Audio: Persistently Low Prices, Weak Euro Fuel Large Volumes of EU Pork into Asia

Since losing access to Russia in early 2014, the European Union has been shipping large volumes of pork into key Asian markets. Due in part to sluggish demand within Europe, EU pork prices have been unusually low – and made even more competitive by the exceptionally weak euro. As U.S. Meat Export Federation (USMEF) Economist Erin Borror notes in the attached audio report, these circumstances have provided a strong tailwind for EU pork exports. But with prices remaining depressed for such an extended period of time, will the EU begin to see a decline in pork production? Borror explains that while European producers are in a tough period in terms of profitability, she doesn’t see a drop in production coming in the near term. Similar to when the EU implemented new animal welfare standards two years ago, some small producers may exit the industry but this will likely be offset by expansion of larger, more efficient operations. The EU’s trade impasse with Russia is also not likely to end anytime soon. Russia originally suspended imports of EU pork due to findings of African swine fever in some EU member states, and this suspension remains in place. But Russia also imposed an embargo on most food products from the EU (and the U.S., Canada and Australia) in August of last year, in retaliation for economic sanctions related to the ongoing conflict in Ukraine. Russia recently extended this embargo through June 2016.

TRANSCRIPT:

Joe Schuele: Since losing access to Russia in early 2014, the European Union’s pork industry has been shipping large volumes into key Asian markets. U.S. Meat Export Federation Economist Erin Borror has more details in this USMEF report.

Erin Borror:We’re in this odd situation where Europe’s hog prices have been below the U.S. for an extended period of time. Then you also have the strong U.S. dollar, so in other words, the weak Euro is also helping keep those European prices below U.S. levels and has made them incredibly competitive in the export market. So besides having pork that would have gone to Russia, and needing to find a home, they also have this currency advantage, so we’ve seen a huge influx of European pork into Asian markets since early last year, and that has continued into this year, with the latest trend being more focused specifically on China.

Joe Schuele: Despite this extended period of depressed prices, Borror doesn’t see a decline in production coming anytime soon.

Erin Borror:Even though profitability is not great, production has been up strongly in all of the main producing states so far this year, with the exception of France. It looks like the smaller producers are exiting in some cases, but larger producers are consolidating and becoming more and more efficient. So the European Commission forecast are for about a 2.8 percent increase in production this year and still are seeing about 1 percent increase in production next year. To also put the exports in context, they are also exporting less than 10 percent of production, so I think their export potential remains massive. They are producing more than double the pork we produce in the United States, and a lot of those products will continue to see demand outside of the European Union, especially loins and single-rib bellies – cuts that are very popular in Asia. I don’t see that letting up anytime in the near future.

Joe Schuele: For more on this and other trade issues, please visit USMEF.org. For the U.S. Meat Export Federation, I’m Joe Schuele.