Belfast Telegraph

Barbecue feasts might be hit by swine flu in China

Economy Watch by Richard Ramsey, chief economist, Ulster Bank

The spread of African Swine Flu in the Far East could have a major knock-on effect around the world
The spread of African Swine Flu in the Far East could have a major knock-on effect around the world

The old saying is that the US economy sneezes and the rest of the world catches cold. This phrase reflected the old influence and dominance of America in the global economy. However, since the worldwide recession a decade ago, China has had a spectacular rise and is challenging US hegemony. Indeed, the concerns now are about the Chinese Dragon spreading its economic germs.

That's why the prevalence of African Swine Flu (ASF) in the Far East has caused such concern around the world of late.

And this story is only expected to get bigger in the months ahead, with impacts that will reach far beyond farms in Zhejiang or Guizhou.

ASF first appeared in China in the summer of 2018 and has now spread to all of the provinces. Whilst the disease isn't harmful to humans, it can decimate the pig population.

The Chinese have a pig herd in excess of 400 million, which accounts for over half the world's swine population. Some estimates suggest up to 200m pigs will need to be slaughtered - this is close to three times the size of the entire US hog herd (74 million) and larger than the EU's herd (150 million).

The fear is that this virus, which is untreatable, will spread outside China and cause chaos in the global pork industry and the meat/protein industry in general. And these are industries that aren't without their challenges and shifts already. Put simply, there will not be enough pork in the rest of the world to fill the shortfall made in China.

Bear in mind that half of the world's pork and 28% of global meat is consumed in China. As a result, this supply shock is set to trigger the first fall in global meat production in 20 years with the fall in pork production outweighing growth in chicken, beef and other areas.

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In China itself, consumers have started to opt for chicken and beef as a supplement for pork, given that the scarcity of supply has pushed up the prices of pig meat significantly. Some say Chinese pig prices will rise 70% in the second half of this year.

Eradicating this disease has taken other countries at least five years to do, so this challenge - including high pork prices - is going to be with us for some time to come. (The next instalment of the Ulster Bank Ulster Fry Index will likely feel upward pressure as a result).

Not everyone will be complaining though. Interestingly, the Chinese pig herd is a huge consumer of soya, one of the US's biggest exports to the Far East. China accounts for two-thirds of the world's trade in soya beans.

As a result of the impact of the swine flu on pig numbers, demand for soya has collapsed, impacting on US soya bean farmers too. This will benefit other farmers of livestock around the world (including NI farmers), who will see feed prices coming down. This is a positive, given that rising feedstuff prices was a major feature in 2018.

One of the things that the Chinese pork situation has shown us is that consumers can switch to other forms of protein - ie from pork to chicken. And they can also switch to non-meat proteins. Indeed, in the world's wealthiest economies, the trend is moving away from meat and dairy, with popular initiatives such as Veganuary and consumers opting for dairy substitutes such as oat milk on their cereal and in their coffee.

To highlight the point, Beyond Meat Inc, a Los Angeles-based producer of plant-based meat substitutes, saw its share price soar about 225% in its first week of trading recently. Indeed, it saw the strongest first day of trading for an IPO since the 2008 financial crisis.

The meat industry and dairy also has a major challenge in relation to sustainability, and this, in addition to health trends and animal welfare concerns, is driving many away from their products. Indeed, the shift from pork consumption to beef in China (and elsewhere) is bad news for the environment; as pork production is one of the most environmentally friendly meats, as pigs require no pasture and are the most efficient at converting feed into flesh. Not only do cattle belch methane, they are also more inefficient, requiring three times as much animal feed as pork production and producing five times as much greenhouse gasses.

So perhaps when production increases again, sustainability concerns will help drive consumers back to pork. Perhaps ironically, 2019 is the Chinese Year of the Pig, and swine flu in the world's second largest economy is likely to be one of the big stories of the year.

We all know that the global economy is complex and intricately linked, and the current situation will have many ramifications for a wide range of people around the world; from farmers to consumers. Indeed, as we approach the summer months, barbecuers beware of rising prices.

A pig sneezes in China and even the chattering classes at barbecues in Northern Ireland can catch the cold.

Next week, we hear from Neil Gibson, chief economist, EY Ireland

Belfast Telegraph