The China Syndrome: $150 Million in Losses to U.S. Pork Industry

China is an important market for U.S. pork products, but tariffs on U.S. pork to the country are putting the trade relationship in jeopardy. ( Farm Journal )

Tariffs and other factors have created a significant decline in U.S. pork exports to China, with losses over a 12-month period estimated at $150 million. The long-term impact could be much more.

In 2008, I wrote, “Fueled by liberalization of rigid central plan agriculture and entry into the World Trade Organization (WTO) in 2001, the People’s Republic of China is riding an accelerating track to economic liberalization and globalization. As tight government control and protectionism fall out of favor, the implications for agriculture – both in China and for the rest of the world – are far-reaching.”

Those words have proven to be true. At that time, China was in the process of improving its rural infrastructure and strengthening its economy. As everyone knows, it has become a superpower. Hence, when tariffs against pork went into place earlier this year, it had a significant impact.

Importance of the Chinese Market
“The combination of lost market share and lower unit export values means an expected loss in U.S. pork variety meat exports of more than $100 million from May 2018 through December 2018, or about $150 million when projected over a 12- month period,” the U.S. Meat Export Federation wrote in a recent executive summary.

It explains that in 2017, China was the United States’ third-largest pork export market by volume at 309,284 metric tons (mt) and fourth-largest by value ($663 million). In addition, exports of pork/pork variety meats to China/Hong Kong last year totaled nearly 500,000 mt valued at $1.08 billion, and averaged nine pounds for every hog slaughtered ($8.89 per head).

“For China only, exports averaged 5.62 pounds and $5.47 per head. Exported items are split about evenly between muscle cuts (e.g. hams and picnics) for further processing and variety meats (feet, heads, hearts, tongues) for the wholesale markets.,” USMEF wrote.

“This is the first time in my career we’ve had to play defense on trade. In 1995 we were net importers of pork, and now as a country, we’re the world’s single largest exporter of pork,” Neil Dierks said in an interview in February. “Twenty-seven percent is a lot of our market. Think of what the pressure would be if we didn’t have exports for the people in the industry?”

He and the rest of the industry are discovering that pressure. Read AgDay TVs report on Chinese tariffs here and see Betsy Jibben’s report here.

Tariff Review
“On April 2, China began implementing an additional 25% tariff on most U.S.-origin pork products in retaliation for the U.S. Section 232 trade action on steel and aluminum imports,” USMEF said. “The duty raises the level of border protection to 51% when factoring in the existing 12% tariff and a 10% value-added tax.”

Then, on June 16, China announced it could impose an additional 25% duty on U.S. pork, variety meats, and pork fat starting July 6 in retaliation for the Section 301 duties on imported Chinese products, USMEF said. “Based on USMEF’s latest understanding of how the additional 25% duty will be charged, it could result in total tariffs and taxes of 78%. The additional tariffs would effectively increase the cost of U.S. pork and variety meats by 45% compared to competitors.

Insult to Injury: Higher Port Rates
In addition to imposing an extra duty, USMEF reports that some ports have increased the inspection rate of U.S. pork shipments as well.

“Heightened inspections add costs to the importers who must wait longer for shipments to obtain release documentation, thus creating another disadvantage for U.S. pork,” said USMEF.

What This Means to U.S. Producers
“Lower values for key China variety meat items could translate into industry losses of around $6.80 per head,” USMEF wrote in the report. “For May-December, this translates to losses of about $580 million. Over a 12-month period, losses could reach $860 million. Adding in estimated losses for hams and picnics, the key muscle cut exports to China, could bring losses to more than $9.00 per head, or $770 million in May-December with full-year losses reaching $1.14 billion.”

Read the full report from USMEF here.