News & Events | Influenza Report: Frustrations Continue in China, Russia; Mexico Resists Pressure to Close Border; No Slowdown in Japan...

Influenza Report: Frustrations Continue in China, Russia; Mexico Resists Pressure to Close Border; No Slowdown in Japan

News from international markets for U.S. pork exports remains mixed as reports of new cases of the H1N1 Influenza virus continue to surface, including the first death in Canada attributed to the virus.

While China’s suspension of U.S pork imports ostensibly began as a state-specific ban, the prohibition of transshipments and the rapid addition of states to the suspension list have effectively closed the entire market to all U.S. pork products.

According to Joel Haggard, USMEF vice president for the Asia-Pacific region, China’s top officials are showing little flexibility in their position on these trade restrictions despite assurances from world health and trade officials that bans on pork imports are unnecessary and unreasonable.

“China is still putting out mixed messages,” Haggard said. “Their main message seems to be that pork is safe to eat, but it’s still necessary to ban U.S. products. It’s an extremely frustrating and unfortunate situation for us.”

Haggard says that after an “initially sharp” consumer reaction to the H1N1 Influenza outbreak, pork demand appears to have made a full recovery in China. This bodes very well for U.S. pork when market access is restored, especially in light of the fact that very little U.S. pork sold in China carries country-of-origin identification. In the meantime, however, USMEF will continue to work with U.S. and Chinese trade officials to restore U.S. pork trade.

“It’s very hard to offer an assessment on when these restrictions will be lifted,” Haggard said. “Everyone involved is working to provide Chinese officials with the information they say they need in order to ensure the safety of their consumers and their swine herd. But there is little doubt that this issue has become a leverage point for China with regard to other issues and demands they have regarding U.S. trade.”

Other Asian markets faring well where U.S. pork is available

Haggard offered a fairly optimistic outlook for U.S. pork demand in other parts of Asia, with the obvious exception of countries that have suspended trade. The only three nations in the region to officially suspend pork imports have been Indonesia, Malaysia and Thailand. The Philippines initially announced a suspension of U.S. pork imports, but later modified those restrictions to include only Canadian pork.

In South Korea, which remains fully open to U.S. pork products but not to live animals, pork sales decreases range all across the board from being down just a few percent to more than 15 percent, but the drop in demand seems consistent between domestic and imported pork.

“Regardless of country of origin, pork sales have been negatively influenced by H1N1 Influenza during our top pork season,” said Jihae Yang, USMEF-Korea director. The USMEF-Korea team has been working actively with importers, food service operators, retailers and media to provide factual information on the virus, and Yang notes that the media in Korea has not associated news reports on the H1N1 virus with U.S. pork.

Since the H1N1 virus gained worldwide attention, both live hog and hog carcass prices in South Korea have dipped and then rebounded slightly. Live hog prices fell to 282,000 won ($223) per 110 kilograms (242 pounds) on May 1 from 383,000 won ($303) on April 16, but have since risen to 297,000 won ($235) on May 4.

On a carcass price per kilogram (2.2 pounds), prices fell from 5,073 won ($4) on April 22 to 3,925 won ($3.10) on May 1, but rebounded slightly to 4,368 won ($3.46) on May 4.

Russia’s restrictions raise fears of food price inflation

Russia’s suspension of all meat products from six states and pork products from two others has created extreme frustration for exporters serving this market. While Russia does not prohibit transshipment through any of the suspended states, the “raised or slaughtered” language included in its trade restrictions create considerable confusion regarding product eligibility.

“Just when we feel we are seeing positive signs from Russia with the removal of some states from its suspension list, they add back states and them impose bans of imports from European countries like Spain,” said John Brook, USMEF regional director for Europe and the Middle East. “But Russia’s market for processed meats is quite dependent on imports, and particularly dependent on imports of U.S. pork. So if Russia maintains this suspension, it is certain to have an inflationary impact on food in Russia.”

USDA estimates that Russia depends on imports for about 35 percent of its meat supply, and inflation so far this year in Russia has already exceeded six percent. Evgeny Nadorshin, chief economist at Russia’s Trust Bank, is quoted in a recent news report on the significant potential for import suspension to carry an inflationary impact:

“We depend significantly on import of meat and meat is a significant part of Russian CPI index. All these events may have effect on local prices very rapidly. We could have observed a similar situation in August 2008 – when rumors about the possibility of decrease in quotas for imported meat resulted in a rapid price growth.”

Unfortunately, Brook expects little progress to be made in lifting Russia’s trade restrictions until at least May 12, when Russia’s chief veterinarian returns from vacation.

