The world’s largest pork producer WH Group, between the US and China, finds diversity its best solution out of the trade war
- WH Group will import more meat from Europe and South America to satisfy China’s demand in the largest pork-consuming nation while domestic hog herds had been culled by an outbreak of the African swine fever
- It will also broaden Smithfield’s export markets to get around China’s tit-for-tat tariffs on American pork
China’s WH Group, the world’s largest pork producer and owner of Smithfield Foods of Virginia, is adopting a two-prong strategy to survive the escalating trade war between the world’s two largest economies.
The company will import more meat from Europe and South America to satisfy China’s demand in the largest pork-consuming nation while domestic hog herds had been culled by an outbreak of the African swine fever. It will also broaden Smithfield’s export markets to get around China’s tit-for-tat tariffs on American pork.
“Our contingency measure is to deepen our US exports to Japan, South Korea, Mexico and other nations, while our China business will import more from Europe [and South America],” said chairman Wan Long after its interim results announcement.
He was commenting on how the firm will cope after an August 6 Xinhua news agency report said China “has not ruled out import tariff on US agricultural products bought after August 3, and related Chinese companies have suspended purchasing US agricultural products.”
President Guo Lijun said the company’s US unit has exported around 100,000 tonnes of fresh pork to China in the year’s first half, “largely steady” from the same period last year.
Glenn Nunziata, chief financial officer of Smithfield Foods, said the Smithfield unit has almost quadrupled its export to China between 2013 – when it was acquired by Henan province-based Shuanghui International – and 2016.
“That volume moved up and down, primarily driven by the difference between Chinese and US pork prices,” Nunziata said. “One of the items that may slow down the volume and profitability is any tariff that would prevent free trade between US and China.”
The Hong Kong-headquartered firm posted a net profit of US$565 million for the year’s first six months before biological fair value adjustments, down 14.5 per cent from US$661 million in the same period last year. The net income was lower than the US$612 million estimated by one analyst, and amounted to 46.7 per cent of the full-year US$1.21 billion average profit estimate of 15 analysts in a Bloomberg poll.
First-half revenue dipped 0.4 per cent to US$11.1 billion, marginally lower than analysts’ estimate of US$11.2 billion.
The African swine fever that spread to China just over a year ago has led to the mass culling of pigs, slashing the number of China’s breeding sows by 26.7 per cent at the end of June from a year earlier.
As pork output declined 5.5 per cent to 24.7 million tonnes, average selling price jumped 16.1 per cent to 14.3 yuan per kilogram.
With domestic stock drawn down and prices surging, first-half pork imports surged 26.3 per cent year-on-year to 0.8 million tonnes, despite a 62 per cent tariff imposed by Beijing on US pork in July last year in retaliation against US tariffs on Chinese products.
As fresh pork prices increased faster than those of processed meat products, WH’s profit from its mainstay profit generator – packaged meats – plunged 21.5 per cent year-on-year to US$288 million in China.
This was partly offset by a 13.1 per cent profit rise in its US packaged meats operation to US$446 million, and higher profit from fresh pork sales in China.
Shuanghui Development’s President Ma Xiangjie said he is confident the China packaged meats profitability will improve in the medium to long term, since the prices of packaged products “only held steady or went up throughout the past 20 years”.
Shuanghui has raised packaged products’ prices three time in the year’s first half, and will not rule out further hikes in the fourth-quarter if pork price continues to rise, he said.
