THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 9/22/2009 GAIN Report Number:HK9019 Hong Kong LIVESTOCK AND PRODUCTS ANNUAL 2009 Approved By: Philip Shull, Anita Katial Prepared By: Caroline Yuen Report Highlights: U.S. pork and offal exports to Hong Kong in 2009 are expected to be $285 million, the second highest on record, though far short of the exceptional sales of $368 million achieved in 2008. The increased supply of Chinese hogs combined with Beijing s H5N1 ban on U.S. pork products in the spring of 2009 led to a decrease of 40% in sales of pork meat and 8% in pork offals to Hong Kong in the first half of 2009. Traders estimate that the majority of U.S. pork and offal products entering Hong Kong are transshipped to China. Despite this sharp decline from 2008 levels, 2009 sales by historical standards are extremely strong. January - June exports alone had already surpassed total 2007 sales.
Executive Summary: U.S. pork and offal exports to Hong Kong in 2009 are expected to be the second highest on record, though far short of the exceptional sales achieved in 2008 (pork: $122 million; offals: $246 million). U.S. pork and offal exports to Hong Kong reached $36 million and $105 million respectively in the first half of 2009 and are projected to be $75 million and $210 million for the entire year. Despite this sharp decline from 2008 levels, 2009 sales by historical standards are extremely strong. January - June exports alone had already surpassed total 2007 sales (pork: $31 million; offals: $68 million). The record U.S. sales in 2008 were due to tight pork supplies in China coupled with growing receptivity to U.S. frozen pork products in both Hong Kong and China. China is Hong Kong s number one re-export market. The pork shortage in China contributed to a huge increase in transshipments of U.S. pork through Hong Kong. According to official statistics, about 33% and 76% of Hong Kong s pork and offal imports from all supplying countries were re-exported, with most of the re-exports going to China. Traders report a significant amount also goes to China through unofficial channels. In 2009, the increased supply of hogs in China combined with Beijing s ban on U.S. pork due to H1N1 is likely to result in a significant retreat from the 2008 record. However, the impact of last year s sales appears to be having a strong residual effect. While U.S. pork exports to Hong Kong in January June 2009 declined by 40% in value and 49% in volume when compared to the same period of 2008, U.S. pork sales to Hong Kong in the first half of 2009 exceeded total 2007 sales. U.S. pork has become more popular among both retail and catering services in Hong Kong. Popular cuts include shoulder butt and loin. However, traders are very sensitive to price changes. In the first 6 months of 2009, the average Hong Kong import price of U.S. pork increased by 17%. By contrast, Brazilian pork decreasing by 12% and China increasing by 6%. As a result, Hong Kong s imports of Chinese and Brazilian pork grew in volume in the first half year of 2009 by 14% and 3% respectively. China is the largest pork supplying country for Hong Kong, well ahead of two other major suppliers: Brazil and the U.S. The market share by value of China, Brazil and the U.S. is 32%, 22% and 8% respectively. China is by far the largest supplier for chilled pork to Hong Kong, occupying a market share of 90%. Hong Kong has allowed entry of Chinese chilled pork since 2006. The demand is increasing steadily over the years. It has been introduced to Hong Kong with the intention to reduce the demand for fresh pork. Thus it is competing with fresh pork and not with chilled pork from Australia and the U.S.
Commodities: Meat, Swine Production: While the number of hogs raised in Hong Kong is insignificant, Hong Kong s hog slaughter in 2009 is expected to rise by 3% to a total of 1,630,000 head or 114 KMT. The 3% increase in slaughter forecasted for 2009 is due the inadequate supply realized in 2008. Unlike 2008, China has been able to maintain a stable supply of live pigs to Hong Kong for slaughtering and consumption in the midst of falling pork prices in China in 2009. Actually, the number of pigs slaughtered has been contracting in the long run as consumers have been gradually replacing fresh pork with chilled pork as a result of changes in consumption pattern. The Hong Kong Government (HKG) adopted a voluntary license surrender scheme between June 2006 and May 2007 to curb pig farming in Hong Kong because of concerns of public health and environmental hygiene. Farmers who chose to surrender their operation license would be reimbursed by the HKG. Out of the 265 pig farms which were in operation in 2006, only 43 pig farms are left today. Consequently, the average daily supply of live pigs from local farms dropped significantly from 1,040 head in 2006 to 250 head in 2009. Unless the HKG takes another drastic measure to further curb pig farming, the supply of live pigs from local farms is expected to remain stable at a level of 250 head per day in the coming few years, constituting about 7% of local live pig supplies in Hong Kong by weight. The average dressed weight of pigs raised in Hong Kong is about 86 kg, compared to the 69 kg of pigs supplied from China. China supplies about 93% of live pigs to Hong Kong in terms of dressed weight. Each day about 4,300 pigs are supplied from China to Hong Kong through one of the three authorized agents. Hong Kong is able to secure full support of the Chinese government in providing adequate agricultural supplies to Hong Kong. In addition, to maintain the stable supply of live pigs to Hong Kong, the Chinese government also allows Hong Kong pig farmers to invest in pig farms in China for export to Hong Kong on the conditions that these farms meet the relevant food safety, bio-security and environmental requirements in China. There are now seven pig farms in China that are operated by Hong Kong pig farmers.
