A VIRUS killing millions of swine is now spreading to Asia, and its ill effects on the meat trade could force Filipino consumers to shell out more pesos in the near future.
It's called African Swine Fever (ASF), a virus endemic to South Africa but has managed to travel miles and miles away over the years, reaching the European continent and, now, seeping through the borders of countries in East and Southeast Asia.
The ASF could kill a hog in two days’ time with zero chance of survival. There’s also no vaccine yet to prevent it. Fortunately, the virus is not known to harm humans, according to the World Health Organization. For now.
The ASF is currently on a rampage in China’s multibillion-dollar hog industry with over one million dead swine already reported. The highly contagious hemorrhagic viral disease of domestic and wild pigs has also managed to infiltrate nearby neighbors such as Cambodia, Vietnam and, recently, Hong Kong.
The Philippines remains free from the virus and the government is trying its best to keep the stature. Else, the country could easily bid goodbye to its P200-billion domestic hog industry.
Meanwhile, interviews conducted by the BusinessMirror with both local and foreign analysts, industry players and government officials paint one picture: higher meat prices, as a consequence of ASF havoc outside the archipelago, could hit. The question is would the hit be sooner or later.
Jump in imports
SINCE August 2018, China has reportedly culled over one million pigs. It is Beijing’s first time to contract the virus that, reports say, was contracted from a state that abuts Russia. China has reported over 120 cases of ASF outbreaks in over 30 provinces.
Due to losses in hog stocks, China is expected to hike its imports of pork meat abroad to plug the shortfall in its domestic supply.
Dutch financial firm Rabobank estimates that China will lose 30 percent of its pork supply this year due to ASF. The estimated loss is already equivalent to the whole European annual pork supply and is also nearly 30 percent larger than the annual pork output of the United States, according to Rabobank’s analysis in April.
The reduction in local pork output would push China to plug the shortfall by importing its requirements from Europe and the US, which would drive global meat prices to soar.
“This unprecedented shift in trade will likely create unexpected product shortfalls in markets previously served by these suppliers, creating short-term market volatility that will ultimately result in higher global protein prices,” Rabobank’s study said.
“A secular shift toward lower Chinese pork consumption will support increased demand for poultry, beef, seafood and alternative proteins that will shape global production trends,” it added.
A tug-of-war
WITH China projected to increase its pork imports, the Philippines will be caught in a tug-of-war of global meat supply.
Rabobank Singapore’s food and agribusiness analyst Ben Santoso said China’s pork imports could increase by 1.5 million metric tons (MMT) to 2 MMT this year if its domestic prices would “rise to very high levels.”
And this volume, Santoso noted, could only be filled by global suppliers if they shift their exports—intended for other markets—toward China. Doing so could hurt shipments bound for the Philippines.
“Existing exporting regions, including the EU, Canada and Brazil, are not likely to have sufficient supply for China, and will divert part of the shipments for other countries to China,” Santoso told the BusinessMirror.
“Imports by the Philippines will, hence, depend on whether it will compete with China, and on timing [whether it will front-load imports before Chinese demand picks up],” he added.
However, Santoso pointed out that China’s buying price should be higher than other countries’ price quotations to prompt global suppliers to hike their shipments to the East Asian country.
“To secure additional volumes, the exporters would need to be incentivized to come up with more supply, either through release of reserves, squeezing more production out of existing capacity, and/or to divert exports originally destined to other countries,” he explained.
“All these efforts will require extra costs or compensation, which will be reflected in progressively higher prices,” he added.
Shift in demand
LOCAL importers, traders and processors said global meat prices have risen up from last year’s quotations with some items already costing more than double of its previous price.
The uptick in the world meat prices is caused by expected higher purchases by China as it seeks to replenish its depleting pork supply caused by the ASF.
Industry sources told the BusinessMirror that the international price of pork and some chicken cuts is now higher by at least 10 percent to as much as 100 percent.
“We are concerned [with the current global situation] because China is a very big user of pork. And when they actually have problems with their own local production, normally they would compete with us for the world supply,” Philippine Association of Meat Processors Inc. spokesman Rex E. Agarrado said.
“For this reason, we are now seeing prices jump, especially for pork. But, of course, this would have a ripple effect on chicken prices due to the shift in demand,” Agarrado added.
He said the group expects retail prices of certain pork products, such as bacon and ham, which are mostly imported and consumed by middle-class Filipinos, to go up.
