Pork Commodity Outlook: the international dimension Presentation to Vietnamese Officials by Monte Vandeveer, ERS/USDA February 2006 Hanoi

Why look at international hog and pork markets? Find benchmarks for industry performance, for example: –Costs of production –Structural changes in production and consumption –‘World’ prices for pork cuts –Marketing strategies Find export opportunities Find import opportunities

Largest hog and pork producers China EU USA Brazil Vietnam Source: FAOSTAT.

Largest pork exporters EU-25 USA Canada Brazil China –FAOSTAT, 2004.

Largest pork importers Japan USA Russia Mexico S. Korea China FAOSTAT, 2004.

What is traded? Primarily frozen, boneless cuts of pork Secondary markets: –Carcasses (e.g., Vietnam piglets to Hong Kong) –Bone-in cuts (e.g., ribs) –Offals or organ meat (e.g., hearts, skin) Chilled (cold but not frozen) meat trade is expanding

Disease rules create trade zones Foot and mouth disease (FMD) is a major factor determining trade flows –Old FMD-free zone: Japan, Korea, Taiwan; Canada, USA; Denmark; Oceania Chilled and frozen pork trade among these countries, but not with others Mexico is joining this group –Rest of world: Russia, Hong Kong are the leading importers; Brazil the leading exporter Processed pork (e.g., canned ham) can be traded; cooking kills FMD virus

Trade in cuts Because most trade is in cuts, think about supply and demand for each cut, rather than for the carcass Some countries like some cuts better than other cuts Some countries value offals, some don’t Trade takes cuts to the market that offers the highest value.

Example Japan likes dark chicken meat (such as leg) –Dark meat has higher price in Japan than white meat US likes white chicken meat (such as breast) –Dark meat has lower price in US than white meat  US ships dark meat to Japan  Dark meat gets a higher price in Japan than in US

Hypothetical example Country A produces a hog for $100 Country B produces a hog for $50 Country A won’t use pigs’ feet; price in A is $.01 Country B uses pigs’ feet; price in B is $.50  Country A ships pigs’ feet to Country B  Even though cost of hog production is much higher in Country A

A hog is the sum of its parts Market value of a hog is the sum of the price received for each part Exports of one part raise the value of that part in the exporting market, and thus the value of the hog Imports of one part lower the value of that part in the importing market, and thus the value of the hog

Trade in cuts or parts leads to intra- industry trade Many countries import and export pork Normal condition –Tastes are different between countries –Production costs are different between countries Consumers are better off because of trade For producers, trade impact varies –Good idea to examine foreign markets for demand for certain cuts/parts, and processed products

Vietnam trade in pork Exports: –$31 million in 2004 –$25 million in 2005 (incomplete data) 12,000 tons, carcass weight Imports –$4 million in 2004 –$15 million in 2005 (incomplete data) 8,500 tons, carcass weight equivalent (using many assumptions) Source: Global Trade Atlas

What Vietnam trades Exports: primarily carcasses to Hong Kong (piglets?) Imports: primarily sausages from USA (may not be all pork) Many other trade flows possible in future –Look at China, Philippines

What Philippines imports 2004: –Pig skin with fat--$10 million –Offal--$8 million –Muscle cuts--$8 million

China’s trade Imports –Mostly organ meat (hearts, etc.) –$291 million in 2004 –$204 million in 2005 –281,000 tons, carcass equivalent, in 2005 Exports –Mostly pork meat –$780 million in 2004 –$790 million in 2005 –583,000 tons, carcass equivalent, in 2005 –Hong Kong, Japan, North Korea biggest markets

Factors in global competitiveness Genetic base Feed costs Disease control Processing capacity –Labor –Capital Marketing skills

Feed critical factor for hog production: corn supply and demand PSD Official StatisticsMay 1 to April 30 marketing year 2002/ / / /2006 Area Harvested (1000 HA) Beginning Stocks (1000 MT) Production (1000 MT) TOTAL Mkt. Yr. Imports (1000 MT) TOTAL Mkt. Yr. Exports (1000 MT) Feed Consumption (1000 MT) TOTAL Consumption (1000 MT) Ending Stocks (1000 MT)

Feed, continued: soymeal imports and use

Vietnam tariffs Corn: 5% Soymeal: 5% Pork –ASEAN: 5% –China: 10% –Rest of world: 30% Low feedstuff tariffs help livestock industries in Vietnam