Meat Processors Search For Low Cost Raw Material As Slaughter Numbers Decline...
China
Meat Processors Search For Low Cost Raw Material As Slaughter Numbers Decline
China's large-scale meat processors are on the verge of a paradigm shift in sourcing raw material for their increasingly important further processing activities. This is one of the principal observations made by a three-person USMEF-led team, funded by the South Dakota Soybean Research & Promotion Council, which visited 11 of China's largest meat processing companies in early April. The team — North China representative Donald Song, Senior Vice President of the Asia Pacific Region Joel Haggard, and Chad Anderson, a Green Bay based private industry meat processing consultant, traveled for approximately two weeks through China's main "meat processing belt" in Beijing, Henan, Shandong, Jiangsu, Shanghai and Sichuan.
Although China's meat processors have different strategies for coping with high domestic hog prices and low supply, all stated that they must consider utilizing more imports in their further processing operations to keep production costs down. USMEF's team found that a range of U.S. pork cuts are currently price-competitive in domestic wholesale markets with domestic fresh and frozen pork. Interest in U.S. pork and pork imports has been piqued since last fall by the importation by the Chinese Government of tens of thousands of tons of boxed U.S. pork carcasses, which found its way to many urban wholesale markets throughout China early this year. Several processors were active bidders for the product, even though some admitted moving the product back onto the market rather than further processing it. Since early this spring, more muscle cuts of U.S. and other imported pork have been available including bellies, hams, trimmings and picnics.
USMEF found that most of the large processors are operating at slaughter capacities below 50 percent. With Chinese fresh carcasses wholesaling in the range of $1.50/lb. and with the Chinese government imposition of price controls on pork, many processors complained of being squeezed on their traditional fresh pork business, which still remains an important component of overall business. China's largest meat processors, such as Shineway and the Yurun Group, began as slaughter-only enterprises less than 20 years ago, when China privatized its then state-owned slaughter industry. In the ensuing years, meat processing revenues have grown faster than the fresh pork business, and large processors view the production of low temperature Western-style processed meats, such as ham and sausages, as the bright spot in the industry. Currently, approximately 35 percent of China's estimated 9.7 million metric tons of processed meat output consists of low-temperature meat products. The large meat processors cited greater competition from second-tier processors in the increasingly saturated shelf-stable processed meat market, as well as competition from more nimble provincial, country and municipal slaughter plants in the fresh pork business. Although branded processed meat lines from industry giants such as Yurun and Shineway can be found on supermarket shelves throughout China, the collective national market share of these brands remains small. Further consolidation in the industry is likely given its current atomized nature, and the large dichotomy in the market dynamics between the modern and traditional fresh pork markets.
The dilemma of raw material sourcing may be particularly vexing to China's largest meat processors, who the Chinese government views as key players in the national pork supply chain. Currently, China is encouraging the establishment of large-scale hog farms through a series of subsidies, many of which are enticing the processors into greater vertical integration. China's large processors, many of which utilize state-of-the art equipment and technology, remain largely unintegrated, with large plants purchasing live hogs under contracts from a large number of private farms. China's new subsidy schemes encouraging large-scale hog raising units, however, have resulted in the announcement of a number of large-scale hog projects. Yet China's hog industry is dominated by small producers: about 90 percent of China's total annual slaughter originates from farms that produce more than 500 market hogs per year. USMEF sensed that China's animal health problems, which USDA estimates contributed to a 9.2 percent drop in pork production in 2007, have kept producers wary of ramping up production too aggressively, despite the availability of subsidies and other insurance schemes. Input costs remain high, and China's surplus of rural labor, and enthusiasm for agricultural employment, is wearing thin.
In the meantime, prospects for future pork sales to China's meat processors, and to China in general, are good. Recent statistics show that Hong Kong and China's imports of total pork and pork variety meats in the first quarter of the year reached a record 529,400 tons. Imports continued strong through April, although container shortages and increasing U.S. prices could take some heat off the torrid pace of purchasing and importation of the early spring. Although China's large meat processors constitute excellent target markets for U.S. pork, it may be the more flexible middle-sized processors and frozen food manufacturers that can most quickly alter formulations to incorporate least-cost U.S. pork.
USMEF will present its observations of China's meat processors at its upcoming Board of Directors meeting in Las Vegas, May 21-22. USMEF staff will address China's meat processors about the U.S. pork market situation and its ability to supply pork to China at the China International Meat Industry Exhibition next week in Beijing.
Vietnam
USDA And USMEF Seek Clarification Of Labeling Regulations For Boxed Frozen Meat
USMEF has been in touch with USDA and Vietnam officials in recent days concerning rumors of a new shelf-life labeling requirement for boxed meat imports into that country. Several Ho Chi Minh City meat importers have warned their U.S. suppliers that boxed meat presented for inspection and clearance in Vietnamese ports after May 1 must carry a written indication of the expiration date of the product on the outer box label.
USMEF has heard from USDA in Hanoi that Vietnamese national quarantine authorities stated verbally today that the new requirement will not apply to imported boxed meat products destined for wholesale markets. (Vietnam does require that meat products sold at retail carry expiration dates, but imported product for retail can be labeled by importers after importation.) USDA-Hanoi is attempting to get written confirmation confirming that no new expiration date labeling is required. In the meantime, exporters should inform USMEF-Denver (303-623-6328; Paul Clayton or Kevin Smith) of any instances of product being rejected at any Vietnamese port due to expiration date labeling.
Transportation Issues
Rail "Service" Discussed on Capitol Hill
A recent hearing in the House of Representatives focused on rail service to small business and agriculture. The Agriculture Transportation Coalition (AgTC) provided a summary which is on the AgTC section of www.USMEF.org. A practical option for improved rail service for agriculture will be presented at the AgTC Annual Meeting in June.
