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Pork Industry Overview, February 2003: Korea, Hong Kong, Japan and China

by 5m Editor
17 February 2003, at 12:00am

By USDA, Foreign Agricultural Service - This article provides a summary of pork industry data from the USDA FAS Livestock and Products Semi-Annual 2003 reports for Korea, Hong Kong, Japan and China. Links to the full reports are also provided. The full reports include all the tabular data which we have omited from the summaries.

Korea, Peoples Republic of - Market Outlook 2003

Situation and Outlook

The swine sector confronted two major obstacles that dashed swine farmers’ hopes of resuming pork exports to Japan in 2003.

In May 2002, just as Korea had sent the first shipment of pork to Japan, there was an outbreak of Foot & Mouth Disease (FMD). This was the first case since eradication of the first outbreak in 2000. Since the outbreak was confined to a few selective areas, Korea chose not to vaccinate the animals against FMD. The success of the eradication program and avoidance of vaccination enabled Korea to declare itself as free from FMD during the OIE meeting in October 2002.

However, on October 7, 2002, there was an outbreak of classic swine fever (CSF) in a remote island. The diseases soon spread to the mainland. Korean authorities decided to vaccinate animals against classic swine fever. As a result of using vaccination to eradicate CSF, pork exports to Japan will be precluded throughout 2003. Small amounts of Korean pork will likely be exported to Russia and the Philippines.

Pork production which had been expected to supply the export market ended up in stocks and was carried over into 2003. As Korea prepares for resumption of exports in late 2003/early 2004, we expect to see high stock levels up to the end of 2003. Since most of the export cuts that go into stocks are cuts unpopular in Korea, such stocks are only likely to be substantially dropped through resumption of exports to the Japanese market.

The enhanced price advantage of imported pork resulting from the appreciation of the Korean currency against U.S. dollars will be diminished by abundant domestic supply. However, even with high inventory levels, Korea will need to continue to import specialty cuts, such as pork bellies and boston butts.

Herd expansion is projected to wane in 2003 as the economy softens and as the oversupply of pork production that was driven in anticipation for resumption of exports ends up in stocks. Small sized farms growing 1 - 4 head of swine contributed substantially to increased inventory. As pork prices begin to drop due to oversupply, these farmers can easily and are likely to move out of production. Such restructuring will continue throughout 2003 until the last quarter of 2003 when Korea again prepares to resume pork exports to Japan.

The Ministry of Agriculture & Forestry assistance to the swine sector in 2003 includes the following programs:

  • Support for Assay Testing: This program is designed to encourage swine farmers to participate in a national assay testing program to improve the genetics of Korean swine and to prepare for the reopening of the export market to Japan. The program provides 3,200 won/head ($2.74) for a third-party assay test, and 2,300 won/head ($1.97) for a self-administered assay test. The program also provides 25,000 won/head (around $21) for breeding boars that are tested and 8,500 won ($7.26) per head for PSS genetic tests. For 2003, the program budget is 584.5 million won (approximately $500,000), targeting 46,100 head of swine.

  • Loan for procurement of raw ingredient pork: This government loan program provides low interest loans to meat processors to procure pork for processing. Loan terms include an interest rate set at 4 percent per annum and a balloon payment on maturity (i.e., one year loan). For 2003, the program budget is 37,590 million won (about $32 million), targeting a total of 300,000 head of swine.

  • Fund for Production of Standard Swine (export grades): The loss of export markets after the FMD outbreak in 2000 resulted in MAF discontinuation that year of the direct payment program for export grade swine. Presently, MAF provides production loans to farmers supplying swine to export firms. Loan terms include an interest rate set at 4 percent per annum and a balloon payment on maturity (i.e., one year loan). For 2003, the program budget is 29,280 million won (around $25 million) targeting 732,000 heads.
Under a separate program, in 2003 the Korea Swine Association (KSA) plans to accumulate a total of 5,336 million won (about $4.56 million) under a check-off program. The funds collected through the check-off program will be used in promoting pork consumption.

