African Swine Fever: New Zealand’s winners and losers

African Swine Fever (ASF) is now firmly entrenched in every province of China and has recently been reported in several other South East Asian countries, causing an upheaval in the world’s meat market. The Fever, a highly contagious, incurable virus that is fatal to pigs but harmless to humans, has also been detected in parts of Eastern Europe since 2014.

The only response to the virus is to cull herds, and this year more than 1.1 million animals have been culled on Chinese farms in a pre-emptive move to avoid further spread of the virus. Rabobank predicts that China’s pork production will fall from 54 million metric tonnes in 2018 to just over 40 million metric tonnes in 2019, dropping further to 34 million metric tonnes in 2020. This decline in production represents a significant shortfall, relative to demand, for a country that prefers pork to any other meat. China will increasingly look to meet the shortfall in domestic production with imports from other pork-producing countries, and by increasing imports of substitute meat products such as beef and lamb.

Where will China fill the gap in its meat supply?

China’s projected shortfall of 20 million metric tonnes of pork in 2020 is no small thing. The European Union, the next largest producer of pork after China, produced a total of only 24 million metric tonnes in 2017 (see Chart 1). The next largest pork producer is the USA, with 12 million metric tonnes in 2017. However, Beijing has imposed a 72% import tariff on US pork as part of its trade war with Washington. China has instead turned to farmers in Europe and Latin America to step up their supplies. Pork exports to China have been increasing from countries such as Ireland, Spain, and Brazil, but not in sufficient quantity to fully meet Chinese demand. Furthermore, some European producers are reluctant to increase production while the virus maintains a foothold in several Eastern European countries.

It’s no understatement to say that ASF is reconfiguring international trade flows of protein products, and with global supply unable to meet Chinese demand, pork and other meat prices are rapidly increasing and are expected to remain high for the foreseeable future.

How will African Swine Fever impact New Zealand?

In New Zealand, there will be both winners and losers from ASF. With almost 60% of pork eaten in New Zealand usually imported from countries such as China, Poland, Estonia, Denmark, and Spain, supplies are increasingly harder to come by. Already there are signs of rising prices on our supermarket shelves for some ham and pork products. So too for beef and lamb, as higher export prices translate into rising domestic prices. In September, the price of lamb chops was 14% higher than a year ago, while beef blade steak was up 9.4% and sausages 8.5%. This compares with a 2.2% rise in the price of food overall.

New Zealand also needs to be careful about the products we let into the country, as the virus can be spread through imported pig feed. The stakes are high. If ASF reached our shores, it could completely wipe out New Zealand’s $750 million commercial pork industry.

The winners will be New Zealand’s pork, beef, and lamb producers, processors, and exporters, as well as the freight and shipping companies that move the product from farm to market. Farmgate pork, beef, and lamb prices are already high and are expected to rise further as export volumes start to ramp up. The volume of New Zealand meat exports to China has risen steeply since early 2017, but growth has reached fever pitch this year, increasing 58%pa in September (see Chart 2).

Meanwhile, the commodity prices for ‘Meat, skins and wool’ jumped 22%pa in October 2019, the highest annual growth rate since 2014, according to the latest ANZ Commodity Price Index (see Chart 3).

At a time when domestic economic growth is slowing, these higher prices will be a welcome boost to farm incomes in provincial areas with large meat production and processing industries such as Canterbury, Waikato and Manawatū-Whanganui (see Chart 4).

Looking to the future, meat production in China and other countries where the virus has taken hold is likely to be constrained for several years to come. Production will ramp up in Europe, Latin America and the US but this will not happen overnight. Breeding pigs takes time. The other factors at play are the US-China trade dispute and the potential for the virus to spread to more countries, both of which are hard to predict.

Until pork supplies return to normal (or a new normal), New Zealand is well-positioned to capitalise on the export opportunity presented by ASF. And with an upgraded Free Trade Agreement (FTA) with China entering force in 2020, New Zealand is likely first in line for further meat demands. Although good for our exporters, the supply issues will mean that both export and supermarket prices for New Zealand proteins are likely to remain elevated. So, the price of a tasty barbeque this summer just got a touch higher.

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