Growing Pork Trade
Enhances the Significance of Quarantine and Disease Status
General Manager, Policy, Australian Pork
power of pork
share in the global market
share in the domestic market
competitiveness in a global market
barriers to efficiency
Responding to the
challenges – strategic imperatives
to the easing of quarantine restrictions in 1990, the international
competitiveness of the Australian pork industry was not critical to its
profitability. The focus of the
industry then was almost solely on the domestic market.
But a few years ago all that changed and the industry stood on the
brink of devastation. The
combination of falling prices and changes in domestic quarantine in 1994-95
caused more than 1000 (23 per cent) producers to leave the industry with
hundreds more leaving over 1997 and 1998, forcing a radical restructure and
rethink by the industry of its future (Productivity
Commission Pig and Pigmeat Industries1998).
The question was where to from here?
the picture is far different. The
Australian pork industry now competes in a global market and is influenced
by world trends that influence supply and demand with profitability
determined by the relationship of input costs to pricing.
The Australian pork industry is unlikely to be competitive in price
based commodity markets; it has proved competitive in growing niche markets
based on its freedom from disease.
It is Australia’s unique and unparalleled health quarantine health
status that underpins the future of the industry.
recovery and continuing growth of the Australian pork industry, as witnessed
by the near record prices and profits in the last 18 to 24 months, has been
due as much to good fortune as to good management.
The challenge for the Australian pork industry will be to continue to
increase both its export and domestic markets in a reliable and
cost-effective manner against strong competition from not only other pork
producing nations but from other protein sources as well.
power of pork
pork is the most widely consumed form of animal protein at around 40 per
cent of world meat consumption (Federation
of Danish Pig Producers and slaughter houses, 2001).
It is the world’s most popular meat – followed by poultry, then
beef and veal and then mutton and lamb.
has seen solid growth in both total production and per capita consumption
terms in the past ten years, creating an increased trade of pork within
regions and between countries. International
trade in pork has increased at the rate of six per cent per annum over the
last five years and is projected to keep rising, with strong demand from
China, Japan, Russia and Mexico. Nevertheless, trade in pork is still at a
relatively low level at around four per cent of total production compared to
11 per cent for other meats (Rabobank
growth in international trade is driven by:
in world population growth.
economic growth in developing and transition economies.
in dietary patterns, with demand for meat increasing in developing
countries in line with increasing wealth.
differentiated pattern of production and consumption in developing
countries, where increased production may not keep pace with increased
growth is further reinforced by the fact that international trade remains
the lowest risk cross border strategy compared to foreign direct investment
which requires more extensive capital and human resource requirements (Rabobank International 2001).
share in the global market
only 0.4 per cent of world pork production and accounting for only 1.4 per
cent of world exports, Australia is close to being the “runt of the
litter” in the global pork industry.
Australian production as a Portion of World Production (2000)
(Macarthur Agribusiness 2001).
Australian Exports as a Proportion of World Exports (2000)
(Macarthur Agribusiness 2001).
trade terms, the industry is dominated by the European Union (notably
Denmark and the Netherlands), Canada and the USA, while in production terms,
China is a clear leader against the USA, the EU, Canada, Poland and Russia.
Leading pork-importing countries are Japan, Russia, USA, Eastern
Europe, China and South Korea.
1: World pig meat production – 2001 (Forecasts)
USDA, as cited in Dankeslagterier Statistics 2000
meet the challenges of the changing business environment, Australian
producers have looked to invest in and applied leading global technologies,
gain economies of scale and scope to vertically integrate.
This has seen the number of farms reduced from 20,000 to less than
3,000 within a ten year period and yet the average herd size has increased
six fold to 115 sows accompanied by a 30 per cent increase in slaughter
weight to 72 kilograms. The
industry now has 300,000 sows, 15 per cent less than in 1981, but produces
five million pigs per year, a 20 per cent increase.
gross value of pig production in 1998-99 was only $690m compared to $792m in
1999-00 and forecast of $855m in 2000-01.
modern technology, genetics and production lines and the processes yielding
lower costs are quickly copied, there is little chance that the Australian
pork industry can ever match the Canadians, the Danes or the US in export
volume or on price.
share in the domestic market
prices have risen considerably in the domestic market in the last two years,
overall consumption compared to other meat competition has remained
relatively static. The trend in
the consumption of beef and lamb has continued to decline, while poultry has
made the fastest gains in its share of Australian stomachs in recent years.
Australian meat market share (%)
Beef & Veal
Lamb & Mutton
ABARE & APL
static demand for pork reflects the relative size and maturity of the
domestic market. Nevertheless
there has been a fundamental change in the demand for pork based products
reflecting increased consumption of fresh pork, processed bacon products in
fast food and a decline in bacon consumption in the home.
Demand for ham from supermarkets and butchers has fallen whilst use
in convenience foods is static.
developed markets where there are limited options for independent growth,
consolidation in the domestic market has been the traditional way for
producers to expand – and that is exactly the approach the Australian
industry has taken in the past. But
now the industry is building ‘productive capacity rather than chas(ing)
production increases just to reduce costs of production.’ (APL
Chairman, APL AGM 2001).