Consumption: Hong Kong consumers are getting more accustomed to consuming chilled pork from China at the expense of fresh pork. There are four processing plants in China certified to process and export chilled pork to Hong Kong. Since these four plants are close to Hong Kong so that pork can be exported to Hong Kong for retail sale in a matter of one or two days after being slaughtered. Thus, chilled pork from China is competing with fresh pork at the retail level. It is in a market segment different from chilled pork from the U.S. and Australia and therefore, they are not in direct competition. The four authorized processing plants in China should have room to provide adequate chilled pork to meet the expected increased demand in Hong Kong. These four plants have a total processing capacity of 1,200 pigs per day, only about half of which is currently utilized. The following table shows the increased demand for chilled pork in Hong Kong from China. Hong Kong started to allow the importation of chilled pork from China in August 2006. Before that, Hong Kong traders imported chilled pork from Thailand and sold it as fresh pork. Hong Kong s imports of Thai pork were as high as 3045 MT in 2006. The availability of Chinese chilled pork greatly reduced the demand for Thai pork in 2007. Demand for Chinese chilled pork has increased steadily since 2007. However, the tight supply of fresh pork in 2008 and its escalating prices drove up the demand for Thai pork again in 2008. When pork supply is back to normal in China in 2009, Hong Kong s demand for Chinese chilled pork is expected to jump 36% in 2009. Consumers increased familiarization with Chinese chilled pork and the continual 20% - 30% price disparity between fresh and chilled pork from China will continue to drum up Hong Kong s demand for Chinese chilled pork steadily over the coming years. Hong Kong s Imports of Chilled Pork, MT Jan - Dec Jan June 2006 2007 2008 2009(estimates) 2009 World 4,621 12,148 13,563 16,200 8,082 China 1,333 10,009 11,130 15,100 7,529 Thailand 3,045 1,874 1,930 750 373 Australia 161 160 179 165 81 U.S. 75 91 138 280 53 Source : World Trade Atlas - Hong Kong Census & Statistics Department
Trade: U.S. exports to Hong Kong in 2009 are expected to be the second largest on record. The recovery in Chinese hog supplies combined with the Chinese ban on U.S. pork imports due to H1N1 will likely result in a significant drop from the record set in 2008. U.S. pork exports to Hong Kong in the first six months of 2009 reached $36 million and U.S. offals exports amounted to $105 million, both exceeding 2007 levels. When compared to January June 2008, U.S. pork and offals products dropped by 40% and 8% in value respectively. About 33% of Hong Kong s pork imports from all supplying countries were re-exported, primarily to China. For offals, re-exports reached 76%. While Hong Kong s 2009 import of U.S. pork is relatively high, it will be far less than the record year of 2008. In 2008, the pork supply was very tight in China resulting in rocketing prices. There was a huge demand for imported pork in China, leading to an increase in Hong Kong s pork imports which were then re-exported to China. However, Hong Kong s pork re-exports to China for the 2 nd half of 2009 are expected to continue to decline because hog prices in China are forecast to remain soft. Furthermore, Hong Kong importers have been more reluctant to place orders for U.S. pork due to the import ban on U.S. pork products by the Chinese government due to concerns over the H1N1 swine influenza. A challenge for U.S. pork in Hong Kong in 2009 is the change of pork prices from competing countries. The average C.I.F. Hong Kong import price of U.S. pork increased by 17% in the first 6 months of 2009, while that of Brazilian pork decreased by 12% and China increased merely by 6%. Given the price sensitivity of Hong Kong traders, Hong Kong s imports of Chinese and Brazilian pork grew in the first half year of 2009, and gained market share. However, U.S. pork has continued to perform well in Hong Kong s domestic market. In recent years, U.S. pork is increasingly used by caterers and restaurants for both Chinese and western cuisine. Hong Kong importers perception that U.S. pork is very expensive and is only suitable for 5-star hotels procurement has gradually changed. U.S. cuts such as loins, ribs and butts are increasingly popular among caterers who say they find U.S. pork to be a good value. U.S. frozen pork has also established a strong foothold in Hong Kong s retail sector as more consumers demand quality and safety. Hong Kong s retail trends pattern for meats has changed significantly in the past decade. More and more Hong Kong consumers do their shopping for meat in supermarkets rather than wet markets. By contrast, the lack of refrigerating systems at wet markets have restricted the selling and buying of chilled/frozen meats there. Such changes in shopping habits have favored U.S. pork sales.
