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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.
