the start of the year at €56/head.

However, the Chinese piglet price is 56% higher since the beginning of the year at the equivalent of €2.43/kg because of tighter suppliers and strong demand. This strengthening in piglet pricing points towards consolidation and potentially some further price increase for pigmeat producers across the European region.

ASF background

ASF is a devastating viral disease which affects domestic pigs, wild boar warthogs, and other members of the pig family (Suidae). It does not affect any other animal species and it does not affect humans. ASF has a devastating effect on domestic pigs and wild boar where it can cause mortality rates approaching 100%. There is currently no treatment or vaccine available for ASF.

Since the Chinese Ministry of Agriculture and Rural Affairs (MARA) confirmed its first ASF outbreak in the Liaoning Province on 3 August 2018, 129 ASF outbreaks have been detected. MARA reported on 23 April 2019 that 1.02m pigs have been culled in an effort to halt further spread. However, some significant under reporting of the true extent of the cull has been cautioned by many analysts given the extent of the decline in the breeding herd over the last year.

Since the start of the year, ASF has spread to surrounding territories where the disease has been reported in Mongolia, Vietnam and Cambodia. The next country that is likely to be affected is Thailand.

Drop in pigmeat production

The Chinese Ministry of Agriculture announced a 21% decline in breeding pig numbers in March 2019 compared with the previous year. This has led to downward revisions in output, where the mid-range of forecasts during January from the USDA, GIRA and Rabobank was a 5% decline in Chinese pigmeat production in 2019.

The latest estimates now range from a 10% decline (USDA), 20% decline (GIRA) to a 35% decline (Rabobank). A conservative 10% decline in output would see production fall from 54m tonnes to below 49m tonnes as seen in Figure 1. To put this into context, total Irish pigmeat production accounts for around 1.2m tonnes annually.

Increased pigmeat imports

This decrease in production should help to underpin strong import demand over the short to medium term as China comes to terms with ASF.

Many Chinese farms are not in a position to restock farms as the virus continues to spread. This development has already helped to boost EU pigmeat exports. With trade between the EU and China accounting for almost 40% of EU pigmeat exports, shipments of pigmeat increased by 13% to 275,000t for the first two months of the year compared with 2018.

Given the scale of decline forecast for Chinese pigmeat production, it seems unlikely that imports can match this deficit in production.

GIRA predicts that pigmeat imports will rise substantially to 3m tonnes during 2019 before peaking at around 4m tonnes during 2021. For the first quarter of 2019, Chinese pigmeat imports reached 334,000t as seen in Figure 2.

This implies that import demand will break record levels for the remainder of 2019 if pigmeat shipments to China reach 3m tonnes.

Alternative meat protein options

The expected decline in Chinese pigmeat production converges with relative constraints around availability of supply. This suggests some decrease in Chinese per-capita consumption of pork combined with demand for other proteins increasing in the short term.

Demand for chicken in particular has soared over the last year with prices during November 2018 reaching historic highs of 11RMB per kg as consumer fears over avian influenza subside.

Minister for Agriculture Michael Creed on the Bord Bia stand at SIAL Shanghai last week. His talks with Chinese authorities will lead to 12 more Irish factories being inspected for supplying China in August this year.

Chinese chicken output is expected to rise by 8% to 12.6m tonnes during 2019 compared with the previous year’s levels. However, production is likely to be constrained due to highly pathogenic avian influenza-related bans which continue to limit the supply of imported genetic stock into China.

Chinese demand for pork is likely to decline for the foreseeable future due to supply issues coupled with some negative perception around the safety of the product for human consumption. If consumers decided to leave the pork category on a more permanent basis, this would be a significant concern in years to come when production recovers.

Bord Bia strategy

Bord Bia’s pork strategy for China is geared towards increasing returns through a more regional focus based on insight into how specifications, consumption and supply chains vary across China’s diverse provinces.

Increased regional promotion, both offline and online, to boost awareness and familiarity with Irish product and “Brand Ireland”, supports the development of strong partnerships with key regional distributors. This ensures consistent supply into target markets, driving product through the supply chain.

Bord Bia is also targeting supply into emerging, high-value channels such as e-commerce.