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Banff Pork Seminar 2010

Memo to pork industry: Watch China

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Date posted: January 25, 2010
Chenjun Pan
Chenjun Pan

Pork producers wondering where their industry is headed in the next few years may find at least some of the answers will come from a huge and powerful nation half a world away.

What happens in China will be a significant indicator of what happens in North American economies, including the pork industry, two leading financial experts told the Banff Pork Seminar.

On the pork production side, China produces and consumes half of the world's pork meat and it's a marketplace that is rapidly evolving, says Chenjun Pan, Senior Manager with Rabobank based in Beijing, a leading international banking institution with a strong presence in agriculture. That has significant implications for the Canadian pork industry and the companies that provide products and services to that industry.

Consolidation is a major trend in the Chinese pork industry both in the farming and slaughtering sectors and the ongoing structural changes will have three primary implications for international players, says Pan. First, demand for technology, knowledge and food safety systems will create opportunities for international players to break into the market.

Rather than focusing strictly on production, the government has also made food safety, genetic improvement and enhanced productivity key priorities, she says. "Given China's current gap in those areas, the potential for foreign companies to leverage advantages and play a role in China's pork market is immense."

Second, import potential continues to grow for specific products such as dark meat, high end products and specific breeds. "China's increasing wealth and westernization of lifestyle is giving rise to a high-end consumer segment," she says. "While still a niche market it is growing at double digit rates, opening opportunities for western-style processed meat."

Third, while demand for pork, especially safe pork, is excellent, China is unlikely to rely on pork imports. However, it may import feedgrains, says Pan. "The dramatic change in the farming models and limited land and water to grow crops begs the question of whether China will have the resources to feed its growing livestock population in the decades ahead. China is expected to import large amounts of soybeans and soybean meal, and will become a small net importer of corn in the coming years."

Douglas Porter
Douglas Porter

Douglas Porter, Deputy Chief Economist and Managing Director with BMO Capital Markets in Toronto, says in many ways we are witnessing in global economic terms, the passing of the baton from the U.S. to the rest of the world, especially China. The auto industry is a prime example. As recently as 2005 the U.S significantly outsold China, he says, but last year China sold more automobiles than the U.S.

The global economy was hard hit in this recession, but the economies in China and India kept on going, he says. That will continue. Asia is expected to be strong this coming year.

"China is catching up to western living standards. They have a ways to go, but when you look at where they are now and where they would like to be, that growth is sustainable," he says.

One reason that the North American economy will be driven by these new markets is that coming out of this most recent recession, the world has been left with a weakened U.S. consumer. As a result, that U.S consumer will not come to the rescue of the global economy as they have in the past, he says.

China will have a significant effect on the Canadian dollar, a key factor in the economic success of the export oriented pork industry. "Whatever happens in China drives what happens in commodities," he says. "The loonie and commodities are directly linked."

"Look for the Canadian dollar to strengthen over the next couple of years," he says. "And watch for U.S protectionism to rise aimed at China. That's because China has relentlessly become the main supplier to the U.S."

Porter believes the country may be seeing the end of the recession, with record low interest rates, the priming of the fiscal pump, credits markets that seem to be healing, house prices that have stabilized and a banking system that appears to be functioning well in Canada, at least. The recovery will not be quick, he says, and risks include rising oil prices, rising bond yields and the rising Canadian dollar.

Held since 1972 in Banff, Alberta, the Banff Pork Seminar is coordinated by the Department of Agricultural, Food and Nutritional Science, University of Alberta, in cooperation with Alberta Pork, Alberta Agriculture and Rural Development and other pork industry representatives from across Canada.

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