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Hong Kong - Livestock and Products Annual 2010

by 5m Editor
22 September 2010, at 12:00am

The value of US pork and offal exports to Hong Kong this year is expected to be five per cent below 2009 although some growth is forecast in certain cuts. US pork meat exports to Hong Kong are likely to decline as the results of new Chinese policies regarding re-export trade, writes Caroline Yuen in the latest GAIN report from the USDA Foreign Agricultural Service.

Highlights

US pork and offal exports to Hong Kong in 2010 are expected to be $300 million, a five per cent decrease from 2009. US pork meat exports to Hong Kong in 2010 are forecast to fall nearly seven per cent in terms of value to an estimated $80 million after reaching a second record high of $86 million in 2009.

Hong Kong’s domestic market is expected to maintain modest growth for US pork ranging from expensive cuts like loins and ribs to commodity cuts. However, total US pork meat exports to Hong Kong are expected to decline due to new Chinese policies regarding re-export trade. Trade in offals (variety meats), is expected to decrease from $229 million in 2009 to $220 million in 2010 also due to the expected decline of re-export trade to China.

Executive Summary

Hong Kong is expected to import US$870 million worth of pork meat and $850 million of offals in 2010. While the mature domestic market is stable, the overall demand is volatile as a result of the large re-export trade that is often affected by unpredictable trade measures imposed by the importing countries.

Both the pork meat and variety meat trade in the first half of 2010 witnessed growth by five per cent and 19 per cent, respectively, growth is unlikely to continue at similar rate in the second half of the year due to the strengthened control of re-export trade by the mainland Chinese government. In addition, about 1.7 million live pigs valued at $242 million are slaughtered annually in Hong Kong.

China, Brazil and US are the three largest suppliers for chilled/frozen pork products. China accounted for 92 per cent of all chilled pork supplies, which are considered as a substitute for freshly slaughtered pork. The frozen pork market is mainly a price game with China and Brazil as the two key competitors. Sourcing decision depends largely on prices. The US is the largest supplier of offals, accounting for about 29 per cent of the market share. Germany (19 per cent) and Netherlands (10 per cent) are two other major suppliers.

US pork supplies to the Hong Kong market have been increasing steadily in recent years, with market share of US pork supplies gradually expanding from six per cent in 2007 to 11 per cent in 2010. US pork sales prospects in the future are promising as commodity cuts have been successfully introduced to Chinese restaurants and fast food chains in recent years; they are price competitive when compared to other competitors; and benefit from the pegged exchange rate between the US and Hong Kong.

In the area of live pig supplies, local production accounts for merely five per cent in terms of number. Currently, there are only 43 farms left in Hong Kong with raising capacity of 75,000 head. Live pig supplies rely almost exclusively on China, which is forecast to supply 1.62 million head of live swine to Hong Kong.

Production

In 2010, Hong Kong is forecast to slaughter 1.7 million head, a slight increase of 1.3 per cent from 2009. This production figure represents slightly over 24 per cent of the estimated overall pork meat supply. Although pig farming is the most important livestock sector in Hong Kong, the value of locally raised pig production was only $17 million in 2009, representing approximately five per cent of total domestic supplies. The majority of live hogs for slaughter come from China.

Local swine production is expected to be maintained at approximately 84,000 in 2010, as local production is restrained by land costs that are too expensive to allow for significant expansion. However, the Hong Kong government (HKG) does not have any intention of launching another round of voluntary licence-surrender schemes. The scheme was first introduced between 2006 and 2007 to curb pig farming on the grounds of public health and environmental hygiene. Farmers who chose to surrender their operation licence were reimbursed by the HKG. As a result of the scheme, the number of farms was drastically reduced from 265 to 43. Over the long term, local production should contract as the current generation leaves the farming industry.

China is the only country supplying live pigs to Hong Kong, contributing 94 per cent of total supplies in terms of dressed weight and accounting for a total value of $225 million. The average weight of Chinese pigs sold into Hong Kong is 68.8kg compared to locally raised pigs which average 86kg. There are only three authorised agents selling to Hong Kong, with daily supply ranging between 4,500 and 4,800 head, and not all farms in China are eligible to export pigs to Hong Kong. The three authorised agents have to buy from ‘registered farms’ which have been approved by Chinese authorities to export to Hong Kong based on relevant food safety, biosecurity and environmental requirements. All registered farms have to raise a minimum of 5,000 pigs. Most of the registered farms operate on a large scale; with some raising as many as 600,000 head. There are 300 registered farms in China. The wholesale price of live pigs in the first five months of 2010 averaged $2,167 per metric ton (MT).

Consumption

Pork consumption is projected to grow less than one per cent in 2010 as Hong Kong’s domestic market is mature.

Despite this limited growth in the short term, pork remains the most popular meat in Hong Kong compared to beef and chicken. While traditional Chinese dietary preference accounts for the relatively lower consumption of beef, pork also maintains a relative advantage over chicken.

In comparing consumption patterns, although most local consumers like both pork and chicken, there are two principal factors at play. The first factor is a price advantage for pork, and second is the fact that there is a pronounced advantage for freshly slaughtered pork over fresh chickens due to the government’s policy to limit the supply of live chickens as a measure to reduce the risk of avian influenza outbreaks. In the absence of any government restriction, Hong Kong’s consumption of chilled/frozen pork is relatively close to that of chilled/frozen chicken as both meats are demanded by consumers.

