A newsletter about world meat trade, published by the Meat Export Research Center at Iowa State University in cooperation with the USDA/Agricultural Marketing Service, Livestock and Grain Market News, Des Moines, Iowa, and the U.S. Meat Export Federation, Denver, Colorado. U.S. Meat Export Analysis and Trade News February 1997 Volume 5 Number 2 ISSN 1069-479X Meat Export Research Center U.S. Meat Export Federation Agricultural Marketing Service The Chinese Market for U.S. Pork and Pork Variety Meats by Dermot Hayes and Roxanne Clemens Introduction According to the World Bank, current living standards in China are about equal to living standards in Taiwan twenty-five years ago. 1 The same source suggests that when incomes in China reach current income levels in Taiwan, the Chinese economy will be equal in size to the combined economies of the countries comprising the Organization for Economic Cooperation and Development (i.e., Canada, the Europe Union, Japan, and other industrialized countries). If this level of development is to be achieved, China’s markets must be allowed to work freely and consumers must be allowed to increase their consumption of meat, dairy products, alcohol, and fish to levels commensurate with their rising incomes. The challenge for China is that the country must achieve this consumption growth with only 7 percent of the world’s arable land. Given current population levels, China must feed 13.0 people for each hectare of arable land in the country, whereas Europe feeds 4.1, the United States feeds 1.4, and the Russian Federation feeds only 1.1 persons per arable hectare. It has become obvious to most observers that China will need to import feed grains or livestock products to achieve consumer diets similar to those of the developed world, and China’s transition from a net exporter to a net importer of feed grains has enormous implications for U.S. pork producers. Various studies have projected that China will be a large net importer (somewhere between 30 million metric tons and 50 million metric tons) of feed grains early in the next century (Coyle). Countries that export feed grains, as China did in the early 1990s, must sell grains at a discount to world market prices to cover transportation costs; countries that import feed grains must pay a premium over world market prices. These trade principles are evident in Japan and Taiwan, where pork producers pay about twice as much for feed as do pork producers in Iowa. China is in the midst of a transition from Iowa-level corn prices to Japanese-level corn prices—a transition that will make the world’s largest pork producer uncompetitive with imported products. Now, consider the following: • Chinese consumer tastes are highly complementary to U.S. tastes in that consumers in each country will pay a premium for cuts and products that consumers in the other country dislike; • livestock feeding industries have proven to be extremely mobile in response to economic incentives; _______________ 1 Measured using purchasing power parity (The Economist). (continued on page 2) China This month’s feature article projects China’s pork industry through 2007.