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USDA GAIN: Livestock and Products


13 March 2012

USDA GAIN: Korea Livestock & Products Semi-annualUSDA GAIN: Korea Livestock & Products Semi-annual

The swine industry is steadily recovering from the aftermath of FMD with pork production estimated at 982,000 MT, up 17 percent year-on-year. The increase in production is forecast to push imports down to 500,000 MT, a year-on-year decrease of nearly 100,000 MT. Imports of U.S. pork, though down from last year, are forecast to remain strong at 170,000 MT.

USDA GAIN: Livestock and Products

Commodities: Animal Numbers, Swine

Production:

The swine industry is steadily recovering from the FMD outbreaks in late 2010 and early 2011 where over 3.4 million hogs were culled, or one-third of the total inventories. In an effort to help the swine industry rebuild, the government created a zero duty tariff rate quota (TRQ) for 31,000 head of breeding stock in 2011 and another 5,000 head during the first half of 2012.

Meanwhile farmers are working quickly to rebuild their herds and will continue to do so throughout the year. As can be seen from the KREI survey results below, swine growers are planning to expand current herd sizes 12 percent by this coming August. In order to make this happen, farmers are increasing sow inventories, which currently stand at about 93 percent from where they were prior to FMD.

High carcass prices are also helping drive the recovery. In December 2011, the average carcass price was 6,336 per kilogram ($5.60), up 46 percent from a year earlier. Prices have, however, softened in January 2012 at 4,725 won ($4.20) per kilogram. Furthermore, according to KREI, the average carcass price is projected to come down to 4,669 won/kg ($4.10) in 2012 from 5,808 won/kg ($5.20) in 2011.

While farmers are rebuilding, the expansion in production is occurring at a slower pace than was originally expected in large part because of the short supply of sows some of which because of overuse are declining in productivity. The pig production estimate in 2012 is accordingly reduced from 14.6 million to 13.9 million head. Although down from the earlier estimate, 2012 hog production is forecast to increase 5 percent year-on-year.

Over the longer-term, it is unlikely that the total hog inventories will reach pre-FMD levels of 9.8 million for the reasons listed below, many of which are policy related changes that were introduced to reduce the likelihood of future FMD and other infectious disease outbreaks.

  • There is a short supply of sows in 2012 that will keep production in check.
  • Swine farms can no longer be located within 500 meters of a residential area.
  • Farmers are required to provide minimum barn space requirements; 1.4 square meters for a sow and 0.8 square meters for porkers.
  • The prohibition on livestock manure disposal in the open sea became effective on January 1, 2012. As of November 2011, there were 360 swine farms that were dumping an estimated 60,000 MT of manure into the ocean each year.
  • Large sized farms (e.g. 50 head of cattle or 1,000 head of swine) must cover 50 percent of the cost for FMD vaccination. The government will continue to subsidize the cost for smaller sized farms.
  • Penalties have been imposed on farmers with animals that have less than 60 percent of the FMD antibody. A recent survey shows only half of the farms met this requirement.
  • In October, 2012, Korea plans to introduce a pilot traceability program at a number of swine farms. The hogs will receive a group tracking number when they leave the farm. The government will furnish the farms participating in the trial program with the necessary technology. The traceability system will likely be expanded to all swine farms sometime in the future.
  • At the end of 2012, all breeding farms, semen collection facilities and large livestock farms (9,000 farms) will be required to obtain a business permit. Also, small sized farms, regardless of size, will have to be registered and receive mandatory training.

Slaughter:

The 2012 slaughter estimate has been trimmed down about 3 percent to 12.9 million to reflect the decrease in production. Though down from the earlier estimate, hog slaughter is forecast to increase 20 percent year-on-year.

In 2011, the number of animals marketed dropped to 10.8 million because of FMD-related culling and livestock movement controls that remained in place until mid-year. Monthly slaughter in 2011 remained below 1.0 million head for most of the year compared to 2010 when monthly figures ranged from 1.1 to 1.4 million head.

Stocks:

Post has revised 2011 hog ending inventories to reflect the Korean government’s updated data series, which was based on FMD vaccination records required for all swine. Post was previously backing out 864,000 head from the government numbers since they had had unexpectedly and without explanation increased ending inventories by this amount back in 1998.

Ending inventories in 2012 are forecast at 8.6 million head, up about 460,000 from the beginning of the year to account for the anticipated increase in production.

Commodities: Meat, Swine

Consumption:

Pork consumption in 2012 is expected to stay relatively unchanged from the earlier estimate at 1.5 million MT, which is about 3 percent higher than the previous year.

In 2011, pork consumption fell 5 percent to 1.45 million MT because of the shortage in domestic pork resulting from FMD and the corresponding changes consumer dietary patterns. In particular, consumers switched to other meat proteins such as poultry, fish, domestic beef and imported red meats. According to January 2012 from KREI, the top five substitutes for domestic pork in rank order were: chicken, fish and Hanwoo beef, duck, imported beef and imported pork.

Although more recent survey results are unavailable, the following KREI survey shows that 59 percent of pork consumption occurred at restaurants where about half the pork served is imported. Since eating out is one of the first things to go when economic times get tough, consumption of imported pork to a large extent depends on the wellbeing of the Korean economy. About 20 percent of imported pork goes for retail and 30 percent for processing.

Trade:

In an attempt to curb rising pork prices, the Korean government announced a zero duty tariff-rate-quota (TRQ) for 70,000 MT of chilled/frozen pork bellies and cuts for processing during the first quarter of 2012. The government had likewise implemented TRQs last year for select pork products. Most of the quota for processing cuts was filled, but the allocation for chilled pork bellies was far from being filled due to short supplies on the international market. The following table provides a summary of the 2011- 12 TRQ announcements.

The 2012 pork import estimate remains unchanged at 500,000 MT, but still down nearly 100,000 MT from the previous year given the recovery in the local swine industry. Although down year-over-year, imports are still forecast to remain above pre-FMD levels of 382,000 MT in 2010.

Meanwhile, the United States is expected to remain the single largest supplier of pork to the Korean market. Imports of U.S. pork in 2012 are forecast at 170,000 MT, down 11 percent from the previous year, but still higher than pre-FMD levels of 105,000 MT. The U.S. import estimate has also been adjusted to reflect the expected gains under the KORUS FTA, though some have been watered down because of the emergency TRQs. The tariff on pork, which ranges from 22.5 to 30 percent depending on the cut, will drop anywhere from 2 to 10 percent upon implementation.

The implementation of the FTA with the European Union on July 1, 2011 and scheduled implementation of the KORUS FTA on March 15, 2012 are not expected to have a major impact right away since domestic pork is still in somewhat short supply because the local industry is still rebuilding. However, the effects of the agreements will likely start showing through in the next 2-3 years.

During the second half of 2011, pork imports slowed as domestic production started speeding up. Imports reached a record 609,000 MT, of which slightly more than 30 percent were from the United States. On a product weight basis, imports of U.S. pork totaled 152,000 MT and were worth $473 million in 2011.

March 2012

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