Australian pork industry has seen a dramatic change in its market dynamics
in recent years with a rapid expansion of its export trade while
concurrently facing considerable import competition.
The domestic market, while of critical importance to the
sustainability of the industry, is mature and therefore offers limited
growth opportunities. It is the
export industries and value added industries that offer significant growth
the last four years the industry has moved to capture and build export
markets. Since 1997 demand from
overseas markets for Australian pork has increased substantially from just
1.9 per cent of Australian pork production to 14 per cent in 2001. Growth in farmed exports has been spectacular, increasing
from $45m in 1998 to $107m in 1999, more than doubling to $221m in 2001.
The industry is set to achieve 20 per cent exports by 2002.
However, this rapid growth
has not come without a price, albeit a positive one.
The cumulative effect of growing export demand has reduced the supply
available for the Australian domestic market, leading to a recovery in
domestic prices over the last two years. The industry now finds itself in a
position where the demand for Australian pork, particularly in export
markets, is outstripping the capacity of the industry to supply.
Whether these prices are sustainable in the near future will depend
very much on:
quickly production can be increased.
from international competitors in the terms of import replacement.
industry’s production growth relative to growth in export markets.
Australian pork producers and their
associated processors will need to continue to respond to the export
challenge by progressively increasing supply whilst ensuring that there is
adequate domestic supply to counteract the aggressive marketing of major
world pork exporters like Denmark and Canada who export $140m of pork into
Australia annually. The level
of imports and their price has had a significant impact in the past on
Australian pig meat prices, particularly in 1992, 1997 and 1998.
5: Australian Pig Meat Prices
its 2002 Outlook, ABARE forecast that prices in the pork industry would be
less favorable towards the end of this year due to rising global production
following the current level of higher prices.
People in the industry, however, take a more positive view.
The APL’s production surveys confirm that Australian pig producers
will be expanding their operations in the coming year, spurred on in part by
high prices. They also indicate that this expansion is being aimed at
competitiveness in a global market
Australian pork industry has been experiencing near record profits in the
last two years. Most of the
increased margin being enjoyed by Australian producers is from higher
prices, at the expense of the domestic customers and processors.
It is only natural that these businesses will attempt to reduce the
cost of their inputs, leading to an increase of pork imports into Australia.
prices also make the Australian domestic market attractive to our
international competitors and there will be strong competition for both
Australia’s domestic and export markets from other countries.
It is therefore vital that the Australian pork industry identifies
and extends its current competitive advantages and/or removes its
constraints to global competitiveness.
compared to pork industries of the major producers and export competitors
the Australian pork industry’s key competitive advantages appear to be:
relative freedom from diseases.
to Asia and capability in exporting fresh chilled pork to those Asian
exchange rate conditions.
industry’s weaknesses are:
small domestic population.
feed prices and security of supply.
need for further development of the processing industry.
and grain supply prices are probably the biggest constraints to the pigmeat
industry. Feed inputs account
for about 60 per cent of the total cost of pig production (the single
largest input cost) and during times of regional or national shortage it has
the potential to significantly impact on the viability of the industry and
its ability to compete internationally.
Australian pork producers need feed grain security to ensure their
capacity to satisfy export and domestic demand.
APL is working closely with other intensive livestock industries
through the Feed Grain Action Group to find effective and workable solutions
to this critical issue.
and zoonotic disease will play a major role in determining where pork will
be produced globally and market accessibility.
As a result of geographical isolation and the application of sound
quarantine procedures for imported livestock, genetic material and animal
products, Australia remains free of the major epidemic diseases of livestock
and many of the serious diseases of swine.
high standard quarantine status and disease freedom enables Australian
producers to produce pork differently than rivals.
High health status provides a key competitive advantage in accessing
and securing Asian markets, as well as preserving the domestic market.
Thus disease prevention is a key priority for the industry.
The APL currently spends about 50 per cent of its research and
development budget on meeting consumer demands for safer, higher quality
pork. There are strong incentives for Australia to prevent the introduction
of diseases that affect either the cost of production or the desirability of
the product produced.
proximity to Asia also enables the industry to concentrate on supplying
Asia’s preference for fresh (chilled) pork.
Australia mostly exports fresh chilled (73 per cent), or frozen pig
meat (21 per cent) but also exports preserved or processed pigment and
offal. Fresh chilled pork is
predominantly exported to Singapore and Japan.
Although Australia currently supplies only 1 per cent of Japanese pig
meat imports it has the capacity to significantly increase exports to this
market. If Australia succeeds
in just doubling this market it would have a major impact on the Australian
pork industry and in turn be a significant factor to its further expansion.
the Australian pig industry is globally acknowledged as a leader in pig
research and development. Producers
have gained advantage from the research investments of APL and many of the
technologies developed have been a world first and some (such as Pig Pulse
and Auspig) remain exclusive to Australian producers
The challenge is to continue to develop R&D programs that further
enhance profitability, productivity and quality of the product.
barriers to efficiency
the Australian pork industry supply chain has undergone considerable
structural change, the efficiencies that have been achieved overseas are yet
to be fully realized here. While
the processing infrastructure is no longer a constraint to industry growth
in export markets, it is nevertheless less advanced and less progressive
compared to competitors such as the USA.
example, payment in the USA is based on a lean meat yield rather than the P2
payment grid system used in Australia (P2
measures the thickness of backfat and there are price penalties if backfat
does not meet this specification). The
P2 payment system tends, however, to lead to the redistribution of fat, and
this can have international marketing implications since a carcass that
appears lean (based on P2) may have unacceptable amounts of fat in other
parts of the carcass. This also
results in the genetic selection of animals in which improvement in lean
content is more cosmetic than when based on lean meat yield.
the industry continues to pay on the basis of P2, genetic selection programs
will be determined by the correlation between P2 and growth rate.
