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China’s African Swine Fever outbreak has global implications for meat trade

by Guest Author, 01 November 2018

Simon Quilty

Independent meat industry analyst Simon Quilty was the first to examine the implications of the African Swine Fever outbreak in China’s pig industry back in August. In today’s follow-up report, the first installment in a three-part series, he details why he believes China is about to embark on a large-scale meat protein import program, and tries to quantify how big these importations might be, based on history.

“Given the enormous protein needs of China’s domestic population and the potential effects of pork shortages, I believe it is inevitable that this demand will flow across into beef, chicken and lamb as alternate proteins will be needed,” Mr Quilty suggests …

 

 

 

HISTORY is repeating itself as African Swine Fever takes a tighter grip on China’s pork industry.

Yesterday US President Donald Trump said he thought there would be a “great trade deal” struck with China, and as a result stock markets responded positively with hopes for common ground on trade in next month’s talks with China’s President Xi Jinping.

Given the complications on the high tariffs that China has imposed on US pork and the impact this has had on US exports to China – this was welcome news.

I am of the opinion that China’s need to import pork on a large scale is imminent. Potentially, this could be one of the largest import government control programs in history. So with or without yesterday’s announcement by Trump, China, I believe, is likely to address very soon the pending pork shortages in the country due to the devastating impact of African Swine Fever (ASF) on domestic pork supply.

Previous swine disease episode provides guidance

The two latest cases found in the southwestern province of Yunnan last week are a key tipping point in the decision-making process of the Chinese government, whereby a large-scale government import pork program is as inevitable as it was 10 years ago during a previous swine disease outbreak – and as a Rabobank analyst recently put it: “Now there’s only some provinces that haven’t confirmed any cases but it’s very unlikely that they will be clean. Basically, it’s already everywhere”.

“Potentially, this could be one of the largest import government control programs in history”

One of the purposes of today’s report is to look back in history to 2006-2008 when China had a severe outbreak of Porcine Reproductive and Respiratory Syndrome (also known as PRRS Blue-ear disease) and compare that event to today, examining the same trigger points and the likelihood of a another comprehensive government import program.

I believe the similarity between the two diseases and how China’s Government reacted back 10 years ago and today is uncanny – in other words, it’s history repeating itself.

In 2007 and 2008, close to 480,000 tonnes of pork was imported directly into China in 10 months, and an additional 85,000t came via Hong Kong in 2008. These same trigger points are again present in China ten years later and I believe are an important guide on helping us understand the likely impact of the latest ASF outbreak – and if and when a large import program will occur again, involving not only large quantities of imported pork, but also chicken and beef from around the world.

As stated in my first report on this topic two months ago, African Swine Fever and its potential impact in China and Asia is a game-changer in disrupting the global protein balance sheet for years to come, and will inevitably lift pricing on pork, beef and chicken when the full effects of AFS come to fruition.

Learning from history – Blue Ear Disease 2006-08

Porcine Reproductive and Respiratory Syndrome (PRRS, or Blue-ear pig disease) is a highly pathogenic disease characterised as a reproductive disorder which causes premature delivery, miscarriage and stillbirths and results in a high mortality rates among young pigs. It first occurred in the summer of 2006 in China.

In August 2007 the Chinese Government announced that PRRS Blue-ear disease was under control, up until then the authorities had administered 314 million doses of vaccine to immunise more than 100 million pigs.

African Swine Fever (ASF) is also a highly contagious viral disease that affects domestic and wild pigs and impacts all types of pigs resulting in vomiting, diarrhea, gummed eyes, abortions, still births, weak litters, weakness and inability to stand – death within 48 hours is not uncommon. The disease can be spread by live or dead pigs, domestic or wild, ticks, and as pork products either in the frozen or chilled/fresh state. Contamination can occur via feed and fomites (non-living objects) such as clothing, vehicles etc – the disease is highly virulent and to date there is no vaccine or cure against ASF.

