BETA
THIS IS A BETA EXPERIENCE. OPT-OUT HERE

More From Forbes

Edit Story

Is China Buckling On Trade Because Of African Swine Fever?

Updated Jul 26, 2019, 03:25pm EDT
This article is more than 5 years old.

It’s just about a year since China acknowledged African Swine Fever hit its shores. In the 12 months since, the disease—which quickly kills livestock pigs and has no cure or vaccine—has been found in 32 regions and municipalities. China is the world’s largest pork producer and consumer, accounting for about half of the world’s annual consumption and production. Is ASF bad enough that it may force China’s hand in the trade war with the U.S. to drop tariffs?

There are signs China may be blinking: the country today is allowing some of its companies to buy pork, corn and sorghum from the U.S. without paying the import tariff, according to a report on Agweb.

Just how significant ASF is in China is matter of debate. According to the most recent  figures from the U.N.’s Food and Agriculture Organization, China has culled of 1.16 million pigs from the country’s herd of about 350 million head. That seems very low considering Vietnam has culled more than three times that amount since ASF was confirmed in that country just five months ago. Vietnam has a herd about one tenth the number of pigs as China.

Lean Hogs Futures - Price & Chart

Meanwhile, other statistics from Chinese agencies indicate larger impacts. According to a Reuters report last week, Chinese pork production fell almost 6% from a year ago and was largely unchanged from the first quarter.  Yet figures from the Ministry of Agriculture and Rural Affairs noted the pig herd was down almost 26% from June 2018, leading to apparent discrepancies in the official numbers—pork production should be much lower compared to the first quarter, Reuters notes. There are whispers from analysts and hedge fund managers that the losses are much larger, and that same Reuters report cites four Chinese farm suppliers contending that half of all sows had died or been slaughtered because of African Swine Fever. Half of China’s sow herd is equivalent of all the European Union, Russian and Brazilian hog herds combined.

Since ASF doesn’t affect humans, short term pork supply in China is helped by slaughtering infected pigs. But longer term shrinking herds means demand for pork will have to be met from elsewhere. Complicating efforts to end ASF is a habit of family hog farmers to feed their pigs leftovers, which means ASF-infected meat from human meals gets reintroduced to healthy pig populations. ASF persists for years in frozen pork.

Another hurdle, noted by the USDA in a report released yesterday, is that hog feed is often dried on roadsides where hog-carrying trucks traverse (ASF can be transmitted through exposed clothing and farm equipment, in addition to pigs and wild boar). One study found as much as 2% of feed is infected with ASF though few Chinese farmers view feed as a potential transmitter, according to the USDA.

ASF isn’t present the western hemisphere and the U.S. is the world’s second largest hog producer. As part of the trade war China has imposed a 62% tariff on pork being imported from the U.S. Could today’s dropping the tariff on pork for at least some Chinese purchasers be a sign of headway on the trade war? It’s certainly possible. For one, some pork industry executives are expressing optimism China will bring in more American pork, tariffs or no.  Smithfield CEO Ken Sullivan told analysts in April the company expects to be sending far more pork to China as a result of ASF.  “And it's not just Smithfield, by the way. It's every U.S. pork processor will be shipping more product to China. And the demand side is just expected to be strong going forward, certainly into 2020,” Sullivan said.

However, one problem is that the U.S. permits the use of a growth hormone in pigs that is banned in China and the E.U., making E.U. pork much more appealing. And China is serious about not wanting the growth hormone in its food supply. Last month China banned imports from Canada because of the presence of this hormone in pork using counterfeit hormone-free certificates, according to China’s Canadian embassy. The E.U. said first quarter exports to China rose 37%.

China also doesn’t necessarily have to come to the U.S. for more pork. For one, other the country is encouraging people to eat other proteins like chicken and beef. It also can import sizable amounts of pork from Brazil, where the price of production is lower even than China. Year to date, U.S. exports of pork to China and Hong Kong, where pork can be re-exported into mainland China, were down 8% from 2018. Today's shift on allowing some pork imports without tariffs is a sign that export drop may be about to reverse.

Follow me on Twitter