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Blog: Will China Really Buy US Pork During COVID-19?
In 2018, the US entered a trade war with China, not satisfied with the imbalance, and implemented strong tariffs against Chinese products, targeting mostly steel. China responded with retaliatory tariffs on several agricultural specific items, targeting US pork. The tariff rate China assessed on US pork was variable, but the bulk of the tariff was upwards of 72 percent above purchase price. This made US pork non-competitive in the world market, despite US pork that is produced the most efficiently and cost effectively in the world, even considering labor costs, and on-par with Brazil's production costs.
African Swine Fever shows up in China hog herd
US pork shipments to China were harmed, but something critical happened just several months later, in August 2018. China announced to the world that it had culled the first pigs in its own hog herd on account of African Swine Fever. This put the world on notice that China could be in for significant losses in its own pork production, requiring a greater reliance upon world pork producers.
At this same time, the US was in its fourth consecutive year of record growth in its own hog and pork production capabilities. Pork producers around the world began plans to shift production to meet the greater need by China as China contained half of the world's hog population prior to Asf and was, and is, a huge importer of pork (it is not self sufficient with its pork production). But the high tariff assessed against US pork did not warrant the private purchases from Chinese importers and China's imports from the US dwindled in the wake of its own shrinking production capabilities as African Swine Fever quickly took the lives of millions of pigs on the Asian continent.
As 2019 progressed, the pork prices in China reached record highs, with the price structure in the US with the retaliatory tariff now worth the price. In July 2019, China once again set the bar strong with draws from US pork product, all the while maintaining the healthy tariff against product. Buys continued to come in from China, despite the strong tariff, yet the US was never competitive with China's other trade partners. It quickly became clear that China was buying US pork on tariff waiver with the Chinese government a huge buyer from private US companies.
China sets record for pork imported from US pre COVID-19
In November and December 2019, China set new records for pork imported from the US, despite the strong tariff still in place. This was only 30 days pre-COVID-19. As January 2020 rolled on the calendar, two major variables came into view. The first variable was the Phase One trade deal between the US and China, set to motivate China into purchasing a significant increase in US agricultural products. US producers were enthralled with the idea since 2019 was a fifth year of record growth for the US hog herd and producers were not profitable in fourth-quarter 2019.
As the trade deal was underway for signing, a new variable came in to play, COVID-19 on Chinese soil. China quickly required citizens to stay at home and not mix with the public in an effort to curtail the spread of the virus. This put a backlog into the ports for clearing product through the system as employees were scarce. China had just purchased record volumes of pork from the US in November and December and signed the Phase One trade deal with the US to purchase more agricultural goods but now was battling COVID-19 on its own.
February shipments of US pork were harmed but did not fall away. In fact, as February turned into March, China started to ease the stay-at-home requirements and were now clearing product through the ports. As March progressed, orders from China rolled onto the books in the US, while the US started to feel the restrictions of its own stay-at-home requirements.
Can the US deliver on the China opportunity?
The US now has an opportunity to ship record volumes of US pork into China but will be battling its own COVID-19 labor shortage potentials. Meat is not a known carrier of the virus and China has a need for US pork. US pork producers have product and need to get it in the hands of the Chinese. The match is an opportunity for someone, if the US can maintain continuity in its own supply chain during this time of battling COVID-19. The record orders are on the US books from the Chinese, but now the US will be challenged in delivering on the opportunity.
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