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Hong Kong – Livestock and Products Annual

by 5m Editor
6 September 2011, at 12:00am

Hong Kong's imports of US pork and offals are expected be 32 per cent lower this year than in 2010 as the result of a continued decrease in US pork exports transshipping through Hong Kong, according to Caroline Yuen and Juliana Madrid in the latest GAIN report from USDA Foreign Agricultural Service.

Executive Summary

US pork exports show good prospects for growth in Hong Kong’s domestic market, greatly benefiting from the Hong Kong dollar’s peg to the US dollar (US$1= HK$7.80). Products from other major competitors have become more expensive as a result of their currency appreciating against the US, and thus, Hong Kong dollar. US pork products continue to sell favourably in high-end markets. The use of Chinese cuts has helped increase sales for US pork products used in Chinese restaurants. Nevertheless, competition remains tough in an open market like Hong Kong. Chilled pork products face increasing competition from premium pork products supplied by Spain and Japan.

Despite the favourable domestic market, Hong Kong’s 2011 imports of US pork and offals are expected to drop to $190 million, a 32 per cent decline from $278 million in 2010. The decline is due to the continued expected decrease in US pork exports transshipping through Hong Kong.

Hong Kong’s trade is very volatile due to the re-export trade. In the first half of 2011, Hong Kong imported $27 million in US pork products and $67 million in offals. During the same time period, Hong Kong’s pork and offal re-exports amounted to 28 per cent and 75 per cent of total imports, respectively. The high export percentage, particularly for offals, highlights the fact that Hong Kong remains a key re-export centre for the Chinese market.

China and Brazil are the two leading pork suppliers to Hong Kong. Currently, Hong Kong importers are very reluctant to source Chinese pork because it is considered too expensive. Brazilian products are more popular in terms of prices and supply. Recently, importers said they were given very competitive offers when Russia imposed a ban on pork imports from certain Brazilian plants.

Hong Kong is experiencing inflationary pressure. From July 2010 to July of this year, the average retail price for pork rose nearly 26 per cent. In a bid to combat inflation, price-conscious consumers are replacing freshly slaughtered pork with Chinese chilled or even frozen pork.

Production

Pig production is expected to reach 1.63 million head (114,000 metruc tons; MT) in 2011 and 1.67 million head (116,000MT) in 2012, five per cent and three per cent, respectively, lower than the 1.72 million head (120,000MT) in 2010. This decline is due to ongoing high pig prices in China, which make exports to Hong Kong less attractive. Presently, China supplies over 94 per cent of the pigs for slaughter in Hong Kong, while local farms supply the remaining six per cent. Thus, a reduced supply from China would have a significant impact on local production.

The July consumer price index report for China revealed a 14.8 per cent year-on-year rise on overall prices, with pork having risen 56.7 per cent. To some extent, these figures are telling of the stringent supply of live pigs in China. Since over 94 per cent of Hong Kong’s live pig supply comes from China, the local live pig market inevitably suffers spill-over effects from the rising prices and stringent supply of the pig industry in China.

In June of this year, Hong Kong’s average import price for live pigs rose by 38 per cent compared to June 2010, a rate less than that of China’s pork prices (56 per cent) as Hong Kong agents buying live pigs from China have been unwilling to offer higher prices. On the other hand, Chinese pig traders experiencing a bullish domestic market have little incentive to sell their pigs to Hong Kong. As such, the supply of pigs to Hong Kong has been declining and may continue to decline as the situation in China is expected to continue in 2011 and 2012.

Local pig farming began to drop significantly in 2007 following a government buy-out plan of operation licences in an effort to reduce local pig farming. Hong Kong’s self-sufficiency ratio declined from 23 per cent in 2006 to six per cent presently. Since the buy-out scheme has ended, further significant decreases in local pig production are not expected, as farmers who declined the government’s reimbursement offer are likely to remain in the industry for the immediate future. These farmers may be further encouraged by the developing niche market for locally raised pigs. Some retail outlets are encouraging this niche market by specifying where their pork comes from. In Hong Kong, there is the general perception that local pigs are less likely to be subject to unnecessary hormone treatments.

