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China Livestock and Products Annual 2006

by 5m Editor
17 September 2006, at 12:00am

By USDA, Foreign Agricultural Service - This article provides the pork industry data from the USDA FAS Livestock and Products Annual 2006 report for China. A link to the full report is also provided. The full report includes all the tabular data which we have omitted from this article.

Report Highlights

On June 30, 2006, China unilaterally announced lifting the import ban on U.S. boneless beef from cattle 30 months of age or younger, then released a list of inspection and quarantine requirements on U.S. beef exported to China. Because these announcements are not based on a bilateral protocol, beef trade cannot be resumed without additional technical discussions. China's beef production in 2007 is forecast to increase 6 percent to 7.9 MMT due to strong demand.

Beef imports are forecast to increase 33 percent to 4,000 MT during 2007, and could be an additional 3,000 MT in the first year if China resumes imports of U.S. beef. Pork production during 2007 is forecast to increase 6 percent to 55.8 MMT driven by consumers' shift away from poultry due to highly pathogenic avian influenza in China. Pork imports in 2007 are forecast to fall 6 percent to 340,000 MT due to abundant supplies, while exports are forecast to increase slightly.

Situation and Outlook

China has only agreed to open its market to U.S. boneless beef from cattle of 30 months of age or younger. The import ban was lifted on June 30, 2006, followed by China’s announcement of import inspection and quarantine requirements on U.S. beef. Because these were unilateral announcements, trade cannot resume until China and the United States reach a consensus on a trading protocol. The U.S. position remains that China resume trade for the full range of beef products, per the OIE guidelines that state all beef products are tradable regardless of the BSE status of a country.

Despite the presence of foot and mouth disease (FMD) in China, FAS Beijing forecasts China’s beef production in 2007 to increase 6 percent to 7.9 MMT due to strong consumer demand driven by the shift from poultry to other meats due to consumer concerns from highly pathogenic avian influenza (HPAI) in China. Additionally, beef imports in 2007 are forecast to increase 33 percent to 4,000 MT as domestic supplies cannot meet the high-end market demand. Strong demand, lagging supply and a stronger Chinese currency will drive beef imports in 2007. Live cattle imports in 2007 are forecast to decrease 12 percent to 22,000 head due to import policy changes. Beef exports are forecast to decrease 5 percent to 85,000 MT. The eventual return of U.S. beef to China’s export markets will increase competition and likely limit China’s exports.

Post forecasts China’s pork production in 2007 to increase 5 percent to 55.8 MMT due to consumers’ shift from poultry to other meats. The pace of growth for 2007 is forecast slightly smaller than 2006 due to an increase in swine production and abundant domestic supplies that deflated pork prices in 2006. As a result, swine production was below the critical profit point in the first half of 2006. China’s pork imports are expected to decrease 12 percent to 36,000 MT in 2006 and 6 percent to 34,000 MT in 2007 respectively. The return of U.S. beef to Japan may result in a decrease in Chinese pork exports to Japan, as Japan is one of China’s top three export markets.

U.S. Market Access—China unilaterally announces ban lifting on boneless U.S. beef from cattle 30 months of age and younger, followed by a list of inspection and quarantine requirements for U.S. beef exports to China

On June 30, 2006, the Chinese Ministry of Agriculture (MOA) and the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) jointly released Announcement 678 allowing the conditional resumption of boneless beef imports from the United States. This announcement requires that U.S. beef from cattle 30 months of age and younger be completely free of spinal column, scull, brains, eyes, spinal cord, tonsils and distal ileum. This announcement was followed by AQSIQ’s Announcement 89, on June 31, which listed detailed inspection and quarantine requirements. Both were unilateral announcements by China without an agreed-upon export protocol.

During the 17th meeting of the Joint Commission on Commerce and Trade (JCCT) last April in Washington D.C., China agreed to reopen its market to U.S. beef by June 30 based on a science-based trading protocol consistent with the guidelines of the World Organization for Animal Health (OIE). Since April, the United States sent three delegations to China to negotiate the terms of this trade agreement.

Although the United States provided a detailed explanation of safeguards in the U.S. system and answered numerous questions regarding China’s concerns about beef imports, the two sides were not able to reach an agreement on resumption of trade. The U.S. position remains that China resume imports of all bovine products, including boneless, bone-in, variety beef and offal. According to the OIE guidelines, beef products from cattle 30 months of age or younger are safe regardless of a country’s BSE situation. However, China states it will only consider a wider range of products after the OIE announces BSE risk levels in 2007.

