An Urban's Rural View
There's More to Ag Trade with China than Soybeans -- Or Could Be
At the DTN Ag Summit in Chicago there was, quite naturally, a lot of talk about China buying U.S. soybeans. Two days earlier, Presidents Donald Trump and Xi Jinping had agreed over a steak dinner in Argentina to China buying beans from us as part of a trade-war cease fire. Or had they agreed? There was some "He said, Xi said" confusion about that. (Thanks, DTN Lead Analyst Todd Hultman, for letting me steal that line.)
The Summit's leadoff speaker, Secretary of Agriculture Sonny Perdue, was "optimistic" about those purchases but noted that China had failed to deliver on some past promises. (https://www.dtnpf.com/…) Perdue said USDA analysts think China will have to buy from the U.S. before Brazil's crop is harvested. Still, Perdue wanted to "see the ships loading."
The Summit's second speaker, Chenjun Pan, agreed with the secretary that China will buy beans and buy them before Brazil starts exporting. But Pan, an ag analyst with Rabobank in Hong Kong, spent most of her time talking about a non-soybean subject that deserves more attention than it gets in ag circles -- the potential for U.S. meat exports to China.
As a Chinese woman addressing several hundred mostly male Americans, Pan was too polite to dwell on how little meat China buys from the U.S. But the evidence was there in her presentation.
Most of China's beef imports are from Brazil and Uruguay, her stats indicate. The U.S. doesn't even rate a separate wedge in the market-share pie; it's lumped into the 1.7% "others" wedge. Brazil also dominates China's chicken imports, a sector the U.S. used to own. As for pork, the EU accounts for more than 70% of China's imports. That's important because 60% of the meat Chinese eat is pork.
The reasons for the dismal U.S. showing vary. Ractopamine is one; the Chinese don't want meat treated with the growth stimulant, however much we insist it's safe. Until recently, U.S. beef was locked out of the market because of bovine spongiform encephalopathy and chicken was out for a couple of years because of avian influenza.
You are reading this correctly: It's not the trade war that has kept U.S. meat out. And while the trade war may have a big impact in the future, there are also important changes going on in the Chinese market with big implications for U.S. meat exports. It was on these that Pan focused her presentation.
In the short run, the big change is a disease. Just as BSE and avian influenza have kept U.S. beef and chicken out of China, China's own bout of Asian swine flu is limiting its domestic pork supply. Pan detailed the complicated dynamics of China's pork market and how ASF affects them; Katie Dehlinger explained all this well in her story on Pan's presentation (https://www.dtnpf.com/…). Pan's bottom line: China may end up needing to import American pork.
If China can put effective policies in place and hold the 2019 decline in pork production to 2% to 4%, the U.S. might take a small share of the additional imports China needs. In the worst-case scenario -- an ASF-caused production decline of 10% to 15% -- China's imports of U.S. pork would increase significantly.
It bears emphasizing that how the U.S.-China trade talks go will also have an impact. Another X factor is that Europe has also experienced some ASF. If it spreads, China could be looking elsewhere for supplies.
Longer term, Pan pointed to more fundamental changes that exporters to China will have to contend with. The biggest one is the slowdown in demand for meat. A couple decades ago China's compound annual rate of growth in meat consumption was from 6% (for pork and poultry) to 10% (for beef). This was the time when hundreds of millions of Chinese were emerging from poverty, and as they did they finally got to satisfy their appetite for meat.
That period seems to be over. Today the growth rate for pork, poultry and beef is below 2% and Pan thinks it will continue to fall. Another change is the increasing popularity of poultry and, to a lesser extent, beef. Still another: Chinese consumers have become fussier about food.
Among other things, they're more willing than consumers elsewhere to pay more for "natural" and "organic" food. Pan labels the current era as one of "slower proteinization, faster premiumization."
Then there are the changes in how meat and other food products are retailed in China, which in some ways mirror changes in the U.S. Food delivery to the home is on the rise, as are convenience stores, branded, small-package meat products and ready-to-cook food. The "wet markets" I remember from my nine years in Hong Kong -- whole birds hanging from nails and bare-chested men walking the streets carrying pig carcasses -- are increasingly a thing of the past.
There is, in short, still plenty of potential for U.S. meat to penetrate the Chinese market. To make headway in a market, though, you first have to understand it. We were lucky at the Ag Summit to have Chenjun Pan help us understand China's.
Urban Lehner can be reached at email@example.com
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