CHINA has this week announced a ban on all Canadian meat imports.

The decision follows claimed detections made on Tuesday by Chinese custom inspectors of residues in Canadian imported pork products from the feed additive, Ractopamine, and potentially serious accusations of forged export certificates on Canadian pork exports into China.

Simon Quilty

The beta agonist growth promotant product Ractopamine is permitted domestically for use in beef cattle and pigs in North America, but is banned in China. It is not registered for use in Australian beef production.

The Chinese Embassy in Canada said an investigation of Canadian health certificates attached to a batch of pork exported to China them to be counterfeit, and put the number of forged certificates at 188 in total – citing this as a criminal offence.

China officials said the forged certificates were sent to the Chinese regulatory authorities through the normal Canadian official certificate notification channel, which they suggested reflected ‘safety loopholes’ in the Canadian meat export supervision system.

The Chinese embassy said that urgent preventative measures were needed to protect Chinese customers and it had subsequently asked the Canadian government to suspend all meat export certificates to China.

In the last few months China has also stopped Canadian canola and suspended import permits for three Canadian pork producers.

Canadian government officials are treating the matter as a technical issue and have stated that the integrity of Canadian pork was very high and that the issue was more related to potential fraudulent activity.

Participants in the trade believe that the ban is really due to the diplomatic dispute over the December arrest of Huawei executive Meng Wanzhou in Vancouver.

This week, world leaders meet at the G20 in Japan, and Canada’s Prime Minister Trudeau is expected to raise the import suspension issue, as well as the plight of two detained Canadians, directly with Chinese President Xi Jinping, in an effort to lift the ban.

It should be noted that this ban is on all Canadian meat exports. For the January-May period this year, China has imported 105,347 tonnes of Canadian pork and 7171t of beef.

The initial reaction is that the ban is likely to be bearish on North American pork prices as Canadian pork is pushed back onto the Canadian, US and Mexico domestic markets.

China in 2019 has been until now the largest buyer of Canadian export pork, taking their market share to 34pc of total pork exports. This is likely to stop for the foreseeable future. In 2018 Canada exported 1.33 million tonnes of pork, which makes up 63pc of their total pork production.

The US was the largest export destination taking 28.6pc, followed by Japan 22pc, China 22pc and Mexico 8.7pc.

Given the recent exemptions granted by the Chinese government to importers of US food products including pork (see more detail below), I believe this ban might see a surge in US pork exports to China as the 32,000t per month of Canadian pork that had been going to China is likely to be replaced by US pork.

Effectively, Canada pork could displace US pork domestically ensuring even greater volume of US pork goes to China.

Back in 2017 Australia had six plants delisted for China, that took almost five months to be reinstated. This was over labelling issues at the time.

It’s hard to imagine that this Canadian situation will be resolved any quicker and should the real reason be the Huwei executive then reopening of trade may be delayed for years not months if that issue festers.

When evaluating who can fill the supply void quickly, the US is the standout supply country in terms of available capacity, an ability to respond quickly and lastly, the current low price of hogs in the US. The recent tariff exemptions in China for US food imports and Canada’s ban could be the catalyst that US pork exporters have been waiting for.

China import tariff exemption

I have received a number of queries since news on the China ban from readers not aware of the China Import Tariff Exemption for US product. I raised this recent initiative by the Chinese government in my discussion paper earlier in June, and summarised below.

The Chinese Government sent out a directive in May inviting Chinese import companies to apply for 12 month exemption from paying the current 50pc import tax that has been imposed on imports due to the ongoing US/China trade war. This new China policy I believe is all about reducing the cost of US products and in particular US pork for Chinese importers and consumers.

The China government has requested all applications to be received between June 3 and July 5 to apply for exemptions, covering a wide range of goods including beef, pork, chicken, fruits, seafood and dairy products. The list of agricultural items is extensive.

Applicants seeking tariff exclusion must submit documentation and commercial data describing how additional ad valorem tariffs on Chinese imports of US agricultural goods (1) face challenges seeking alternative sources of goods; (2) cause serious economic damage to the applicant; and (3) cause major negative structural impacts on the relevant industries or lead to serious social consequences.

This to me is one of many steps to be taken by the Chinese Government to start importing large volumes of US pork and any other protein products from the US to meet the expected protein shortfall due to African Swine Fever.

The critical date seems to be July, and I would not be surprised if product on the water arriving in June and July will be exempt under this new import scheme.