THE CHINESE MARKET FOR U.S. PORK EXPORTS

Abstract

China feeds twenty-two percent of the world's population on seven percent of its arable land. In contrast, the U.S. and Canada own seventeen percent of the world's arable land, but feed only five percent of its people. As China's income increases, its people will demand more livestock products, including poultry, dairy, beef, and eggs, and more alcohol. Potential Chinese import demand for pork is examined in this paper. The question facing Chinese policymakers is whether to follow their current policy of food self-sufficiency or allow imports of pork muscle and variety meats. Projections of Chinese production and consumption indicate that, by the year 2007, China could import up to 9.1 million metric tons (product weight equivalent) of pork. The current Chinese government is very opposed to food imports of any kind. However, China has applied for entry into the World Trade Organization. Negotiations on China's entry could include access to China's pork market, and it is most likely that access could be gained to the variety meat market. The implications of two opposing scenarios are examined in this paper: first, China continues its policy of self-sufficiency; or second, China allows imports of pork variety meats. Self-Sufficiency Scenario: The anticipated increase in livestock production will cause feed grain consumption in China to increase more rapidly than production. Once China becomes a permanent net importer of feed grains, its prices will rise to reflect world feed grain prices plus transportation costs. This development will make China's pork products more expensive than imports. This simple line of argument means that China is about to modernize and expand the world's largest pork industry in the wrong place. Expanding pork production in China instead of allowing imports from efficient producers will cause an enormous misallocation of world resources. The Chinese people would benefit more if China concentrated on labor intensive crops and allowed for the free importation of livestock products. Import Access Scenario: Where the pork market is concerned, U.S. and Chinese consumers complement each other. Chinese people like variety meats, whereas U.S. consumers prefer pork muscle meats. Because of its dominance in the world market, China would be able to determine world prices if it allowed free importation of variety meats. The drop credit, which is the value of the pork variety package, is estimated to increase by 45 percent. However, the increase in the value of the pork variety package would not imply an increase in prices in the U.S. domestic market which largely consumes pork muscle meats. Implications for U.S. Producers: Even if China does not allow imports of pork, U.S. producers will still benefit from increased Chinese demand. Due to projected increased consumption over the next ten years, it is likely that China will stop exporting its current level of 150,000 to 200,000 tons of pork muscle meat. If China does allow free importation of pork variety meats, the increased value of the U.S. drop credit would add $4.72 to the value of each hog carcass or about $1.90 per hundredweight. For the U.S. pork industry, the net annual benefit of access to the Chinese market would be approximately $300 million per year. Hayes argues that opening this market may be feasible as part of negotiations over China's entry to the World Trade Organization. Regardless of how Chinese pork market policy evolves, the demand for U.S. feed grain will increase, causing some movement of land in the U.S. from wheat production into feed grain production.