China
Meat Processors Search For Low Cost Raw Material As Slaughter Numbers Decline
China's large-scale meat processors are on the verge of a paradigm shift in sourcing raw material for their increasingly important further processing activities. This is one of the principal observations made by a three-person USMEF-led team, funded by the South Dakota Soybean Research & Promotion Council, which visited 11 of China's largest meat processing companies in early April. The team — North China representative Donald Song, Senior Vice President of the Asia Pacific Region Joel Haggard, and Chad Anderson, a Green Bay based private industry meat processing consultant, traveled for approximately two weeks through China's main "meat processing belt" in Beijing, Henan, Shandong, Jiangsu, Shanghai and Sichuan.
Although China's meat processors have different strategies for coping with high domestic hog prices and low supply, all stated that they must consider utilizing more imports in their further processing operations to keep production costs down. USMEF's team found that a range of U.S. pork cuts are currently price-competitive in domestic wholesale markets with domestic fresh and frozen pork. Interest in U.S. pork and pork imports has been piqued since last fall by the importation by the Chinese Government of tens of thousands of tons of boxed U.S. pork carcasses, which found its way to many urban wholesale markets throughout China early this year. Several processors were active bidders for the product, even though some admitted moving the product back onto the market rather than further processing it. Since early this spring, more muscle cuts of U.S. and other imported pork have been available including bellies, hams, trimmings and picnics.
USMEF found that most of the large processors are operating at slaughter capacities below 50 percent. With Chinese fresh carcasses wholesaling in the range of $1.50/lb. and with the Chinese government imposition of price controls on pork, many processors complained of being squeezed on their traditional fresh pork business, which still remains an important component of overall business. China's largest meat processors, such as Shineway and the Yurun Group, began as slaughter-only enterprises less than 20 years ago, when China privatized its then state-owned slaughter industry. In the ensuing years, meat processing revenues have grown faster than the fresh pork business, and large processors view the production of low temperature Western-style processed meats, such as ham and sausages, as the bright spot in the industry. Currently, approximately 35 percent of China's estimated 9.7 million metric tons of processed meat output consists of low-temperature meat products. The large meat processors cited greater competition from second-tier processors in the increasingly saturated shelf-stable processed meat market, as well as competition from more nimble provincial, country and municipal slaughter plants in the fresh pork business. Although branded processed meat lines from industry giants such as Yurun and Shineway can be found on supermarket shelves throughout China, the collective national market share of these brands remains small. Further consolidation in the industry is likely given its current atomized nature, and the large dichotomy in the market dynamics between the modern and traditional fresh pork markets.
The dilemma of raw material sourcing may be particularly vexing to China's largest meat processors, who the Chinese government views as key players in the national pork supply chain. Currently, China is encouraging the establishment of large-scale hog farms through a series of subsidies, many of which are enticing the processors into greater vertical integration. China's large processors, many of which utilize state-of-the art equipment and technology, remain largely unintegrated, with large plants purchasing live hogs under contracts from a large number of private farms. China's new subsidy schemes encouraging large-scale hog raising units, however, have resulted in the announcement of a number of large-scale hog projects. Yet China's hog industry is dominated by small producers: about 90 percent of China's total annual slaughter originates from farms that produce more than 500 market hogs per year. USMEF sensed that China's animal health problems, which USDA estimates contributed to a 9.2 percent drop in pork production in 2007, have kept producers wary of ramping up production too aggressively, despite the availability of subsidies and other insurance schemes. Input costs remain high, and China's surplus of rural labor, and enthusiasm for agricultural employment, is wearing thin.
In the meantime, prospects for future pork sales to China's meat processors, and to China in general, are good. Recent statistics show that Hong Kong and China's imports of total pork and pork variety meats in the first quarter of the year reached a record 529,400 tons. Imports continued strong through April, although container shortages and increasing U.S. prices could take some heat off the torrid pace of purchasing and importation of the early spring. Although China's large meat processors constitute excellent target markets for U.S. pork, it may be the more flexible middle-sized processors and frozen food manufacturers that can most quickly alter formulations to incorporate least-cost U.S. pork.
USMEF will present its observations of China's meat processors at its upcoming Board of Directors meeting in Las Vegas, May 21-22. USMEF staff will address China's meat processors about the U.S. pork market situation and its ability to supply pork to China at the China International Meat Industry Exhibition next week in Beijing.
Vietnam
USDA And USMEF Seek Clarification Of Labeling Regulations For Boxed Frozen Meat
USMEF has been in touch with USDA and Vietnam officials in recent days concerning rumors of a new shelf-life labeling requirement for boxed meat imports into that country. Several Ho Chi Minh City meat importers have warned their U.S. suppliers that boxed meat presented for inspection and clearance in Vietnamese ports after May 1 must carry a written indication of the expiration date of the product on the outer box label.
USMEF has heard from USDA in Hanoi that Vietnamese national quarantine authorities stated verbally today that the new requirement will not apply to imported boxed meat products destined for wholesale markets. (Vietnam does require that meat products sold at retail carry expiration dates, but imported product for retail can be labeled by importers after importation.) USDA-Hanoi is attempting to get written confirmation confirming that no new expiration date labeling is required. In the meantime, exporters should inform USMEF-Denver (303-623-6328; Paul Clayton or Kevin Smith) of any instances of product being rejected at any Vietnamese port due to expiration date labeling.
Transportation Issues
Rail "Service" Discussed on Capitol Hill
A recent hearing in the House of Representatives focused on rail service to small business and agriculture. The Agriculture Transportation Coalition (AgTC) provided a summary which is on the AgTC section of www.USMEF.org. A practical option for improved rail service for agriculture will be presented at the AgTC Annual Meeting in June.