China is the largest pork supplying country for Hong Kong, well ahead of two other major suppliers: Brazil and the U.S. The market share by value of China, Brazil and the U.S. was 32%, 22% and 8% respectively in January June 2009. China dominates the supply of chilled pork with 90% of the market. For frozen pork, however, competition is much stronger. Brazil and China are competing with each other in the area of frozen pork. Both suppliers are after the wet markets, Chinese restaurants and fast food chains. Brazilian frozen products significantly expanded its market share in 2007 and 2008 when the hog supply was tight in China. Brazil overtook China as the largest supplier for frozen pork starting 2007 (see table below). Hong Kong s Market Share of Frozen Pork by Value January - December Jan-Jun Country 2004 2005 2006 2007 2008 2009 The World 100% 100% 100% 100% 100% 100% Brazil 25% 29% 28% 35% 30% 35% China 47% 50% 54% 38% 22% 30% United States 2% 2% 4% 4% 17% 10% Source: World Trade Atlas - Hong Kong Census & Statistics Department Hong Kong s Re-exports Much of the variation in Hong Kong pork imports is due to a huge re-export trade. Typically, about 33% of Hong Kong s pork imports from all supplying countries are re-exported and Mainland China is the largest re-export market. The percentage of Hong Kong s offals imports being re-exported was greater at 76%. When Hong Kong s pork re-exports to China declined by 64% between January June 2008 and 2009, reexports to Vietnam and Taiwan surged by 551% and 32% respectively. Traders explained that the surge of Hong Kong s re-exports to Taiwan and Vietnam was due to the fact that traders are shipping products to China through third countries.
Policy: The following new food regulations may affect U.S. packaged processed meat exports to Hong Kong. Hong Kong s Legislative Council on May 28, 2008 passed a nutrition labeling regulation which will take effect July 1, 2010. Hong Kong s nutrition labeling regulation requires all prepackaged food sold in Hong Kong have to label energy plus seven nutrients namely, protein, carbohydrate, fat, saturated fat, trans fat, sodium and sugars. Products selling less than 30,000 units a year can apply for small volume exemption provided that the products do not carry any nutritional claims. Hong Kong importers applying for exemption have to pay HK$345 (US$44) per product variety for the first year and HK$335 (US$43) for annual renewal. Hong Kong s nutrition labeling regulation is unique; meaning all imported foods making nutrition claims from all sources will have to be re-labeled for the Hong Kong market. Despite the U.S. requires the labeling of 15 energy/nutrients, U.S. products still cannot meet with the Hong Kong nutrition labeling requirements due to different nutrient definitions, rounding practices, and recommendations for daily consumption. Virtually all U.S. products carrying claims will require labeling changes and/or nutrient testing. Major retailers have notified their suppliers that they would not accept products with nutrition labels complying with Hong Kong s new regulation after January 1, 2010, six months earlier than HKG s enforcement date. Given below are some key areas in which U.S. labels do not comply with Hong Kong s nutrition labeling requirements. Details of the regulation are contained in the Technical Guidance Notes on Nutrition Labeling and Nutrition Claims, which are available at http://www.cfs.gov.hk/english/food_leg/food_leg_nl_guidance.html. Further supplementary information will be provided in the form of FAQ on the Hong Kong government s Center for Food Safety website - http://www.cfs.gov.hk/eindex.html 1) U.S. products carrying claims on vitamins and minerals need to label claimed vitamins in absolute value per 100 gm or per serving size, if they are to be sold in Hong Kong. The U.S. labeling law requires vitamin and mineral content to be labeled in percentage of minimum daily requirement while Hong Kong requires all claimed nutrients to be labeled in absolute value. 2) U.S. and Hong Kong have set different conditions for making nutritional claims. For example, Hong Kong s standard for low fat is 3 gm per 100 gm of food, while the U.S. standard is 3 gm per serving. Therefore, a low fat U.S. product may not be allowed to make a low fat claim if it is to be sold in Hong Kong. 3) U.S. and Hong Kong have set different definition of zero for various nutrients. For example, Hong Kong s zero definition of transfat is 0.3 gm/100 gms, while the U.S. is
0.5 gms/serving. Therefore, a 0 transfat on the nutrition panel of a U.S. product may violate Hong Kong s nutrition regulation if it is to be sold in Hong Kong. Hong Kong s nutrition labeling regulation also covers nutrient function claims, which have to fulfill the following criteria: The nutrient function claim is based on scientific substantiation and scientific consensus; The nutrient function claim must contain information on the physiological role of the claimed nutrient; and The content of the claimed nutrients must meet the relevant condition of nutrient content claim for source, if applicable. For more information on the impact of Hong Kong s nutrition labeling regulation, please see reports HK#7011 & HK#8017.
