China-based pork producers could be bringing home the bacon amid escalating trade tensions between Beijing and the White House.
China's Ministry of Commerce announced March 23 that it intends to impose tariffs on up to US$3 billion of U.S.-exported products. The proposal includes a 25% tariff on eight U.S. products including pork and aluminum, in addition to a 15% tariff on 120 products such as fruit and nut products, wine, ginseng and seamless steel pipes.
The ministry said its plan was in response to new U.S. tariffs on steel and aluminum, which went into effect March 23. But the announcement also came shortly after U.S. President Donald Trump's proposal for US$60 billion in annual tariffs on Chinese goods.
Ma Wenfeng, an analyst with Beijing-based agricultural consulting firm CnAgri, told S&P Global Market Intelligence that it would be a positive move overall for the domestic agriculture industry if China's reciprocal tariffs go through.
"If the cost of imported pork rises, pork prices at home [in China] could see a rebound, benefiting domestic pork-producing companies and farmers," he said in an interview.
Following the commerce ministry's announcement, shares jumped March 23 for several pork-affiliated companies in China, including pig-breeding companies Guangdong Wens Foodstuff Group Co. Ltd. and Muyuan Foods Co. Ltd. as well as animal-feed producers Shandong Xiantan Co. Ltd. and New Hope Liuhe Co. Ltd. All are listed on the Shenzhen Stock Exchange.
However, Hong Kong-listed WH Group Ltd., the world's biggest pork producer, dropped 4.65% to close at HK$9.03. WH Group owns Smithfield Foods Inc., a U.S. meat-processing company acquired in 2013.
In recent years, pig farmers in mainland China have encountered pressure from inflation and higher costs for real estate and logistics, according to Ma. At the same time, they have been challenged by pork imports from North America and Europe, which are typically 50% cheaper than domestic products.
"Imported pork now accounts for approximately 10% of the total output of China's major pork-producing enterprises, as their low prices help companies compete in a price war," the analyst added.
If Chinese pork prices could potentially recover, that may incentivize more farmers to breed pigs and in turn help push up the price of corn, which is a key form of feed for the livestock, according to Ma.
Pork has a prime role in the Chinese diet, accounting for more than 60% of China's total meat and poultry consumption, according to the National Bureau of Statistics. The country is also the world's largest producer and consumer of pork, with a consumption rate of 19.6 kilograms per capita in 2016.
Population growth, economic development and increasing incomes are further boosting the demand for pork. China's total shipments of pork from abroad surged from 7,011 in 2011 to 23,300 in 2017, according to Panjiva, a global trade data firm owned by S&P Global.
Panjiva data also shows that pork from the U.S. comprises about 14.4% of the total shipments of the meat to China. The next-biggest pork exporters to the country are Spain with 13.5% of the shipments, and Germany with 11%.