David C. Nelson, global strategist for Rabobank International, presented his predictions for the pig and poultry industries at the opening ceremony of the VIV Asia trade show in Bangkok, Thailand, last month.

He expects disruption of world trade patterns for pork as the result of disease,such as the current foot and mouth disease (FMD) crisis in Asia. Mr Nelson also predicts rising production costs in the US and EU as further welfare and environmental regulations are introduced in those countries.

Introducing his topic – Focus 2021 – Mr Nelson explained that producer prices have not risen significantly in past years because the increase in agricultural land has matched the growth in the human population. GDP growth, however, is accelerating demand for animal proteins, especially in Brazil, China, India and Indonesia, he said.

At the same time, the increase in crop yields has been slowing down for decades.

In Brazil, Mr Nelson said, the costs of land and fertilisers, as well as currency fluctuation, have increased costs of production and crop prices.

Another area growing in importance to supply global grain needs is Russia's Black Sea region. The proportion of its wheat crop exported rose over the last decade from five to 25 per cent. Productivity should be increased there, suggested Mr Nelson, although yields are variable. Productive area has increased lately.

Me Nelson identified the Black Sea region and parts of Brazil as 'Cereal traps' where the distances to ports and/or poor infrastructure hamper exports. Russia has solved this problem by expanding animal protein production in the Black Sea region.

He went on to describe the 'China Corn Conundrum'. With soybean imports last year increasing by 60 million tonnes, equivalent to 45 million tonnes of soya bean meal. Assuming a ratio of 2:1 in the requirements of corn to soybean meal, experts expected China's corn imports to increase by 90 million tonnes. In fact, corn imports increased just 30 million tonnes, leading to speculation over the use of China's imported soy last year.

Feed costs were high in both 2008 and 2011 but Mr Nelson explained that the situation this year is different as there is not light at the end of the tunnel. Even with a fair US corn crop and the expected increase in planted area, the harvest is unlikely to produce a comfortable 15 per cent stock-to-use ratio.

In terms of key global animal protein issues, Mr Nelson noted the changed in global meat company rankings. In recent years, Brazilian companies have tended to take over from US companies. In future, he expected to see the rise of Chinese and Russian companies into this league table. Intra-country consolidation is a likely feature in the US and EU, he said.

Russia was the top destination for meat exports but government policy for greater self-sufficiency in pork and poultry meat means that the world's leading meat exports will need to seek new markets in the coming years.

Disease outbreaks are likely to be a key issue for the global pork industry, according to Mr Nelson. The recent FMD outbreak in South Korea is known to have hit great grandparent stocks so the recovery of the pig industry there may take years to recover.

FMD is also an issue in China, where the sow herd is down three per cent over the last year, and pig meat output is forecast to be back to its 2005/06 levels, albeit at higher prices. As a result, China may increase pork imports substantially this year although with such high prices, will the gap in the market be met by increasing imports of grain or pork, Mr Nelson asked.

Previously, Russia led the rankings as a pig meat importer but the growing level of self-sufficiency there will free up the global market to some degree.

In conclusion, Mr Nelson said he sees the key features in global meat trade as pork trade disruption resulting from serious pig disease and rising production costs in the US and EU arising from a growing burden of welfare and environmental regulations.

April 2011