“That’s why they say that when China sneezes, the world catches a cold,” Agarrado said. “China’s demand is so big; it would have ripple effects on meat prices.”<
Poultry prices
THE shift to chicken of pork consumers, according to Meat Importers and Traders Association (Mita) President Jesus C. Cham, has driven global prices of leg quarters to rise by 10 percent to 20 percent year-on-year.
“We are seeing increased demand in chicken meat due to higher prices of pork. Prices are already higher year-on-year and even much higher than in the last quarter of last year,” Cham said. “We are [also] seeing price increases across all cuts of pork.”
He said Mita expects some correction in global meat prices in the short term but the rates will still be higher than the average quotations last year.
Cham noted that the expected spike in meat demand in Western countries during summer would sustain the upward trend in global meat prices.
USA Poultry and Egg Export Council President James H. Sumner said global poultry meat prices will shoot up even though the US, one of the world’s top producers of the meat, will be unable to export to China as a result of the ongoing trade war.
“Although the US is not currently shipping to China for political reasons, China’s increased demand for all meats will no doubt have a strong impact on all meat prices, especially poultry, which is the lowest-priced meat protein alternative,” Sumner told the BusinessMirror.
“Regardless whether the US ships to China, the net effect will be to increase global poultry prices due to this major increase in demand due to China’s situation,” he added.
Expect tighter competition
HOWEVER, Cham, Agarrado and Sumner noted that one of the sectors that could be hardest hit by higher global meat prices would be poor Filipino consumers who rely on low-cost processed meat products for their protein source.
This, Cham said, would be a challenge for meat processors who will find themselves in a tighter competition abroad for their raw materials for manufacture, particularly for mechanically de-boned meat (MDM).
“Processors will be challenged to find alternatives to meet their price points so that they could meet the demand of the masa [masses] for processed meat products,” he said.
Agarrado said global MDM prices have not increased so far since last year, which allows them to keep prices on processed meat products competitive. However, this is only possible since the government is still implementing a 5-percent tariff on chicken-MDM imports, Agarrado pointed out.
“What is saving the day for us is, of course, MDM prices, which have not advanced since last year. And we expect prices to remain where they are today if the government would be keeping the duty at 5 percent,” he said.
“Prices for products for mass-based population will be tempered by the availability of good price of MDM, which is possible at the current tariff rate,” he added.
Reversion of tariffs
SUMNER noted that the reversion of the tariff on MDM imports to 40 percent could hurt more Filipino consumers, particularly the poor, as it would hike retail prices of processed meat products at a time that global meat prices are foreseen to increase as well.<
The reversion of tariffs could also slow down US exports of the raw material to the Philippines.
“This would be unfortunate for Philippine consumers, especially as we expect poultry prices to increase due to the enhanced demand from China,” Sumner said. “Philippine consumers can probably expect higher meat prices this year as a result of demand for all meat proteins, including pork and poultry.”
Since last year, Pampi had cautioned that reverting the tariff on chicken MDM imports to 40 percent would push retail prices of canned meat products and hotdogs to increase by 12 percent to 17 percent.
But that was last year, when the devastation and crippling effects of ASF on the global meat market were not yet felt and seen.
So what happens if the government pursues hiking the tariff slapped on chicken MDM imports?
“Then it would be a double whammy: pork prices going up and MDM prices going up,” Agarrado was quick to point out.
“But we will cross the bridge when we get there. However, it is very obvious with the 5 percent to getting back to 40 percent at this time of the year,” he added.
The government has not yet issued any executive orders on the finality of duties on chicken MDM imports even after the passage of the rice trade liberalization (RTL) law.
The enactment of the RTL law would mean that the tariffs on chicken MDM would automatically revert to 40 percent from the current 5 percent as part of the country’s commitments to the World Trade Organization (WTO).
However, industry sources said the 40-percent tariff is not yet implemented by the Bureau of Customs. An application of the higher duty is seen in the near future.
Yearning for old prices
MEAT importer Maria Teresa del Mundo, CEO of MTDM Trading, said she has observed higher prices of imported raw materials for meat processors since the beginning of the year.
“The problem I am encountering right now is that my bigger clients, corporations and processors do not even believe me [that prices have gone up already],” del Mundo, one of the biggest meat importers in the country, told the BusinessMirror.
“They want me to maintain the [same] price [when] they bought the commodity last year,” she added. “We cannot do that because the suppliers abroad are not giving that price anymore.”
Pork Producers Federation of the Philippines (ProPork) President Edwin G. Chen said they have also observed price movements locally, particularly in culled sows, driven by higher demand by meat processors.