Korean language web sites of interest (some contain limited information in English):
Ministry of Agriculture & Forestry: www.maf.go.kr
National Agricultural Products Quality Service: www.naqs.go.kr
National Agricultural Cooperatives Federation: www.nacf.co.kr
Korea Swine Association: www.koreapork.or.kr

The conversion factors used for converting a carcass to a boneless weight is 1.25 for pork, 1.36 for beef.

To view the PDF report and tables (ideal for printing) Click Here

Hong Kong - Market Outlook 2003

Production

There has not been any significant changes since the last report.

No foot-and-mouth disease cases were reported between July and September 2002. Pigs are routinely vaccinated against Type O foot-and-mouth disease Some farmers also vaccinate their pigs against classical swine fever. The number of pig farms in Hong Kong remains around 300.

The total pig production for 2002 declined by 11%.

The influx of chilled pork from Thailand is the primary cause. Chilled meat is brought in by air and sold as fresh pork. In view of this malpractice, the Hong Kong government amended the condition for granting a retail licence by requiring that all chilled meats have to be displayed in refrigerators. Farmers complained that some retailers do not observe the new regulation and continue to sell Thai chilled meat as fresh pork. They said that the government has not effectively enforced the regulation causing losses for farmers.

When demand for fresh pork slackens, wholesale prices of pigs drop correspondingly. Wholesale prices of live pigs have declined 30% since 1998. Farmers have therefore tended to lower production. A representative of a local livestock association said that the wholesale prices of pigs have stabilized recently. If the condition continues, the production for 2003 may arrest the declining trend and stay at the 2002 level. Given the high operation cost of farming in Hong Kong, it is very unlikely that the number of farms or local production will increase in the future.

Hong Kong’s self-sufficiency ratios for live pigs and cattle remain at 26% and 0.3% respectively.

Consumption

Subsequent to the May 2001 price war over fresh pork launched between two major food retailers, Wellcome and Parknshop, the market share of fresh meat between traditional wet markets and supermarkets has experienced significant changes. According to a survey, Parknshop’s market share of fresh-meat sales rose from 7% in the first quarter of 2002 to 13.8% in the third quarter. Wellcome, too, increased from a 3.7% to 5.7% share in the same period. Accordingly, wet markets saw their combined share in the fresh-meat category falling from 87.1% to 78.5%.

Consumption of both beef and pork in Hong Kong is generally stable. In 2002, beef and pork consumption declined slightly by 2% and 1% respectively. For 2003, both beef and pork face strong competition from China’s chilled chicken products. China started to supply chilled chicken products to Hong Kong starting December 2002.

Supermarkets offer these products at very attractive prices. They are sold at around HK$27 (US$3.40) per whole chicken. Compared to pork and chicken, beef is not as popular for Chinese dishes. Thus, 2003 beef consumption is expected to drop 1% to 83,000 MT, while pork consumption may grow modestly by 2% to 428,000 MT.

Another expected trend for 2003 consumption is that consumption of chilled/frozen products will increase relative to consumption of fresh meats. This change in consumption pattern has been evolving over several years and is expected to continue. This phenomenon is particularly noticeable for pork. In 2002, the consumption of fresh meat declined 11% while that of chilled/frozen meat increased 5%.

Trade

Hong Kong’s overall pork imports from all sources in 2003 are forecast to rise modestly by 2% reaching 280,000 MT.

The forecast is based on the assumption that chilled meats from China will not yet be available in Hong Kong next year. If an inspection protocol is reached, the import level may be higher because many consumers are very likely to replace fresh pork with chilled pork from China due to price differences -- see Policy section.) Pork is a popular staple meat variety for Chinese, and Hong Kong is a mature market for many products including pork. A surge in pork demand is very unlikely.

In recent years, chilled pork from Thailand has affected the retail sales of fresh pork. In the first 11 months of 2002, Thai chilled pork imports jumped 28%, following a 48% surge from 2000 to 2001. Chilled pork from Thailand will continue to rise in 2003 provided that chilled pork from China is not yet available in the market.

For frozen pork, China is the leading supplier for the Hong Kong market. Its market share has expanded from 33% in 2001 to 39% in 2002. Following the elimination of Ng Fung Hong as the sole agent of China’s frozen meat exports to Hong Kong, Hong Kong’s imports of China’s frozen pork rose 20%. Hong Kong importers had to pay a 3% handling fee to Ng Fung Hong in order to bring in China’s frozen meat products. This fee has now been eliminated. With the new policy effective January 2002, China’s pork products have become more price competitive and exports to Hong Kong have risen accordingly.

