Can our pork find new buyers?

The European pig sector is struggling with historically low prices, which hinders the entire chain. Although the causes are diverse, the sudden absence of Chinese buyers is one of the main reasons for the weak price formation. Boerenbusiness made an overview of the vulnerable European export position compared to the more diversified US. We asked meat trade insiders about the current state of affairs and the prospects (including value-added products) on the global market.

Players in the European pork chain are looking with disbelief at the excellent position of their American peers. There is also concern about the waning export to China, but other destinations have absorbed the volumes well so far. Although exports to China have brought in a lot of money in recent years, at the same time the dependence on this destination, and therefore the risk, has become greater and greater. China's share of total European pork exports rose from 35,6% in 2017 to 61,6% in 2020. Now that demanded volumes from China are declining, a huge amount of meat has to be re-purposed.

United States spreads pork widely
Exports from the United States to China have also grown in recent years, but not to the same extent as here. China's share of US pork exports grew from 20% in 2017 to just under 35% in 2020. In volume, that was an increase from 496.000 tons to 1.035.000 tons. US pork exporters also have strong positions in a number of other destinations. For example, a lot of meat is exported to Mexico, Japan, Canada, Central and South America and South Korea. An overview of the most important destinations for the US.

From January 2021 to August 2021, exports to China fell by about 20% compared to the same period last year. This means that a different destination had to be found for more than 150.000 tons of meat. Total US pork exports rose 1%. Mexico in particular is increasing imports considerably.

Europe dependent on China
As mentioned, the focus of European exporters in the past year was increasingly on the Chinese market. In addition, the other important export destinations are almost exclusively Asian countries. European pork exports to China increased from 1.344.000 tons in 2017 to 3.342.000 tons in 2020. Below is an overview of the most important destinations in 2019 and 2020 for the EU countries.

Although the most recent figures still show an unchanged export volume to China for the period January 2021 to July 2021, this is mainly due to large quantities of meat exported in the first months of this year. In recent months, exports have been at a significantly lower level than last year.

Should the export of pork to China move in a similar trend to the US (-20%), then a new destination will have to be sought for almost 700.000 tons of pork. This volume may be even larger, because pork production in the European Union has also risen sharply this year.

Can other sales markets offer a way out?
The built-up dependence of European exporters on the Chinese market raises the question of whether they have bet too much on one horse in the past. Have the (short-term) returns achieved in China slackened the focus on further strengthening the export position internationally?

We spoke to a few medium-sized Dutch meat traders (who wish to remain anonymous) who export a lot abroad. They indicate that almost everyone has been tempted by the high prices. "But the turnaround came faster than expected. Many parties are suffering, the stocks are enormous, Chinese importers also have a lot of product," said one of them. Another trader also reports that the focus may have been too much on the short term. “While it is not wrong that we took the opportunities that presented themselves, some companies should have had a better long-term plan. I have been doing business in the country for several decades and it has been clear for a long time that governments are moving towards greater self-sufficiency. Some parties should have anticipated this better. We also see that backdoor constructions via Hong Kong, which were widely used in the past, are now being pinched by the Chinese authorities. They radiate very clearly: we are saving ourselves." 

It is also said that it is difficult to find new markets for such large volumes. A trader from the middle of the Netherlands explains: "From the past we were mainly dependent on Russia. We saw the impact in 2015 when this market disappeared. Fortunately, from that time on, China as a sales market also increasingly came into the picture. In 2016 and 2017 pig farming has already benefited from this. The outbreak of African swine fever brought a new wave of demand. However, that demand has suddenly disappeared and I don't really see where we should tap new markets for these volumes in the short term. Russia is now also an export country and China will not be back on the market for the time being. Only the by-products are still deducted here, but the prices for, for example, legs have also halved in a short time from more than $4 per kilo to about $2 now. In addition, batches of meat (by-products) from Slaughterhouses that are not certified for China are hardly for sale at all.We might then be talking about some African destinations where plants can be planted for $0,25 p kilos to disappear. We are very dependent on China."

Another trader also reports that the loss of a market with 1,4 billion consumers is not easy to absorb. "That's an illusion." However, according to this source, we as a sector must fully focus on more diversification in our export position. Although there are limits in that regard as well. "Everyone is trying that now, you can guess what that does to prices in these other destinations."

For the short term, sales markets in South America seem interesting to place some volume. The United States has long benefited from significant demand from this continent. Yet this is not a sustainable solution for European exporters, one party reported. "The United States is currently struggling with a relatively small supply and high prices. Slaughterhouses from Spain and Germany in particular are now placing reasonable volumes (meat in the bone) in countries on the American continent, albeit at low prices. "Spain supplies Mexico and Germany in particular to countries further south in America. However, I think this is a temporary solution. If the United States can offer lower prices again, these countries will order meat there again. Our costs for shipping are namely four times higher than for an American who has a container ship depart from Los Angeles. The overcrowded market here shows that we can now supply this meat cheaper than exporters from the United States."

Limited potential to realize added value
The question then remains what the possibilities are in the global market for the longer term. For example, can we recapture new markets with added value? According to most parties, this is an extremely difficult story because for the majority of the market cost is leading. In addition, reference is made to the risks of animal diseases. "We can all invest in markets 20.000 kilometers away, but what if African swine fever breaks out here tomorrow? Road market, and effort. Of course, demand-driven concepts can be realised, but these volumes are nowhere near the European pig market The market is now looking for a new balance, there must be less production for better prices."

From a different angle, a slightly more nuanced sound can be detected in this area. This source mentions the importance of a strong international presentation as a country. "In markets such as China, which remain important for by-products, it is really important as a sector that you can guarantee certain matters, especially in the field of food safety (chain control from seed to pork chop). This is important to remain an interesting trading partner. However, , don't expect that you can earn a dime more with that. It will be a precondition to remain active in this market." 

Working towards a healthier degree of self-sufficiency
Therefore, these insiders do not see much benefit in creating real value-adding concepts for these destinations. In the long term, however, exports remain important, especially for square footage. There will also always be destinations that purchase more luxurious parts, temporarily or otherwise. Nevertheless, the common thread in the opinions is that a focus on the markets in one's own environment probably offers the most stable future prospects.

Only a shrinking supply will be able to restore the balance on the export market. As one trader concludes: "We have to move towards a 'healthy' degree of self-sufficiency at European level. There is room for exports, but we should not depend on it to such an extent that we hit each other in periods like this. It does not seem unlikely to me. that Brussels will play a role in the future in achieving a smaller sector, also in the context of the climate agreements. From my field of expertise I don't like to say this, but it is the reality."

Steve Wissink

Stef Wissink is an editor at Boerenbusiness and writes about current market developments in the dairy and pig market. He also follows Dutch and international agribusiness.

s.wissink@boerenbusiness. Nl

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