In terms of the types of pork products being consumed, Hong Kong consumers have been increasingly buying chilled/frozen pork at the expense of fresh pork in recent years. Fresh pork consumption reached a record high in 2001 at 165,000MT and has since been declining over the years to 117,000MT in 2009. In contrast, consumption of chilled/frozen pork increased 65 per cent between 2001 and 2009, from172,204MT to 284,028MT. The shifting trend is expected to continue in the future as consumers become more receptive to chilled/frozen meat. Price and consumers’ perception of better hygiene conditions of chilled/frozen pork have been the main contributors to this emerging consumption pattern.

Trade

US pork

US pork and offal exports to Hong Kong in 2010 are expected to amount to $300 million, a five per cent decrease from 2009.

US pork meat exports to Hong Kong in 2010 are forecast to fall nearly seven per cent in terms of value to an estimated $80 million after reaching a second record high of $86 million in 2009. Hong Kong’s domestic market will probably maintain modest growth for US pork ranging from expensive cuts like loins and ribs to commodity cuts. Total US pork exports to Hong Kong, however, are not expected to outperform the 2009 export value. Through June 2010, official statistics show that export value increased by 32 per cent compared to the corresponding period of last year but the trade has reported that exports have dropped significantly through the summer months due to new Chinese policies regarding re-export trade.

Hong Kong’s re-export trade which comprises over 35 per cent of Hong Kong’s pork meat imports has decreased significantly due to new more strict Chinese policies impacting re-export trade. Since November 2004, all meat re-exports to China through Hong Kong have been required to be pre-inspected by the China Inspection Co. (CIC) in Hong Kong. A new procedure has been instituted since 20 July this year that CIC will no longer be able to endorse re-export shipments to China unless the certificates have been verified by AQSIQ Beijing. Consequently, the number of containers successfully re-exported to China via Hong Kong sharply dropped from more than 100 per day to around 10. This new verification procedure applies not only to US products but also to products from other supplying countries.

Hong Kong importers have complained about losses as thousands of containers initially destined for re-export now have been forced to remain in Hong Kong. The trade has reported that some buyers have walked out of contracts and some packers even gave away low-valued shipments because demurrage charges are so high. Given this new re-export hurdle, Hong Kong buyers will likely become more prudent when placing orders for the coming months, affecting Hong Kong pork imports in the short run, regardless of product origin.

US pork supplies to the Hong Kong market has been increasing steadily in recent years, with market share of US pork supplies gradually expanding from six per cent in 2007 to 11 per cent in 2010. The US continues to focus on cuts like loins, ribs and butts with the target consumers being high-end supermarkets and restaurants. However, US brisket bones and offals also are very price-competitive too.

In 2010, US exports of offals is expected to reach $220 million, decreasing by four per cent when compared to 2009. While exports grew by 26 per cent in the first half of 2010, the anticipated sluggish re-export trade in the second half of 2010 will likely countervail the remarkable growth in the first half year. The US is the largest supplier of offals to Hong Kong, primarily selling front and hind feet, stomach, kidneys, hearts and tongues.

The long term forecast of US pork for the market is bullish for few key factors. First, US products have the advantage of the pegged exchange rate between the US and Hong Kong dollars (US$1 = HK$7.78), when pork prices of other competitors are subject to currency fluctuation. Also, Hong Kong buyers are getting more familiar with US commodity cuts and the US has successfully introduced commodity cuts to Chinese restaurants and fast-food chains in recent years. As this trend continues, the US pork consumption in the mass Chinese restaurants and fast-food chains will likely expand. In addition, efficient US farm management and meat processing and high meat-grain ratio will allow US packers to offer more competitive prices for Hong Kong buyers. The commodity cuts trade is primarily determined by prices and US pork is price competitive.

Major suppliers

Hong Kong imported $881 million worth of pork meat products from the world in 2009. China, Brazil and the US are the top three suppliers with a market share of 34 per cent, 17 per cent and 11 per cent, respectively, by value in the first half of 2010. China provides $23 million or 92 per cent of chilled pork supplies in Hong Kong despite only starting shipments in 2006. Supplies are limited to four meat processing plants in China, which have been approved by the Hong Kong food safety authority. China’s chilled pork products are meant to be a substitute for freshly slaughtered pork since they are ready for Hong Kong’s retail shelves within one or two days of being processed, and are not in the same niche market as expensive US pork cuts.

Given the price competitiveness of China’s chilled pork compared to freshly slaughtered pork ($2.40 versus $4.40 per lb), China is expected to continue to expand steadily and dominate in this market segment. Frozen pork from China is equally popular particularly among Chinese restaurants. Popular cuts include butt and fillet.

Brazilian pork declined by 21 per cent and 30 per cent by value and by volume, respectively, in the first six months of 2010. While Hong Kong buyers favour Brazilian pork because of leaner and better trimmed cuts, 2010 is proving to be a challenging year for Brazilian exporters to Hong Kong because of the appreciation of the Brazilian Real.

Hong Kong’s offal imports in 2010 are expected to reach $850 million, increasing by two per cent compared to 2009. The US is the largest supplier of offals, followed by Germany and Netherlands, contributing a market share of 29 per cent, 19 per cent and 10 per cent, respectively, in the first six months of 2010. The European suppliers are very strong in providing hocks, neckbones and soft bones.

Re-export trade

Hong Kong’s re-export trade is a significant component of the overall trade. About 35 per cent and 91 per cent of pork meat and offal imports were re-exported, with China as the major re-export market. Hong Kong’s re-export trade is very volatile depending largely on importing countries’ import policy.

Policy

Ractopamine is not an issue in Hong Kong. The 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.

Processed meat products at the retail level are subject to Hong Kong’s new nutritional labelling law effective July 2010. A Food and Agricultural Import Regulation report (FAIRS) provides a general guideline for Hong Kong’s food import regulations (GAIN report #HK9018 issued in August 2009).

Further Reading

- You can view the full report by clicking here.

September 2010