Production, Supply and Demand Data Statistics: Meat, Swine Hong Kong 2008 2009 2010 2008 2009 2010 Market Year Begin: Jan Market Year Begin: Jan Market Year Begin: Jan 2008 2009 2010 USDA Old Post New USDA Old USDA Old Official Data Post Official Post Estimate Official Post Estimate Data Data Data Data Data Data Slaughter (Reference) 0 0 0 0 0 0 0 Beginning Stocks 0 0 0 0 0 0 0 123 123 110 120 120 114 116 Intra-EU Imports 0 0 0 0 0 0 0 Other Imports 346 367 346 345 390 345 348 Total Imports 346 367 346 345 390 345 348 Total Supply 469 490 456 465 510 459 464 Intra EU Exports 0 0 0 0 0 0 0 Other Exports 0 0 0 0 0 0 0 Total Exports 0 0 0 0 0 0 0 Human Dom. Consumption 469 490 456 465 510 459 464 Other Use, Losses 0 0 0 0 0 0 0 Total Dom. Consumption 469 490 456 465 510 459 464 Ending Stocks 0 0 0 0 0 0 0 Total Distribution 469 490 456 465 510 459 464 CY Imp. from U.S. 44 44 42 60 60 21 24 CY. Exp. to U.S. 0 0 0 0 0 0 0 Balance 0 0 0 0 0 0 0 Inventory Balance 0 0 0 0 0 0 0 Weights 0 0 0 0 0 0 0 Production Change -3 0-3 -2 0 4 2 Import Change 15 0 15-10 0 0 1 Export Change 0 0 0 0 0 0 0 Trade Balance -346-367 -346-345 -390-345 -348 Consumption Change 9 0 9-8 0 1 1 TS=TD 0 0 0 Not Official USDA Data Note: PS&D production figures include local and imported pigs slaughtered in Hong Kong. All numbers used in the PS&D table are in carcass-weight equivalent, using a conversion factor of 1.30. Imports are calculated as Imports minus Re-exports. Exports are calculated as Exports minus Re-exports.
Table 1: Supply and Consumption of Live Pigs, (number) 2005 2006 2007 2008 2007-2008 % change 2009 estimates Local Supply 377,000 381,220 269,810 87,240-68% 87,500 Imports 1,674,343 1,590,268 1,503,212 1,494,568-1% 1,542,500 Total 2,051,343 1,971,488 1,773,022 1,581,808-11% 1,630,000 Source: Hong Kong Agricultural, Fisheries and Conservation Department Table 2: Average Wholesale Prices of Live Pigs US$/MT 2006 2007 2008 2009 % change Live Pigs 1,854 2,226 2,717 Jan May 2,114-22% Exchange Rate: US$1.00 = HK$7.78 Source: Hong Kong Census & Statistics Department Table 3: Average Retail Prices of Pork Relative to Beef and Poultry, (Freshly Slaughtered) 2009 2006 2007 2008 US$/kg Jan - May % change Chicken (whole chicken) Beef (best quality) Beef (belly flesh) Pork (best cut) Pork Chop 6.25 7.11 8.19 10.15 24% 7.57 8.59 11.72 12.49 7% 5.76 6.60 9.09 9.83 8% 4.33 6.01 8.11 7.55-7% 5.08 6.01 8.05 7.48-7% Source: Hong Kong Census & Statistics Department
Table 4 : Hong Kong Pork Imports in Value by Suppliers, US$ million HONG KONG IMPORTS OF Pork CY 2004-2008 AND YEAR-TO-DATE COMPARISON January December January - June Market % Market % 2007 2008share 08 Change 2008 2009share 09 Change World 548 957 100% 74% 481 430 100% -11 China 226 248 26% 10% 115 139 32% 21 Brazil 127 193 20% 52% 104 95 22% -9 U.S. 31 122 13% 295% 60 36 8% -40 Germany 21 75 8% 258% 39 29 7% -25 Spain 25 69 7% 178% 32 32 7% 1 Netherlands 18 41 4% 121% 21 15 3% -31 Vietnam 33 39 4% 18% 24 12 3% -49 Canada 6 33 3% 464% 22 9 2% -58 Italy 9 21 2% 125% 11 9 2% -16 Poland 6 17 2% 173% 10 7 2% -24 Table 5 : Hong Kong Pork Imports in Volume by Suppliers, MT January - December January - June % change % Change Country 2007 2008 08/07 2008 2009 09/08 The World- 313,825 483,068 54 253,588 210,960-17 China 115,991 91,794-21 44,394 50,628 14 Brazil 66,531 72,555 9 41,000 42,065 3 U.S. 15,169 69,516 358 35,785 18,327-49 Germany 20,502 54,695 167 29,724 20,002-33 Spain 20,619 46,550 126 23,241 22,008-5 Netherlands 14,366 28,110 96 15,151 9,993-34 Canada 4,089 21,495 426 15,251 6,565-57
