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Pork and Allied Industries Committee Report

by Randy Spronk, Chairman

Randy Spronk

The USMEF Pork and Allied Industries Committee met May 21 at the USMEF Board of Directors Meeting in San Antonio. Much of our time was spent examining the competitive landscape for U.S. pork exports, focusing primarily on fierce competition from European pork in key North Asian markets. Suppliers from the European Union have intensified their focus in this region since Russia closed to EU pork. This occurred in late January 2014 after findings of African swine fever in Lithuania, Latvia and Poland. Russia was historically the EU’s largest pork export market, taking about 500,000 metric tons (mt) per year. This impasse made large volumes of EU pork available for export to other markets at lower-than-normal prices – a price advantage compounded by the fact that the euro has lost about 20 percent of its value versus the U.S. dollar in the past year.

National Pork Board (NPB) Chief Executive Officer Chris Hodges provided details on the effort to generate additional market development funding to help the U.S. pork industry deal with its upward trend in production. He expressed confidence that these supplemental funds will have a positive impact on demand in both the international and domestic markets. Sharing insights from his recent meetings in Japan and South Korea, Hodges noted that industry leaders in these markets remain very concerned about porcine epidemic diarrhea virus (PEDV) and were pleased to learn about the U.S. industry’s efforts to combat the disease. He added that the opportunity to meet with top executives from leading pork buyers in Japan and Korea was very productive, and thanked USMEF staff in the region for making this possible.

Hodges also discussed the extremely important role China plays in the industry’s long-term export goals and the issues that must be addressed in order for U.S. pork to maintain consistent, reliable access to the Chinese market. With only a small number of plants currently eligible for China, it is difficult to establish enough product flow to justify promotional support in the China/Hong Kong region. It was noted that the recent slowdown in U.S. exports to China hit the industry particularly hard on the price commanded for pork offal. The business climate for imported pork appears to be on the upswing in China, but it will be difficult for the U.S. industry to capitalize unless more plants are re-approved for export.

Dan Halstrom, USMEF senior vice president of marketing, presented the committee with a breakdown of USMEF’s unified export strategy (UES) for pork, in which priorities are established for the use of USDA Market Access Program (MAP) and Foreign Market Development (FMD) program funding. USMEF is in the process of finalizing its UES application, which will be submitted to USDA June 8. Halstrom noted that preparation of the UES is really a year-round process in which input is gathered from all sectors of the industry and utilized in setting priorities. This year that process included an April workshop in which many key stakeholders from the pork industry contributed to the preparation of the UES.

The challenging environment in North Asia is a major factor in setting promotional priorities for the coming year. As the largest pork importer in the world, it is not surprising that Japan is a primary target of the EU pork industry. USMEF will focus on defending U.S. market share and displacing European pork through the new “GOCHIPO” promotional campaign, which is one of the activities supported by supplemental NPB funding. Halstrom explained that the main point of emphasis in this campaign is that U.S. chilled pork sold in Japan is “fresh, never frozen” – a direct challenge to the frozen-then-thawed EU pork being sold at retail. European suppliers gained traction with this strategy during the West Coast port crisis earlier this year, when it was particularly difficult for U.S. suppliers to get chilled pork shipments to Japan in a timely fashion.

USMEF-Korea Director Jihae Yang provided an overview of the South Korean market, where per-capita pork consumption continues to increase. At the same time, Korea’s domestic pork production has slipped about 2 percent from a year ago due to the impact of PEDV, a recent outbreak of foot-and-mouth disease and a voluntary sow herd reduction plan that was implemented by the Korean government following a period of high production in 2012 and 2013. These factors contributed to a year-over-year increase in domestic carcass prices of about 16 percent, creating a favorable market for imported pork that is expected to continue into the summer months.

Yang cautioned, however, that the imported pork market in Korea is intensely competitive. Similar to the situation in Japan, suppliers from the EU – especially Germany and Spain – have been particularly aggressive in Korea since they lost access to the Russian market. Last year Korea’s imports of pork from Germany doubled and imports from Spain increased 85 percent. Through April, this year’s imports from Germany and Spain are up another 70 percent and 36 percent, respectively. It is also important to note that European suppliers have expanded the range of pork cuts they target toward Korea. While they used to focus almost exclusively on supplying single-ribbed bellies, large volumes of picnics and collar butts are now being shipped to Korea – creating more head-to-head competition with U.S. pork, especially in the processing sector. But U.S. pork continues to perform very well in Korea, with exports through March up 43 percent year-over-year in volume (57,376 metric tons) and 55 percent in value ($180.4 million). Increasing buyer loyalty among Korea’s pork processors is one way to help maintain this momentum, and this will be a major focus of the activities supported by supplemental NPB funding this summer. Efforts to promote U.S. pork to the Korean barbecue restaurant sector – a key purchaser of collar butts, will also be bolstered by supplemental NPB funding. Yang also noted that chilled U.S. pork is available in more Korean supermarket chains this year than in 2014, creating more opportunities for cooking and tasting demonstrations.

Nick Giordano, vice president and counsel for international affairs for the National Pork Producers Council (NPPC), joined the meeting by conference call and provided the committee with insights on several key trade policy issues under debate in the nation’s capital – including trade promotion authority (TPA). He explained the critical importance of TPA in giving U.S. negotiators the tools they need to complete current trade agreement negotiations, and for getting those agreements an up-or-down vote in Congress without being saddled with numerous amendments. Legislation to renew TPA cleared the U.S. Senate on May 22, but has not yet been taken up on the House floor. Giordano also gave the committee an update on the Trans-Pacific Partnership (TPP) negotiations. He noted that while a ministerial round of TPP talks scheduled for late May has been postponed pending congressional action on TPA, the TPP negotiation process appears to be close to completion.

The country-of-origin labeling (COOL) dispute with Canada and Mexico was also discussed, with Giordano noting that following the recent WTO Appellate Body ruling that went against the U.S., the House Agriculture Committee took swift action to move a bill forward repealing COOL requirements for red meat and chicken. It is critical that the U.S. avoids implementation of retaliatory measures by Mexico and Canada, which are both key markets for U.S. pork.

Giordano also noted that NPPC has made progress in its efforts to regain market access for U.S. pork in South Africa, with recent debate on renewal of the African Growth and Opportunities Act (AGOA) providing an effective vehicle for discussion of South Africa’s non-scientific trade restrictions.

USMEF Exporter Committee Chairman Mark Gustafson gave a summary of his committee’s discussions from earlier in the day, noting that much of its focus was also on the need to regain approval for more pork plants to export to China.

The committee also considered and voiced support for a resolution originating in the Beef and Allied Industries Committee which is related to trade with Cuba. The resolution encourages organizations that support expanded trade with Cuba to advocate for the statutory and regulatory changes necessary to allow USDA program funding and checkoff funding to be used for market research and market development activities in Cuba. This resolution was approved the following day by the USMEF Board of Directors.

If you have questions about any items discussed by the Pork and Allied Industries Committee, please contact staff liaison John Hinners at jhinners@usmef.org or call 303-623-6328.