On average, live pigs from China are smaller, weighing about 68kg, whereas those raised locally weigh 86kg on average. Given the appreciation of the Renminbi, rising import prices, and Hong Kong’s inflation, the wholesale prices of live pigs between January and May 2011 reached $2,919 per MT, representing a rise of 29 per cent compared to 2010.

Consumption

Hong Kong’s pork consumption pattern has been affected by escalating inflationary pressure. Once consumers get accustomed to a new consumption pattern, it is very likely that this behaviour will continue even when inflation subsides. This July, the year-on-year inflation rate was recorded at 7.9 per cent, the highest after August 2008. Aside from housing rentals, food was the largest driving cause for inflation with a 7.4 per cent year-on-year increase. Pork was among the food items that experienced the most noticeable price increase. The average retail price of pork in July 2011 was 26 per cent higher than that in June 2010. In response to increasing prices, industry sources confirmed that both consumers and catering services have modified their pork consumption.

The most noticeable change is in the sharp shift from freshly slaughtered pork to chilled pork from China. Chinese chilled pork was introduced to Hong Kong as an alternative to freshly slaughtered pork and its sales have been expanding gradually over the years. The rising cost of food has served as a catalyst in accelerating this shifting process. In Hong Kong, there is about a 10 per cent price difference between freshly slaughtered pork and chilled pork from China. Although the overall pork prices in China are on an upward trend, chilled pork prices are not as volatile as live pig prices. The price volatility for live pigs is due to the supply of live pigs being largely confined to the Guangdong province (adjacent to Hong Kong), whereas the chilled pork supply has less of a geographical restriction.

In a bid for lower prices, a similar shifting in consumer preference is taking place between Chinese chilled meats and frozen meats. Hong Kong retail outlets have seen a sharp increase in the consumption of Brazilian frozen pork. Ribs and pork chops are popular Brazilian cuts.

Given the strong exchange rate of Renminbi and the rising pork prices in China, Brazilian products have become more competitive and attractive at the expense of Chinese chilled and frozen pork.

Hong Kong’s inflationary pressure will remain notable. To avoid the upward price pressure, the shift in consumer preferences is very likely to continue in the coming year.

One distinct advantage for US chilled pork is the stable exchange rate. Additionally, US pork products enjoy an established premium market image associated with its taste and safety. US chilled pork, primarily consumed by the well-to-do consumers and upscale catering services, continue to sell well despite high prices. However, the coming years will be challenging for US chilled pork products because many traders are gradually introducing premium chilled pork from other countries. The most noticeable is Spanish Iberico pork and Japanese Berkshire pork. Both pork types are being well received in the market. Australian and Canadian pork are also making inroads to upscale markets. Currently, Australian and Canadian pork exports are disadvantaged by the high exchange rate, but they are likely to build on the Hong Kong consumers’ receptiveness to new food products.

There has not been any significant consumer shift towards different types of meats as a result of rising pork prices, because other meat products are facing similar upward trends in price. More importantly, pork and chicken are staple meats consumed by the Hong Kong Chinese.

Trade

US supplies

US pork and offal exports to Hong Kong in 2011 are forecast at $190 million, representing a significant drop of 32 per cent. This forecast is based on increasing direct US exports of pork and offals products to China. In efforts to cut transaction costs, many US pork exporters have decreased their transshipments through Hong Kong. In the first half year of 2011, US pork and offal exports to China increased tremendously by 2,234 per cent reaching $147 million, while its exports to Hong Kong declined by 55 per cent shrinking to $67 million. As a large portion of Hong Kong’s imports are re-exported – 28 per cent and 75 per cent for pork and offals, respectively – any decline in re-exports will inevitably affect total imports significantly.

As of 2010, the US was the third largest pork supplier to Hong Kong. As a result of the increasing direct exports to China, the US is now the fifth largest supplier to Hong Kong after China, Brazil, Spain and Germany. In the first half year of 2011, Hong Kong imported a total of $27 million in pork products but the import value of offal was as high as $67 million. Both chilled pork and processed pork, primarily consumed in Hong Kong, showed a remarkable increase. On the other hand, Hong Kong’s imports of US frozen pork and variety meats declined as they are most affected by the changes in re-export trade.