Table 6: Average C.I.F. Prices of Pork by Major Suppliers, Jan June Avg Price (US Dollars) % Change January - June Country -/ KG - 2007 -/ KG - 2008 -/ KG - 2009-09/08 - --The World-- 1.65 1.9 2.04 7.37 China 1.78 2.6 2.75 5.77 Brazil 1.78 2.55 2.25-11.76 Spain 1.14 1.36 1.45 6.62 Germany 0.95 1.3 1.45 11.54 U.S. 2.05 1.67 1.96 17.37 Netherlands 1.21 1.42 1.48 4.23 Canada 1.41 1.47 1.44-2.04 Table 7: Hong Kong Pork Re-exports by Destination, MT, Jan June January - June % Change Country 2007 2008 2009-09/08 - --The World-- 34,865 107,285 69,460-35 China 18,138 88,289 31,404-64 Taiwan 12,370 12,729 16,807 32 Vietnam 1,520 2,573 16,744 551 Macau 2,792 3,646 4,243 16
Table 8: Hong Kong Pork Imports by Categories, MT, Jan June 2008 2009 % change 2008 2009 % change US$ million MT Pork 481 430-11% 253,587 210,961-17% chilled pork 21 23 9% 7,244 8,082 12% frozen pork 309 246-20% 150,258 120,973-19% processed pork 151 161 7% 96,085 81,906-15% Variety Meat 432 387-10% 330,443 265,993-20% Table 9: Hong Kong Pork Re-exports by Categories, MT, Jan June Description 2007 2008 2009 % change Pork 34,865 107,285 69,460-35% chilled pork 1 6 9 39% frozen pork 20,597 61,151 49,731-19% processed pork 14,267 46,128 19,721-57% Variety meats 86,054 244,821 208,155-15% Table 10: Hong Kong Retained Pork Imports by Categories, MT, Jan June 2008 2009 % change Pork 146,302 141,501-3% chilled pork 7,238 8,073 12% frozen pork 89,107 71,242-20% processed pork 49,957 62,185 24% Variety meats 85,622 57,838-32%
Table 11: Hong Kong Pork Offal Imports by Major Suppliers, US$ million Jan - Dec Jan - June % Share % Change % share % Change Country 2007 2008 2008 08/07 2008 2009 2009 09/08 The World 368 870 100 137 432 387 100-11 US 68 246 28 259 114 105 27-8 Germany 80 167 19 108 86 81 21-6 Netherlands 47 92 11 96 50 40 10-20 Canada 24 86 10 255 43 39 10-10 Brazil 48 72 8 50 34 38 10 14 Denmark 29 45 5 54 23 20 5-11 Table 12: Hong Kong Pork Offal Imports by Major Suppliers, MT Jan - Dec Jan - Jun Country 2006 2007 2008 2008 2009 --The World 188,737 310,775 620,908 330,443 265,993 U.S. 21,782 45,023 164,289 82,835 68,467 Germany 38,653 79,788 136,465 75,180 64,255 Netherlands 29,993 42,465 68,498 40,744 26,065 Canada 8,901 19,987 61,288 32,629 27,370 Brazil 28,065 38,087 42,717 21,601 23,967 Denmark 21,039 20,123 26,841 13,754 12,510 Table 13: Hong Kong Pork Offal Red-exports, MT Jan - Dec Jan - Jun Country 2006 2007 2008 2008 2009 --The World 100,560 227,374 486,870 244,821 208,155 China 59,274 183,379 401,546 208,025 110,890 Taiwan 40,159 28,083 66,636 27,224 33,245 Vietnam 0 12,675 16,758 8,534 63,047 Macau 1,101 1,772 1,930 1,038 973 Source : World Trade Atlas Hong Kong Census & Statistics Department