“In the meantime, the rest of the world is quite clear about what is going on here,” Brook said. “As usual with Russia, this is clearly about markets and giving a pat on the back to domestic production.”

Pork demand a concern in Mexico, but market access unaffected

Despite repeated pressure from local pork producer groups, government officials in Mexico have imposed no new restrictions on U.S. pork.

“Mexico’s market remains open, though we continue to watch this situation very carefully and maintain regular communication with Mexico’s officials on this issue,” said Chad Russell, USMEF regional director for Mexico and the Dominican Republic. “Producer groups have tried to convince the Agriculture Ministry and their legislators to close the market for 15 days due to the large inventory of domestic pork that has accumulated in Mexico. Fortunately, these requests have thus far been rejected. Mexico’s government is focused on reopening its foreign markets and any move to prohibit pork imports would jeopardize this important objective. In addition, unlike some governments, Mexico’s has admirably adhered to its international trade obligations during this crisis.”

While exporters should experience no new restrictions or delays in shipping pork to Mexico, economic disruption caused by the influenza outbreak has significantly impacted restaurant sales and other a commercial activity. Reports of consumer resistance to pork are also a major concern, despite repeated assurances about the safety of pork products.

“Restaurants reopened this week, and business appears to returning,” Russell said. “A fairly low percentage of pork consumed in Mexico is through the foodservice sector, so the restaurant closures shouldn’t have a devastating impact on demand. But their reopening is a good sign of progress in the economy and a return of consumer activity.”

On the retail side, USMEF-Mexico is prepared to implement plans to rebuild consumer interest in pork – a challenge that will require considerable effort and resources.

“The major supermarket chains have reported significant declines in pork sales during this crisis,” he said. “Processors also have seen a significant slowdown in demand for fresh pork – not just U.S. pork, but pork of any origin.”

Russell noted that many households are believed to have stockpiled alternative proteins during the influenza crisis, and this could also contribute to a slowdown in demand in the near term. Despite that, he said that Mexican industry experts remain optimistic.

“Many of the industry experts I have spoken to expect demand to rebound fairly quickly,” he said. “We had to be little bit careful in the early going. When flu-related deaths were occurring in Mexico – we couldn’t be viewed as putting commercial interests ahead of the human suffering element. I think we struck the right balance during that time, and now we can move aggressively to rebuild pork demand to keep Mexico on pace as one of the top destinations for U.S. pork.”

Meanwhile, the government of Mexico is considering proposals that would provide assistance to the pork industry, as well as to Mexico’s beleaguered restaurant and tourism sectors. With the H1N1 Influenza outbreak providing another blow to Mexico’s already-sluggish economy, analysts are predicting nearly a 6 percent contraction of the country’s economy this year.

Japan remains constant

Japan, far and away the largest value market for U.S. pork exports, remains a continued bright spot for the industry. In 2008, Japan imported 996 million pounds of U.S. pork valued at nearly $1.55 billion. Through January and February of this year, exports to Japan have accelerated by 23 percent in volume and 35 percent in value over the same period last year. While numbers are not available for the period covering April and early May, early signs look positive.

USMEF Japan Director Gregory Hanes says the government of Japan has done an excellent job of educating consumers about the safety of pork and easing any unfounded fears that may have associated H1N1 Influenza with pork consumption. At the same time, USMEF-Japan has remained in constant contact with the trade, engaging in intensified customer contact with key target accounts to ensure that they fully understand the virus situation and to help them answer any questions they might be getting from their customers.

These actions appear to be having a very positive impact on demand for U.S. pork. Hanes says that while restaurant sales have slowed somewhat due to the sluggish economy, the H1N1 Influenza situation has had little negative impact. At the retail level, sales are affected during this time of the year by the seven-day Golden Week holiday period. But Hanes says sales reports have been very positive, especially among outlets that have aggressively marketed pork.

“Most of the larger retailers are actually reporting increases in U.S. pork sales, and that’s because USMEF has been holding promotions with them,” he said. “The retailers who have remained active and promoted U.S. pork during the Golden Week find it’s performing very well for them.”

“The mood in Japan is pretty positive, and we’re continuing to get more pork into the market,” Hanes added. “We probably saw some initial concerns when the news was first released, but a lot of those concerns have abated and I think we are seeing a return to the normal pork purchasing cycle.”

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The U.S. Meat Export Federation (www.USMEF.org) is the trade association responsible for developing international markets for the U.S. red meat industry and is funded by USDA, exporting companies, and the beef, pork, corn and soybean checkoff programs.