Chen said prices per kilogram of culled sow have gone up to P75 from the usual P65. Culled sows, Chen explained, are used by meat processors to produce ham, tocino (sweetened, cured pork) and other processed meat products.
“Meat processors are now shifting to local producers; they are now buying more culled sows than before,” he told the BusinessMirror. “This could be a reaction to higher global meat prices.”
>Furthermore, Chen said they have seen the price gap between imported pork belly and locally produced ones diminishing over the past few weeks.
Usually, imported pork bellies are cheaper by as much as P60 per kilogram compared to locally produced ones.
“Imported pork belly prices are now at $3 per kilogram compared to the previous $1.70 to $1.80 price range,” he said. “And its landed cost is already equivalent to locally produced pork.”
Del Mundo echoed Chen’s remarks, adding that the landed price of imported liempo (pork belly) is at least P200 per kilogram, compared to P180 to P190 prices before. Locally produced liempo is priced at about P240 per kilogram.
Annual imports
DESPITE the anticipated spike in global meat prices, the Philippines is still poised to increase its annual imports this year, as forecast by the United Nations’ Food and Agriculture Organization (FAO).
In its biannual food outlook report, the FAO expects Philippine meat imports to expand by nearly 10 percent to 691,000 MT from 629,000 MT last year, as the improving purchasing power of Filipinos increases the demand for animal protein.
This is despite a projected 3.27-percent increase in local meat production. The FAO said the country’s meat output this year will reach 3.722 MMT (carcass weight equivalent) from 3.604 MMT last year.
The FAO projected that poultry will account for 46.08 percent of the total imports as it remains the most sought-after product by Filipinos, particularly by the middle-income and low-income households.
Philippine poultry meat imports this year are projected to reach 318,000 MT, nearly 10 percent over last year’s 290,000 MT, the FAO said. Likewise, the country’s pork imports this year would expand by 11.04 percent to 181,000 MT, from 163,000 MT a year ago.
“The market optimism rests principally on expectations of a strong growth in import demand, mainly from China, but also Japan, the Philippines, Mexico and Ghana,” the FAO said in its biannual Food Outlook report published last week.
Room for growth
US Meat Export Federation Asia-Pacific Senior Vice President Joel Haggard said they are seeing growth across all areas of the Philippines’ meat sector: from processing to food service.
“I think we are enjoying the growth that other countries are enjoying as well. We saw the Philippines’ total meat imports rose quite significantly last year,” Haggard told the BusinessMirror.
“I think there’s room for growth in meat consumption in the Philippines. We do think there’s growth potential in protein consumption overall,” Haggard said, adding that the Philippines is the US’ 11th top market for meat.
The Associação Brasileira de Proteína Animal (Abpa, Brazilian Animal Protein Association) said it remains optimistic about hiking its pork shipments to the Philippines despite higher demand from China.
This is due to the increasing demand of local traders from sources that are free from ASF, such as Brazil.
However, Abpa Executive Director Ricardo Santin noted that the Philippines would have to compete with China in securing their pork and poultry meat supplies from Brazil.
“All the international meat trade can be changed by this crisis,” Santin said. “Probably, China and other countries that will compete for pork meat will also buy more chicken and other meats, to replace the decrease of pork meat offer.”
Confidence, stability
DATA provided by Abpa showed that their pork exports to the Philippines in the first quarter increased by 8.3 percent to 2.009 MMT from 1.854 MMT in the same period last year.
Likewise, the value of pork exports grew 5.9 percent to $3.111 million from $2.938 million a year ago, Abpa data showed.
In a statement sent to the BusinessMirror, the Australian Embassy in the Philippines gave assurances that it is doing its best to ensure its territory remains free from ASF.
Among the measures, Australia restricts the entry of meat products from countries that are not free from ASF and foot-and-mouth disease. Furthermore, it has also imposed stringent surveillance in its points of entries to ensure that no smuggled meat would enter the country.
This, the Australian Embassy noted, would allow Canberra to continue to expand its meat exports to the Philippines.
Australia is the country’s top source for beef and it also ranks 11th in terms of total pork imports.
“Australia will continue to work regionally to help in the international response to this disease situation. Australia is a major exporter of meat and is free of the major livestock diseases that affect meat production in many countries,” it said.
“This gives confidence and stability to our trading partners and buyers of Australian meat,” it added.
A tall order
FOR Agriculture Secretary Emmanuel F. Piñol, China’s pork problem could be a blessing in disguise for Filipino hog producers.
Piñol earlier floated the idea of exporting local pork to China to reduce the glut in domestic supply caused by aggressive production.