However, in developing its selection procedures and technologies,
Australia must also consider that its future now rests on both the
international and domestic market place and that the current approach may
adversely effect its international competitiveness by potentially affecting
cost and product quality.
issue is further complicated by the concept of ‘rind on’ or ‘rind
off’. Australian small goods manufacturers (i.e. ham and bacon) still
prefer to sell rind-on bacon rather than rindless rashers.
Yet Australia is one of the few countries left in the world that has
rind on bacon. In the US and
the rest of the world bacon is from the belly and not from the loin.
and ‘rind-on’ both exert significant influence on Australian pig carcass
weights. At present the supply
of bacon to the domestic market requires a lighter leaner pig (than some
international markets such as Japan) and also requires the use of a choice
cut, the loin area, to supply the domestic bacon market.
Processors will not buy fatter pigs because they want to process
products with the rind still on, and until Australian consumer perceptions
in this area change, the purchasing power of processors are unlikely to
affect significant change.
must also be given to the industry’s export expansion plans.
For if Australia producers are to continue to expand into Asian
export markets (which demand sows and gilts) and take advantage of increased
carcass weights, net profit is limited by the use of boars rather than
barrows, as both growth rate and feed efficiency decline rapidly at heavier
issue of castration needs to be handled carefully because of the effect on
P2 and pricing grids. Castration
inevitably increases carcass fatness and therefore actively discourages
producers from castrating males (in addition to increased cost of production
and animal welfare concerns.) It
is also part of an even wider industry debate concerning eating quality,
boar taint and growth performance and the merits of castration versus immuno-castration
versus single sex genetic selection technologies.
has been considerable industry research conducted in the area of pork eating
quality and as part of its 2001-04 strategic plan, the APL is reviewing the
results of this program to identify strategic interventions and target
to the challenges – strategic imperatives
Australian Pork Limited may not be a commercial trader in the pork industry,
it is and will continue to provide significant influence in the market.
The APL was formed as a unique organisation able to deliver strategic
policy development, research and marketing services, and having the capacity
to fully integrate all services and thereby focus on members. The APL is one
of the first such organisations in agriculture and other industries (like
the egg industry) are keen observers of the APL approach.
APL’s first strategic plan, released to industry in November 2001, focuses
on industry growth and competitiveness through:
and domestic market development;
of networks and alliances within the industry;
approaches to quality assurance;
and business systems innovations;
information analysis and distribution; and
industry leadership and human capital infrastructure.
task of the industry’s peak representative body is to understand the
dynamics and forces affecting supply and demand in the Australian (and
global) pig industry, so that pigmeat producing members can make appropriate
business decisions in the short and longer-term.
has a small but excellent pork industry, with great potential for continuing
growth. Its future success
rests on export and competition for Australia’s domestic and export
markets, but competition will be fierce.
expansion is inextricably linked with the maintenance of Australia’s
quarantine status. Consumers
worldwide are becoming increasingly concerned about food quality and safety.
The importance of promoting and protecting Australia’s ‘clean
green’ image has never been greater.
The pork industry and the nation can ill-afford to erode its most
competitive advantage, namely the unique health status of Australian
Australian Pork Corporation
and the Pig Research and Development Corporation, Meo, H.M. and Cleary, G.
eds. 2000, Australian Pig Industry
Handbook — PigStats 99.
Corporation and the Pig Research and Development Corporation, Meo, H.M. and
Cleary, G. eds. 2000, Australian Pig
Industry Handbook – PigStats 99.
Limited. 2001, unpublished data.
Limited. 2001, Annual General Meeting.
Limited. 2001, Strategic Plan 2001-04.
2001, ‘Threat and Opportunities for the Australian Pork Industry –
competing in the world arena’, paper presented at the Pan Pacific Pork
Expo, Brisbane, August, 2001.
of Danish Pig Producers and Slaughterhouses. 2001, Statistics 2000, Federation of Danish Pig Producers and
Agribusiness. 2001, Charter of
Strategic Imperatives, AFFA, Canberra.
Pork Council of
Australia. 2000, NCP Review: Wheat
Marketing Act 1989, Submission on the Wheat Marketing Act 1989, July
Commission. 1998, Pig and Pigmeat
Industries, Productivity Commission, Canberra.
International. 2001, Internationalizing
States Department of Agriculture. 2001, ‘Livestock and Poultry World.
Markets and Trade’, Foreign
Agricultural Service Circular Series, DL&P 1-01.