Recent outbreaks in southwest China takes the number of outbreaks to 42 nationally and more than 200,000 pigs have already been culled from the national herd. Four key pork supply areas are now infected which account for 25pc of China hog population which includes Yunnan, Sichuan, Guangxi and Guizhou provinces.

Impact on pork supply

PRRS Blue-ear disease impact on supply in China during 2006-2008 was different to today’s ASF. Due to infant pigs being impacted by PRRS, the effect on pork supply in China was a delayed one, due to the pipeline being full of barrows, gilts and sows of a more mature age that initially were not impacted by the disease.

As the generations were slaughtered the impact on the breeding herd became apparent within 6-12 months, with China’s pork production impacted in 2007 and 2008 even though the disease first impacted in 2006. In other words, it had a delayed affect.

A vaccine did exist for PRRS Blue-ear disease, which was crucial in China controlling the disease – 314 million vaccinations were given to 100 million pigs (3 x each) which saw the episode gradually come under control.

In contrast, ASF impacts the entire herd immediately, with death being normally imminent in 48 hours, but in some instances can take 7-10 days and, in many cases, the entire herd can be lost due to infection. ASF has a much higher mortality rate than PRRS Blue-ear and the disease in non-discriminatory, impacting all age profiles within the herd. The impact on the pork pipeline is therefore far more immediate.

When seeking advice from biosecurity experts on which disease was more severe in terms of mortality rates on the pig population, the overwhelming response was ASF.Given the nature of spreading of the disease differs from country to country (in extreme events like Cuba, the entire pig population was eradicated in the 1970s) the general consensus was that conservatively, AFS was at least twice as bad as PRRS Blue-ear disease. Mortality rates through death and culling could reach as high as 30pc of China’s 430 million head herd.

Lack of information was a problem in 2006-08, as it is today

PRRS Blue-ear pig disease occurred in two waves in China, with the first occurring from June to November 2006, and the second occurring at the start of 2007, lasting another six months. Initially the Chinese Government reported 400,000 pigs died during the first wave but later admitted one million actually died. Government reports on the second wave 2007 culling was 81,000 head and later confirmed the official cull was 165,000 head. The revised figures are still disputed many analysts saying they were much higher.

China at the time did not explain what the virus was, and did not send any samples to international testing authorities. China’s past lack of transparency — particularly over what became the SARS epidemic — created global concerns.

So far in 2018, China has officially reported 42 African Swine Fever outbreaks across the country, with a reported 200,000 head reported culled so far. To many experts, there is no doubt this figure is well understated for three reasons:

  • The high virulency of this disease compared to Blue-ear pig disease and its non-discriminatory nature whereby the virus attacks all hogs, no matter what age or sex
  • The wide distribution of the disease and the rate of its spread, and
  • The concentration of the disease in densely populated swine production areas namely, Yunnan, Sichuan, Guangxi and Guizhou provinces.

Panic selling has been a hallmark of both diseases, as producers in infected regions quickly try to sell hogs in the market before they contract the disease knowing full well that they would receive a discount on the animals, but compared to having their entire herds die this was a better option.

During the PRRS Blue-ear disease outbreak in 2006-2008, Chinese retail and wholesale pork prices lifted by 50pc and 95pc respectively, which led to a sharp increase in CPI levels that saw 3.5pc in May 2007. In 2018, CPI has increased for five months in a row, and is on track to reach the same critical CPI level of 3.5pc by March next year – a critical trigger point I believe that could see pork imports increased into China to lower pork prices and ease supply.

