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On Friday, September 5, the People's Republic of China announced that pork from the EU would be subject to new tariffs in order to be sold in its territory. This was undoubtedly the news story of the month, and probably of the year, in Spain. These tariffs vary by exporting company. In Spain, all operators are subject to a 20% tariff except for Litera Meats, which will only have to pay 15.60% thanks to its full cooperation with the Chinese authorities in the anti-dumping investigations carried out on European pork.
The Chinese government has published a list of the tariffs applicable in each case. Some large European companies face higher tariffs than Spanish companies: for example, Vion-Boxtel in the Netherlands will have to pay 32.70% and Danish Crown in Denmark 31.30%. Most operators will face a 20% tariff. In some cases, the tariff reaches 62.40%, as is the case for all Belgian operators. These tariffs are in addition to the generic 12.50% tariff that applies to all countries exporting to China.
These tariffs are, for the moment, provisional. There is a possibility that they will be deactivated, reversed, and the deposits made by exporters returned. It is also possible that they will become permanent.
This would be the current situation. The most common opinion in Europe is that these tariffs have been imposed in retaliation for those imposed by the EU on electric cars manufactured in China, although it is very likely that they are a reaction to the verbal incontinence and recklessness of a senior member of the European Commission.
A few weeks ago, we learned that the Chinese government is making strategic purchases of pork to sustain domestic prices. Chinese authorities are also recommending that producers reduce the number of breeding sows. These are two clear signals (like two flashing yellow lights) that would indicate that the Chinese market is oversupplied. It does not appear that there will be a change in the short or medium term, which makes us fear that these tariffs will persist. We must also take into account the presence of Brazilian and Russian pork in China: this is part of the new geopolitical reality.
It is clear that the European market will suffer unintended consequences as a result of this tariff. China has been Spain's largest market for many years, and with an extra 20% penalty, exports to China will be significantly reduced. In reality, exports from ALL EU members will suffer and be adversely affected.
It is impossible to fully assess the harm that the EU swine sector will suffer. Offal (China is by far the main customer for offal and viscera) that is no longer profitable to export will stop being produced, but not pork meat. All the cuts or trimmings that are no longer exported to China will have to be sold in other markets. Very likely, a significant share of that pork will be marketed within the EU, where it will only add to an already difficult situation.
The market downturn within the EU seems certain between now and the end of the year. Let's look at some reasons (several of which have already been discussed):
- Slaughter within the EU this year is higher than last year. In addition, average carcass weights are higher.
- Pork consumption is not taking off; consumers' economic difficulties are weighing on the appeal of pork.
- The EU has a surplus and needs to export part of its production. Access to third-country markets is very complicated due to Brazil's aggressive stance.
- The undeniable recovery of Spanish livestock will lead to more intra-Community supply. This will not help.
- Significant quantities of pork that were sold in China will now be sold within the EU. This will not help either.
In this market scenario, riddled with adverse factors, we believe that there is no other possibility than for prices to go down and down. Pig prices will fall, both in Spain and in the rest of the member countries. The market has to find a new equilibrium point. In November (or December) we will know where we stand.
The global landscape is constantly changing. Production in Latin America is currently growing steadily, led by Brazil (with double-digit annual growth). Russia has made giant strides and will be a formidable competitor in Asia. In the EU, we are the champions of regulations and standards of all kinds, which reduces our competitiveness in the wider world. It is very likely that the EU will reduce its overall production to reach 105% self-sufficiency in a few years.
September has brought a decline in prices; we have not yet reached the bottom. In Spain, we ended August with a price of €1.643/kg live, and four market sessions later, we are at €1.52, a drop of no less than 12 cents (to which must be added the 17 cents already discounted in July and August). It is still impossible to know where the price floor will be this year; what is clear is that we will end the year well below where we ended last year. We are probably in a new paradigm.
At the successful Business Forum during the 333 Experience Congress, which recently concluded in Lleida, we were able to tangibly appreciate the strength and power of Latin American swine production: there is no doubt that the future holds difficult challenges for us Europeans. Some of these challenges may be insurmountable.
We will conclude today with a pithy quote from the great Chilean poet Pablo Neruda: “Let us sow the plain before plowing the hill.” A pristine invitation to keep our feet on the ground.
Guillem Burset
