China will raise its tariff for pork imports by four percentage points to 12% at the start of next year, according to an official announcement by the country’s Finance Ministry on Wednesday.
This is another cause for angst among meat exporters as shipments to China have dwindled this year due to surging domestic hog supply and a simultaneously slumping pork price in China.
“There are plenty of hogs domestically… There is no need for imports,” said one China-based soymeal trader.
The size of the hog herd has returned to its pre-African Swine Fever (ASF) level, and the sow population is estimated at 106% of pre-ASF level.
Nonetheless, higher tariff shouldn’t come as a surprise as China often prioritize keeping value-adding activities within the country, and the tariff structure typically reflects those priorities.
In the case of pork, China prefers to import more of the raw materials including soybeans and maintain most processing and producing activities in the domestic market, rather than rely on directly importing more expensive soybean meal or pork from abroad.
End of a cycle
Prior to the tariff change, the Chinese pork market has already begun to rebalance in 2021 with pork price halved since the beginning of this year. This was quite a shift considering that pork price hovered at historically high level in the previous two years against the backdrop of ASF.
China previously lowered the pork import tariff when ASF decimated China’s hog herd in 2019 and triggered hog and pork prices to skyrocket. The hog herd plunged from more than 350 million heads in 2017 to less than 200 million heads in the third quarter of 2019.
Hence, Chinese pork imports began to spike in 2019, and surged to a new record high of 4.38 million tons in the following year. But the volume is on track to fall more than 10% year on year in 2021, and it is likely to drop further next year.
Bearish spill-over
Low domestic pork supply not only boosted import margins for the meat in 2020, but also widened profits for soybean and corn imports.
Soybean crush margins and corn import margins in China soared in 2020 as Chinese pork output and hog herd expansion was underway. China’s import volume for the oilseed hit more than 100 million tons in 2020 calendar year, and that for the grain also more than doubled to 11.3 million tons last year (which has continued to grow exponentially to 26.2 million tons in the first ten months of 2021).
However, the tide turned quickly in early 2021 after the market realized that it was flooded with excessive hog supplies and those margins mostly slid into the negative territory.
Total soybean imports in 2021 calendar year are expected to fall from the peak last year with the volume currently standing at 87.7 million tons as December figure has not been released.
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