Removing the re-export trade, US pork products have performed very well in the domestic market. US exports have benefited tremendously by the pegged exchange rate, particularly when the Hong Kong currency has depreciated against the currency of other major suppliers such as China and Brazil.

From January to June 2011, Hong Kong’s imports of US chilled pork rose to $2 million or 113 per cent compared to the same period in 2010. The strength of US pork is rooted in its established market image of high quality and food safety, in addition to the benefited the stable exchange rate with the Hong Kong currency. US chilled pork sell primarily to high-end retail outlets and five-star hotels.

As mentioned in the previous section, US pork is facing competition from high quality pork supplied from Spain, Australia, and Canada. Industry sources indicated that Canadian pork is also doing very well as a beginner in the market. Despite their slow acceptance in the market, industry sources believe Canadian pork has great potential. It is also worth noting that chilled pork from Thailand has enjoyed significant growth. Given the more economical pricing and comparable quality, importers view it as a good value for their money.

US frozen pork products, including premium frozen pork parts and commodity cuts, are expected to perform well for the remainder of 2011 and 2012. In addition to the high value US loin cuts which have been traditionally well accepted by the high-end catering industry, other cuts like butts are being gradually introduced to Chinese restaurants. For example, pork butts are being used to prepare traditional Chinese pork roast. Wider acceptance of US pork by Chinese restaurants offers good opportunities for US pork exports. After all, Hong Kong’s catering industry is dominated by restaurants highlighting Chinese cuisine.

Other suppliers

China is the largest supplier of pork to Hong Kong. It accounts for over 86 per cent of all chilled pork supplies to Hong Kong. Chinese chilled pork is primarily used as an alternative for freshly slaughtered pork and is not a direct competitor of US chilled pork. Despite the increasing substitution of freshly slaughtered pork for chilled pork, Chinese chilled pork is expected to decline in 2011. This decline is partly due to some consumers and catering services replacing chilled pork with frozen pork as a result of escalating pork prices from China.

Presently, there is not a significant amount of Chinese pork coming into Hong Kong because it is considered too expensive. This trend will continue for the remainder of 2011 and is likely to continue in 2012 because Chinese pork prices are not expected to drop significantly in the near future. Chinese frozen butts used to be very popular for making Chinese pork roast, but many end-users are now opting to use Brazilian products. A similar shift is happening with many other cuts. On the whole, prices are a determining factor in all purchasing decisions particularly for commodity cuts.

Brazil is the second largest supplier of pork to Hong Kong. Just in the first half of 2011 Brazil had a 26 per cent increase and sales are expected to continue to rise in the near future. There are several underlining reasons for the success of Brazilian pork. According to industry sources, as a result of the Russian ban on Brazilian pork they saw an influx of Brazilian pork products enter Hong Kong at very competitive prices. This surge in Brazilian supplies has made up for the limited supplies of Chinese pork. Furthermore, Hong Kong buyers are very familiar and comfortable with Brazilian cuts. Brazilian pork is considered to be lean and well-trimmed.

Re-exports

Hong Kong continues to serve as a centre for re-exporting products to China. Over 28 and 75 per cent, respectively, of pork and offals imports to Hong Kong were re-exported and China is the key market.

Hong Kong’s re-export trade to China is dominated by offals. The US is a key supplier of pork offals to Hong Kong. A distinct advantage of US products is their abundant supplies. When buying from a US supplier, an importer can place a large order from one US plant, whereas the importer would have to deal with several European buyers in order to source the same quantity. Therefore, importers prefer to go to US suppliers. This advantage has also allowed US offals to sell well in Hong Kong.

Nonetheless, in the near future, European pork offals exports to Hong Kong are expected to increase because the Chinese government is increasingly approving more European pork products and registering more plants. While importers noted that this trend does not necessarily reduce the demand for US offals because of the large scale of the Chinese the market, Hong Kong’s imports of US products are highly affected by direct exports to China.

Policy

Ractopamine is not an issue in Hong Kong. Hong Kong food laws do not prohibit or restrict the presence of ractopamine in meat products. As such, pork trade has not been affected by this issue.

Further Reading

- You can view the full report by clicking here.

September 2011