Estimating pig number losses based on imports

When assessing the true figure of culling back in 2006-2007, the correct figure may never be known, but one guide that could be used is using the import volume in 2008, which clearly filled the domestic void created due to culling and disease deaths. In 2008, 480,000t of pork was imported directly into China and an additional 85,000t into Hong Kong. Given the low figures of imports in 2007 and 2009 it is not unreasonable to assume this 2008 import volume reflected the loss in domestic production. The 565,000t in total imports that year equates to an equivalent of 14.5 million pigs, based on an average live pig weight of 200 lbs and a production yield of 43pc. It should be noted that this estimate represents several pig generations that would mean a cumulative affect over the 2006-2008 period.

Pork consumption remained steady 10 years ago, today might be a different story

In 2006-2007 it was believed that PRRS Blue-ear disease did not affect pork consumption in China. Reports at the time suggested consumers became desensitised to frequent reports of animal disease outbreaks.

In 2018 due to social media and in particular China’s facebook equivalent called ‘wechat’, there has been much discussion on ASF. On 14 September the Chinese Government shut down all forms of communication on the topic. The ruling Chinese Communist Party is clamping down on any public discussion of an outbreak of African swine fever among its pig population, shutting down social media accounts and detaining users who warn others not to eat pork, reports have said.

When discussing with biosecurity veterinarian experts and what would be a reasonable estimate of mortality rates of ASF compared to PRRS Blue-ear disease they agreed that AFS is far more virulent and that the impact would they estimate conservatively at twice the impact of PRRS Blue ear disease (or 30 million head) but could reach as high as 30pc of the herd (130 million head) to be culled over an extended period.

Though difficult to quantify, using history as a guide, then estimates on potential volume of imports ranges from approximately one million tonnes (double the PRRS impact) to five million tonnes per year of pork (30pc cull rate) to fill the potential void. When discussing these estimates with biosecurity experts, they said they would not rule out any of these potential import pork volume figures, given the aggressive nature of ASF compared to PRRS Blue-ear disease.

It is important to note that the lack of information and controlling of media by China is not due to ignorance or arrogance. Instead, I think it is all about trying to minimise social unrest.

I genuinely believe that China is possibly the most informed country in the world on ASF, and has been engaging with the FAO and other global groups on this matter for many years. This was seen in the FAO March report released this year on China’s vulnerability to ASF, and the ramifications should the disease spread. Equally we saw China’s active involvement in the Bangkok Emergency ASF meeting held by FAO last month inviting 16 countries to attend including China who played a lead role in discussions and outcomes.

Why China will undertake mass import of meat protein

Coming up in the next installment in this three-part series later this week:  Simon Quilty’s view on why China is likely to embark on a large-scale meat protein import program based on the impact of ASF. “Given the enormous protein needs of China’s domestic population and the looming effects of pork shortages from ASF, I believe history shows it is inevitable that this import demand will flow across into beef, chicken and lamb as alternate proteins will be needed,” he says.

 

Hear Simon Quilty at upcoming New England seminars

Northern Tablelands Local Land Services has scheduled a series of four market update seminars across the NSW New England area later this month, featuring analyst Simon Quilty as guest speaker.

Cattle and sheep producers are invited to attend the free seminars, titled “Mapping Australia’s livestock future.”

As Australia’s cattle industry enters a new price cycle, Mr Quilty will discuss how this is likely to unfold. He has extensively researched the factors that will drive livestock prices higher over the next four years, and will discuss global demand and supply factors and how these will be reflected in Australia’s livestock prices (both lamb and beef) in coming years.

Also speaking will be Northern Tablelands Local Land Services Livestock Officer (Sheep) Brent McLeod, who will discuss the sheep market outlook.

The schedule for the upcoming seminars is as follows:

  • Walcha Golf Club – Tuesday 13 November
  • Glen Innes Showground Tearooms – Wednesday 14 November
  • Inverell Rugby Club – Thursday 15 November
  • Tenterfield Bowling Club – Friday 16 November.

All seminars will start at 6pm, for a 9pm finish.

To register to attend one of the seminars, click here, or contact Beth Brown, NTLSS ph 02 6720 8305 or email beth.brown@lls.nsw.gov.au

 



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