“China’s share of beef, chicken and pork trade is going to grow more strongly than we had anticipated. It is the dominant player in pork, it is going to represent close to 40% of global pork trade in 2020; it has become the dominant importer of beef, with around one quarter of all beef imports, and although it is not the largest importer of chicken meats, it is certainly in the top few, along with Japan, the UK and Europe, etc. But when you put all of that together, it paints a picture of strong market dominance.
“To date, China has only used that dominance for tactical reasons, to put downward pressure on price. The question in my mind is when China starts using that dominance in trade for other political reasons as well. And we may see that starting to emerge as China picks winners or pushes others to the side as suits its political as well as its economic agenda,” said Justin Sherrard, global strategist, animal protein, Rabobank.
He was presenting, as part of a Hamlet Protein hosted webinar yesterday [October 15], on the opportunities and risks arising out of the COVID-19 crisis for the global pork industry.
Herd recovery in China
Sherrard also tempered the more optimistic outlook being presented in some quarters about swine sector recovery in China.
“We think China’s production will be up by around 10-12% in 2021, on 2020 levels, still a long way down on where it was in 2017-2018, when it was over 54m tons; next year, it should get to around 39m tons, still a long way down on those earlier levels, but starting on the road to recovery,” said the animal protein market strategist.
Full recovery of the swine herd will likely be in 2024 or 2025, he said.
There is, however, great confidence on the part of the larger pig farmers in China that they can deal with biosecurity issues – an indicator of that confidence is the high level of breeding stock imports into China, up on 2019 levels, with continued growth seen in the third quarter of this year.
Outlook for EU, the US and beyond
Looking beyond China, he sees stable growth in European pork production, with that growth ticking down somewhat next year due the outbreak of African Swine Fever (ASF) in Germany.
“In truth, that [German ASF outbreak] is just accelerating [a trend] that has been going on for a couple of years, where we have seen ongoing pressure on volumes. In Europe, for anyone involved in the pork value chain, it is about how to add value, it is about growing margins, not necessarily the volumes.”
In North America, the US in particular, production will be mostly flat, overall, this year, but Rabobank sees positive momentum for that market going into 2021.
In the largest pork producing country in the Southeast Asian region, Vietnam, Sherrard flagged up the reasonably strong rebound in production there, particularly in the second half of 2020. “We actually see production this year coming in just slightly under 2019 and starting to grow next year.”
Brazil’s pork exports have had a great year. Despite those tailwinds he noted some obstacles to growth in that market stemming from feed prices, weather related risks, currency movements and stubbornly sluggish domestic demand.
Ongoing margin squeeze
Looking at the impacts of the COVID-19 pandemic, the analyst highlighted the strong food retail sales for the past six months; US and European food retailers do not want to give up gains made in 2020 and they will now look to strip back prices and focus on value, he said.
“The retailers are going to put pressure all along the supply chain to cut costs.”
Processors and packers are going to feel that, on top of the investments they will be looking to make in their facilities to optimize safety for their workers, noted Sherrard.
“So we are going to see much more margin pressure coming along the supply chain before we even talk about the reality of the recessionary environment that we are in at the moment.”
Recovery in the foodservice channel is going to be slow, particularly as lockdowns take effect again, he said. “Perhaps, it won’t be until 2022 that we get back to 2019 levels."
As the e-commerce trend continues and as online data analysis of consumer behavior starts informing production, innovation is going to be increasingly important to strengthen stakeholder connections all along animal protein supply chains, commented the analyst.
He also touched on sustainability trends, and growing threats to the global meat industry's reputation. The analyst noted an increasing lack of public trust in the meat sector, particularly after the picture painted in the media of meat plants as COVID-19 hotspots. Consumers are asking whether there is enough meat industry scrutiny, he said.
Previously, the meat industry’s answer was to go on the defensive, to say consumers were not being given the real facts. But that won’t cut it anymore, said Sherrard. “It is a question of who consumers, the public, and governments choose to trust.”
A shift is on. Sustainability is becoming a critical industry driver and a priority for retailers; it is trend that no stakeholder can afford to dismiss. “We are starting to see sustainability commitments firming up all along the supply chain.”