Asked if exporting pork to China would be risking the country’s supply given that it is not self-sufficient, Piñol’s response was, “I don’t think so.” He explained further: “If raisers see the available market and additional demand, then they would increase their production.”
Piñol is not alone in this view. Rabobank also noted that countries that may have surplus supply may export to China and take advantage of favorable prices.
However, in the case of the Philippines, Santoso said exports could be limited as it is constrained by its supply; also, its ability to export is premised on its maintaining its ASF-free status.
Roehlano M. Briones, senior research fellow at the Philippine Institute for Development Studies (PIDS), said it would always be an issue of supply for the Philippines if it wants to be part of the global meat trade.
“If the local production is unable to meet even our local demand, then I do not really see how we will be able to export to China, especially since there are other large producers closer to them,” Briones told the BusinessMirror.
“It’s a tall order. Besides, I think our pork producers would rather cater to the domestic market than…ship to China due to prices,” he added.
Local demand
INDUSTRY sources noted that only big corporations could export abroad since backyard raisers, which account for 60 percent of total hog output, are incapable of doing so.
For one, the government has no Triple-A abattoir that can slaughter hogs for the international market. Worse, it doesn’t have a meat packing or meat cutting plant to export pork as the commodity is traded in terms of cuts.
“It’s unlikely that the government could export pork to China this year due to lack of proper facilities. It could be done but maybe by big corporations,” a person familiar with the matter said.
Still, ProPork says opening up the Chinese market for local pork, even if only big corporations could take advantage of such, would still be beneficial to the industry.
Chen said allowing big firms to export pork would reduce the current oversupply, thus, slowly increasing farm-gate prices of live hogs. Some of the firms capable of exporting pork to China are San Miguel Corp. and Universal Robina Corp., Chen added.
Earlier, Piñol disclosed that Thai agricultural firm CP Foods Corp. is already processing its papers for the export of pork to China.
“The small backyard raisers will not be able to export, but the importance of opening up the Chinese market is for big corporations to reduce their supply, if Chinese prices are attractive enough, which would then create space in the domestic supply,” Chen explained.
“By then, the small backyard raisers would be the one filling up local demand,” he added.
Absent ASF’s impact
DEPARTMENT of Agriculture (DA) documents obtained by the BusinessMirror showed the DA estimates that the country would have a pork supply surplus of 331,393 MT on the back of higher output and increased imports.
This would mean that the country would have a buffer stock good for at least 69 days at an estimated 4,780.372 MT daily nationwide pork demand.
The DA also projects total pork production this year to hit 1.635 MMT, with imports reaching 440,517 MT.<
Total pork demand this year is estimated at 1.744 MMT with a total population of 108.106 million and a per capita consumption of 16.14 kilograms.
Without imported pork, the country would have a supply shortage of 109,124.696 MT, which is equivalent to 22.83 days, DA documents showed.
These government projections have not taken into consideration the impact of ASF on the global meat trade. Some industry sources, however, noted that the country’s pork imports could be reduced this year, according to a government official familiar with the matter.<
Self-sufficiency goal
“WHAT happens if the Philippines gets ASF and we lose our swine population? What happens?” Cham mused. “We do not know yet.”
For some analysts it is crucial for the Philippine government to ensure that its territory remains free from the dreaded swine virus or else it would face a more horrible enemy: price spikes.
Santoso said if the Philippines gets hit by ASF, then it would create a ripple effect across all meat prices domestically, with pork prices plunging due to knee-jerk reaction.
Santoso noted that pork imports by the Philippines have been steadily increasing, making it the top importer within Southeast Asia.
“The initial reaction to the ASF outbreak is typically a price drop, as consumers avoid pork and farms liquidate and hesitate to re-stock,” he said. “But eventually any shortage will inflate domestic pork prices and importers will also need to bid up pork prices if global supply is tight.”
However, displacement in pork demand could “create opportunities” for other meat and food suppliers, including poultry, beef and seafood.
For del Mundo, the devastation made by ASF in foreign countries should serve as a wake-up call for the government to ramp up investments in the livestock sector to improve local production.
If the country would be self-sufficient in production, then its supply would not be dependent on global suppliers and prices would not be dictated by exporters, she pointed out.
“Although I am an importer, I really do believe that our government needs to subsidize the farmers. To be honest, I see this as a blessing for our country and I think this needs to be taken seriously,” she said.
“For us, we should have an alternative. Our local production should be promoted very, very well. This is a good opportunity for us Filipinos to back up our agriculture and develop it,” del Mundo added.