In Jan - Nov 2002, the average price of China’s frozen pork exports declined 15% compared to the same period in 2001. The average price of China frozen pork in 2001 and 2002 stood at $1.72/kg to $1.47/kg respectively. China’s frozen pork exports are forecast to rise in 2003 as Hong Kong’s fast food chains and restaurants continue to create a high demand for price competitive cuts. Popular cuts from China include fillet, loin and butt.

US pork occupied a small and unique market segment in Hong Kong due to its expensive price. US pork loins are supplied to very top-end restaurants in hotels. The average price of US pork increased 15% from $1.92/kg in 2001 to $2.20/kg in 2002. Hence, US pork exports to Hong Kong’s dropped 33% to 4,601 MT for the first 11 months in 2002. US pork imports to Hong Kong depend very much on price competitiveness.

Re-export to China

Hong Kong’s pork re-exports to China include mainly hocks, brisket bone, neckbone, front and hind feet, etc. Imported US loins are too expensive for the China market. Pork offals including ear, tongue, stomach, and kidney are major re-export pork items to China. The U.S. continues to be the leading supplier of pork offals to China.

The demand for offals in 2003 is expected to be strong, but very likely to be less than in 2002 because China has been increasing its pork production so the domestic supply for offals will increase correspondingly. China has had more processing plants established with imported equipment, which are capable to produce cuts similar to imported ones.

Traders commented that China’s demand for imported offals will continue to be strong but the growth rate will be less significant in the long run as a result of increased domestic supply. With regard to suppling countries, buyers in China do not really care since price is the dominating factor in all procurement decisions.

China’s implementation of new administrative measures on meat imports has severely impeded Hong Kong’s re-export trade to China. In the second half of 2002, China started to implement two new administrative measures on imports.

First, the Chinese government requires the permit to include consignee’s name, plant number and product name.

Second, each consignment has to carry bilingual labels on the cartons specifying product name, plant number, etc.

According to traders, the new measures have hurt their business. Companies shipping consignments to northern destinations such as Shanghai through official channels have to comply with the regulations. It is difficult to obtain a permit, and even when one is obtained, they cannot switch to another buyer because the plant number has been stated on the permit. In connection with the bilingual labeling, not every exporter is willing or able to do so. Consequently, Hong Kong traders find it difficult to ship US products directly to ports in the northern part of China.

The new administrative measures indirectly encourage Hong Kong traders to move their products to the southern part of China through transport companies. Transport companies try to have a number of permits in hand first and will change the packaging of consignments accordingly to match the plant number being stated on the issued permits at an additional cost of RMB200 to RMB300/MT. Similarly, packaging can be changed to provide bilingual labeling to comply with import regulations. In general, US exports still have access to China through services provided by transport companies.

Nonetheless, the new import regulations have negatively affected trade. According to the new regulations, a permit must state clearly the cuts, for example, tongue or kidney, versus in the past, a permit simply stated offals. The scarcity or unavailability of the "right" permits has made trade very uncertain, resulting in significantly reduced trade volume.

Also, traders find it difficult to estimate operating costs. Transport fees fluctuate greatly, depending on the availability of permits. The cost could be lower if an available permit already matches the plant number of the consignment. If no permits with the right plant number are available and the trader prefers to wait for a permit instead of changing the packaging, he may need to pay expensive storage cost in Hong Kong. Sometimes, there are no permits available at all even if traders are willing to pay expensive transport fees. Consignments simply sit in Hong Kong warehouses indefinitely. The transport fee for offals can vary by RMB1000/MT when the average cost is about RMB3000/MT.

Traders can miscalculate the situation and suffer big losses. With such high risks, traders tend to be very conservative in making orders.

Policy

There has not been any significant change since the last report.

At present, China has not yet started to supply chilled beef and pork to Hong Kong, pending an inspection protocol between the Hong Kong and Chinese governments. Considering the lower prices of chilled products from China once a protocol is reached, many consumers are likely to opt for the more economical chilled pork from China.

