Production

Domestic pork production is slowly but steadily trending downward as farmers continue to reduce inventories due to strong compound feed prices and manure treatment costs. This trend is projected to continue with pork production estimated to contract to 1.0 million tons in 2010.

In contrast to beef production, high compound feed costs have had a more immediate impact on swine growers since they can quickly cut back herd sizes since swine have a shorter life-cycle. In particular, swine producers are more readily impacted by strong feed prices because they do not have the option of extending feed rations by using increased amounts of roughage nor do they typically have on-site facilities to mix their own feed. The current softening in domestic compound feed prices will be a quick minor adjustment, according to industry sources. Prices are still expected to remain above historical averages, which will be especially difficult for smaller growers.

New environmental regulations will prohibit the dumping of approximately 1.4 million tons of swine manure in the open sea by 2012. New manure treatment facilities will be built to safely dispose of this waste. The financial burden to construct these facilities will increase future production costs. However, the increase in costs will partially be offset through government support.

The central government will provide 50 per cent of the funds needed to construct joint manure treatment facilities, and the regional government will provide another 30 per cent. Meanwhile, swine growers will be responsible for the remaining 20 per cent. This added cost, while comparatively small, will still be a burden for the smaller-sized farms, which are already struggling with high feed prices.

The government’s effort to eradicate swine diseases has increased production efficiency and has also re-opened export opportunities. The government’s vaccination programme against PRRS has led to a gradual increase in the Maximum Sustainable Yield (MSY) for piglets. For example, the MSY has grown to 15 piglets per sow, compared to 13 piglets per sow in 2006. This higher MSY in part led to higher piglet production in 2009.

The government has also been instrumental in eradicating swine fever from the island of Jeju. In recognition of the island’s disease-free status, Japan has approved the resumption of Korean pork shipments. Jeju pork producers hope to begin shipping pork to Japan sometime during the first half of 2009. Pork exports to Japan totalled $321 million in 1999 before being cut-off in March 2000, due to outbreaks of swine fever. In order to eradicate swine fever fully from the mainland, the government provides vaccinations and penalises farmers when less than 80 per cent of the herd tests positive for the virus antibodies.

In 2009, the Korean government introduced an incentive programme to increase the quality of domestic pork. Farmers that produce swine that receive over a 1+ grade will receive an incentive payment of 10,000 won (KRW; about $9) per head. This programme has showed early signs of progress with 2.3 per cent of swine receiving a 1+ grade from January to July 2009. In comparison, only 1.4 per cent of swine were graded at 1+ in 2008.

Consumption

Pork consumption is expected to increase to 1.5 million tons in 2010 after dropping the previous year due to high prices of domestic pork and the brief H1N1 influenza scare.

Pork retail prices soared during the summer of 2008 and have remained strong since as domestic supplies and imports have both declined. According to inspection data, pork imports during the first seven months of this year (January-July) are down by almost 40 per cent to 68,000 tons from the same period last year. Because of the limited supplies, the pork belly price is now currently 53 per cent higher than frozen Australian beef loin, while the prices of these two meat cuts were nearly the same in January 2008. This price differential has resulted in some consumers switching to cheaper imported beef.

The finding of H1N1 influenza briefly caused pork consumption to decline. According to a survey conducted by the Korea Rural Economic Institute, right after reports of H1N1 in Korea, roughly 43 per cent of consumers replied that they would either reduce their pork consumption or stop eating pork. Consumer opinion improved after the news that the first H1N1 patient had fully recovered from the flu. This news combined with the announcement that the new influenza was not swine flu helped pork prices recover from their brief skid.

The country of origin labelling (COOL) requirement for pork dishes being sold in restaurants, which became effective last December, has discouraged some restaurants from using imported pork.

Trade

In late April, Korea announced that it would ban imports of live swine from North America after reported human cases of H1N1 influenza in this region. Although pork shipments were not suspended, imports were subject to intensified quarantine inspection. In mid-August, the ban on live swine was rescinded and the heightened inspection of pork shipments was scaled back.

Pork imports in 2009 are expected to fall despite the high price of domestic pork. While fears over H1N1 may have had a minimal impact, the main reason behind lower imports is the large carry-over pork stocks from the previous year. The high carry-over stocks were due to the excessive amounts of foreign pork imported in response to high domestic pork prices in the second half of 2008. However, demand for imported pork has started to weaken in part because of restaurant country of origin labelling, which became effective in late December 2008.

This excess inventory will be consumed in 2009 and 2010. As these inventories and local production begin to shrink, imports are projected to increase slightly to 450,000 tons in 2010. Imports of US pork are projected to climb to 135,000 tons in 2010.

Further Reading

-

You can view the full report by clicking here.

December 2009