Swine and Pork

China’s pork production in 2007 forecast to increase 5 percent to 55.8 MMT
FAS Beijing forecasts China’s pork production in 2007 will reach a record high of 55.8 MMT, a 5 percent increase from the estimated 52 MMT in 2006. Based on new official data, Post revised the pork production number for 2005 slightly higher to 50 MMT from the previous estimation of 49.7 MMT in the last semi-annual report CH6002. As Post forecasts China’s pork production increase 6 and 5 percent respectively in 2006 and 2007, pork production numbers for the two years have been adjusted accordingly in the current PS&D table.

The pace of pork production growth in both 2006 and 2007 is forecast to be smaller than that of 2005 due to a smaller crop impacted by decreased profits. According to the Ministry of Agriculture (MOA), in 2006, China’s wholesale swine prices from January to July decreased 27 and 26 percent respectively over the same period in 2005 and 2004. The result can be attributed to the impact of high grain wholesale prices. As a result, the conversion rate between feed grain and swine on average dropped to 5.06:1, below the critical point of 5.5:1. As a result, a farmer lost $10 raising one head of swine, and some farmers started slaughtering sows.

The main reason for the change in profit was that pork prices appreciated considerably during 2003-2004 driven by consumers’ shift from poultry to other meat due to constant outbreaks of highly pathogenic avian influenza (HPAI) in China. As a result, farmers increased swine crop production. The PS&D table demonstrates the rapid pace of growth in sow production, as beginning stocks in 2005 were 2 percent higher than the previous year. The larger crop led to decreasing swine and pork prices. Pork production trend is concurrent with Post’s forecast in the last semi-annual report CH6002.

Although the pace of growth in the 2007 sow stock is forecast about 1 and 3 percent smaller respectively than that of 2006 and 2005, the sow stock is still above the rational level (8 percent) out of the total pig stock, indicating China’s swine crop production capacity has strengthened. Normally, farmers would alternate between raising swine to raising other livestock or poultry as swine prices depreciated. However, with uncertainty of HPAI and FMD, raising swine is the least problematic in terms of risk to farmers. Despite the drop in pork consumption in the last decade, pork is still the dominant traditional animal protein. In the last couple of years, constant HPAI outbreaks and reports of human death infected by HPAI have pushed consumers to shift from poultry to other meats.

With China’s GDP growth at 11 percent, urban income growth at 10 percent and farmers’ cash income growth at 12 percent in the first half of 2006, meat protein demand will continue strong throughout 2006 and into 2007. The recent shift in domestic meat consumption is expected to favor pork exports. China’s swine and pork production will grow at a steady 5 percent rate in 2007. However, pork share may continue to decrease in China’s total meat production due to stronger demand for beef, sheep and goat meat in addition to feed grain constraints.

Swine and pork production will become more concentrated in feed grain producing areas. According to the industry, in the first half of 2006, 8 provinces accounted for 70 percent of China’s total slaughtered swine, each slaughtering more than 10 million head. These are the top swine producing provinces are Sichuan, Hunan, Henan, Shandong, Hebei, Guangxi, Guangdong and Hubei, with the top three accounting for one-third of China’s total slaughtered swine.

Pork consumption in 2007 forecast to increase 6 percent to 55.5 MMT

Post forecasts China’s pork consumption to reach a record high of 55.5 MMT in 2007. Steady pork consumption is attributed to urbanization and consumers’ shift from poultry to other meat due to HPAI outbreaks in the recent years. Pork also continues to be the most inexpensive meat in China. Based on new official data, post adjusted China’s pork consumption for 2005 slightly up from the previous estimation in the semi-annual report CH6002 to 49.8 MMT in the current report. Pork prices in the second half of 2006 are forecast to rise slightly due to the slower pace of growth in slaughter.

Pork imports in 2007 forecast to decrease 6 percent to 34,000 MT

The decrease in pork imports is due mainly to domestic pork production increases and low pork prices. Decreased pork imports will be offset by an increase in pork offal imports. In the first half of 2006, pork offal imports increased 13 percent valued at $58 million due to lower international prices. U.S. export data indicates that U.S. pork export numbers are higher than Chinese customs data indicate. Post suspects it is being smuggled through South China.