The government has not set a timetable as to when chilled products from China will start to move into Hong Kong. Apart from considering the technical issues concerning the inspection protocol, it also takes into account the interests of the local industry. When chilled products from China are allowed to sell in Hong Kong, the demand for local fresh pork will be adversely impacted. The livelihood of the local swine farming industry will be at stake.

To view the PDF report and tables (ideal for printing) Click Here

Japan - Market Outlook 2003

Weaker Consumption and Stagnant Import Demand in Store for Japan’s Pork Market in 2003

Compared to 2002, the outlook for Japan’s pork market in 2003 is less than stellar. Demand is expected to weaken as beef consumption recovers, eroding strong BSE-related demand for pork. Consequently, pork imports are forecast to fall by10% to 993,000 MT.

Imported chilled pork is expected to face stiff competition from cheaper domestic table pork. Demand for frozen raw material pork (for processing) is forecast to remain relatively unchanged in 2003. However, import demand for frozen pork will remain stagnant due to large stocks that have been accumulating since August 2002.

Late in 2002, there was speculation that large volumes of frozen pork from the European Union would enter the Japanese market once the current safeguard is lifted in April, 2003, again triggering the pork safeguard. However, trade sources now believe that weaker demand, low prices, and large stocks, will prevent such an influx. In fact, industry sources think the weakening market outlook will prevent Japan’s pork safeguard from triggering during the first quarter of JFY 2003 (April-June), unlike in 2002 and 2001 when the safeguard did trigger.

Stiffening Competition for Branded Pork in 2003 Due to Adoption of Traceability and Certification Programs in the Retail Sector

Branded pork products are expected to increase in 2003 as retailers adopt voluntary traceability and certification systems in response to consumer concerns about food safety and mislabeling. Domestic producer groups and associations are reportedly considering these programs as a way to increase demand for their products.

Japan’s Pork Market Update 2002

Relatively Strong Demand for Pork Favored Imports from Denmark and Canada in 2002
Based on January - November trade data, 2002 pork imports are forecast to increase by 9% to 1.105 million MT (774,000 MT on customs clearance basis).

Denmark and Canada are expected to make gains while imports from the United States should remain relatively unchanged at 240,000 - 245,000 MT (customs clearance basis), causing the U.S. market share to drop slightly.

Despite imposition of the pork safeguard earlier in the year, frozen raw material imports strengthened in 2002, benefitting Denmark and Canada. Japanese retailers also reportedly diversified suppliers of chilled pork in 2002, benefitting Canadian suppliers.

To view the PDF report and tables (ideal for printing) Click Here

China, Peoples Republic of - Market Outlook 2003

Situation and Outlook

This report includes no substantial changes in projections vis-a-vis September’s Livestock Annual (CH 2044). Post only notes that pork export volumes to Russia have been even greater than had been anticipated. This combined with continued good sales to Hong Kong should keep pork exports in 2003 at least at 2002 levels. On the import side, beef imports continue their strong growth.

Concerns over quarantine restrictions continue to make traders nervous. In recent months China has reduced its use of import inspection permits to unduly limit imports of pork and beef offal. However, the industry is very concerned about new labeling requirements promulgated in September.

In particular they feel a print-on-the-box labeling requirement that comes into effect April 1 is not standard international practice and will significantly raise costs. This could reduce imports. Trading partners are in consultation with China to see if an acceptable alternative can be found which will avoid any trade disruption.

As noted in the annual, tariff rates have dropped significantly in 2003 (see tables ). This should help to at least direct more import trade from gray to legitimate channels - a process that has already been occurring over the last several years.

To view the PDF report and tables (ideal for printing) Click Here

List of Articles in this series

Pork Industry Overview, March 2003: Russian Federation
Pork Industry Overview, February 2003: Canada and Brazil
Pork Industry Overview, February 2003: Korea, Hong Kong, Japan and China
Pork Industry Overview, February 2003: Netherlands and Poland
Pork Industry Overview, February 2003: Australia
Pork Industry Overview, February 2003: European Union

Source: USDA, FAS - International Agricultural Trade Report
February 2003