According to traders, expensive transshipment fee, HK$5,000 (US$606) per container for pre-inspection and dock handling, resulted in traders’ preference to ship directly to China or smuggle meat into China. As pork is more popular in the northern part of China, direct shipments normally arrive at northern ports. However, direct shipments to the Shenzhen port opposite to Hong Kong increasing. CIQ Shenzhen reported that in 2005, the Shenzhen port handled 72,696 MT of imported frozen meat, 94 percent were U.S. products.

Repeated pathogen and residue issues for U.S. pork exports to China

China requires a zero tolerance the pathogens Salmonella, Listeria and Ecoli (0-157) in 5 samples (total 25 grams) for all kinds of meats. If these pathogens are detected at entry ports, China will destroy or return the goods. One option for poultry and meat products held at ports due to detection of Salmonella pathogens is to treat it with radiation and sell directly to a poultry or meat processing plant.

The United States does not require zero tolerance for raw meats, except for ready-to-eat ground beef. Seven U.S. pork plants were delisted for eligible exports to China at the beginning of 2006. Five of them were re-listed after AQSIQ conducted a field study in some selected plants in March. Two are still suspended because of Ractopamine found in pork. Feed containing Ractopamine is strictly forbidden in China.

Because China’s zero tolerance policy on raw meat imports is not a science-based, the United States initiated several bilateral technical talks with China. As a result of this cooperation, the two sides signed a Memorandum of Understanding (MOU) on SPS issues in April 2006 in Washington, D.C. during the bilateral 17th JCCT meeting. Within this MOU framework, USDA and AQSIQ initiated a Memorandum of Cooperation (MOC) last June for a bilateral notification mechanism and coordination on food safety detections on imported meat products.

With all these efforts, AQSIQ now gives USDA and the meat plants a 45-60 day corrective period instead of delisting them immediately after food safety detections. The U.S. Government continues to encourage Chinese authorities to modify the zero tolerance policy on raw meat. The two sides agreed to hold a food safety meeting at least once a year to try to find solutions on food safety issues of mutual concern. The following chart is a brief summary of China’s main requirements for imported meat products. Chinese traders can visit the website of the Ministry of Commerce (MOFCOME) to check food safety requirements of main trading partners, such as the United States, EU, Australia and China. (http://kjsdrug.mofcom.gov.cn)

Portfolios for food safety and animal health among Chinese government agencies

Food safety and animal health mainly fall under the jurisdiction of three Chinese Government Agencies: MOA, AQSIQ and the Ministry of Health (MOH). MOA is responsible for drafting policy and regulations on animal drug standards, foreign animal disease risk assessment, import feed registration including pet food, animal disease control and notification of epidemic animal diseases to the OIE.

MOH is responsible for the laws and regulations regarding finished food products for domestic human consumption and reports human infection of epidemic diseases, including human infections of animal diseases, to the World Health Organization (WHO). AQSIQ is an enforcement body of laws and regulations for imports and exports. AQSIQ also negotiates trade protocols with partner countries.

Normally, MOA and AQSIQ jointly announce a ban or the lifting of a ban on imported animal and animal products. It will take time for China to change its zero tolerance policy on imported meat products. Trading partners should send letters to China Administration of Standardization (SAC) requesting a standard change. If SAC accepts the request, it will establish a project and then call experts of various agencies to evaluate the request. Note that it takes time to coordinate among the Chinese government agencies.

Pork exports in 2007 forecast to increase 3 percent to 36,000 MT, China exports fresh pork to Hong Kong for the fist time in many years

In 2005, Hong Kong, Japan and North Korea accounted for 67 percent of China’s total pork exports to the world. Russia dropped from one of the top markets in 2003 to the six largest market due to problems controlling animal disease outbreak in China. The return of U.S. beef to Japan may result in a decrease in Chinese pork and poultry exports to Japan.

China successfully delivered fresh pork to Hong Kong for the first time in August 2006. Because transportation between Hong Kong and China is inexpensive and convenient, China’s fresh pork exports will be highly competitive in the HK market. China’s fresh pork exports may also lead to decreased exports of live swine to Hong Kong.

Further Information

To read the full report please click here (PDF format)

List of Articles in this series

To view our complete list of 2006 Livestock and Products Annual reports, please click here

September 2006