After 15 years of negotiations China has finally been granted admission to the World Trade Organization – an action that will change the face of world trade, and with it U.S. pork exports forever. China gained admission into the WTO in September, and Taiwan was admitted the following day.
The admission of these two countries means that both are obligated to begin trading in line with the agreements they signed with WTO member countries. This is beneficial to the United States as it reduces tariffs on U.S. pork over time, which will improve your market access. Nick Giordano, trade counsel for the National Pork Producers Council, expects both countries to become official members by the first quarter of 2002 at the latest. Think of this time as a lag similar to the time between the results of a political election and the official inauguration. The result is known, it just hasn't been made official.
Opinions on what China will mean to U.S. pork exports vary from being a savior to a non-factor. A 1997 study by Dermot Hayes, Iowa State University agricultural economist, found that exports of U.S. pork variety meats to China could add $5 to every hog carcass in the United States.
Considering the full potential of the WTO agreement with China to include U.S. pork muscle meats, the value to U.S. pork producers increases to $5 per hundredweight. Granted, full commercial effects of the agreement will probably take eight to 10 years, but the potential exists.
Skeptics argue that problems with China's infrastructure, such as refrigeration issues, will delay or decrease y additional value to U.S. pork from the projections. Most of the pork in China is still sold fresh, at wet markets, distance and food safety issues make that unfeasible for U.S. pork.
Still, the United States negotiated a deal with China that was favorable to U.S. pork, according to Giordano.
"Tariffs on U.S. pork exported to China will be reduced from the current 20 percent down to 12 percent over the course of four years," says Giordano. The tariffs will decline in 2 percent increments each year.
One particularly valuable aspect of exporting pork to China is the country's appetite for variety meats. China could absorb almost all of the world's supply, says Giordano.
To illustrate that the Chinese like cuts that are not traditional American favorites Hayes says he saw boneless chicken breasts selling cheaper than chicken feet in China.
"Our study clearly shows the products that the Chinese demand add value for packers, which can then be passed on to producers, because the Chinese buy cuts that would be used for pet food in the United States," says Hayes. "It seems like a win/win situation when you create value where there was none before." Hayes took Chinese prices for variety meats minus overseas transportation costs and the price of a U.S. hog carcass to come up with his $5-per-carcass added value.
Opinions also vary on Taiwan's trade impact as a WTO member. Terms for Taiwan's admission were completed 18 months ago, but the final decision was delayed because of a 1992 understanding that China would join first.
"Don't forget about Taiwan," says Giordano. "The market size isn't as large, but the United States has a good deal negotiated, and the market looks like it will grow in the future." Hayes is not as optimistic, saying that Taiwan is rebuilding its hog herd after a foot-and-mouth disease outbreak three years ago. That means the market for muscle meats may not be strong, but Hayes admits Taiwan craves variety meats, much like the Chinese, so export opportunities might exist.
The current economic and political state of the world does cast some questions over pork's trade future, but Giordano is hopeful there will not be too much disruption.
"Regardless of what happens, people still have to eat," says Giordano. "There may be some short-term transportation problems, but the bottom line is that people will continue to look for an affordable, high-quality protein." Hayes warns that shipping large amounts of product to any one country can mean production instability at any time. For example, if the United States increases production to meet China's needs, it also increases its vulnerability. "Once a country begins to export large quantities of meat to another country it becomes exposed to the buyers' whims," says Hayes. "The U.S. market wouldn't be able to absorb the excess pork if something goes awry in the Chinese market once trade begins."A similar situation happened when Japan's economy collapsed about three years ago, which was a contributing factor to the U.S. hog market crash of 1998. So, it will be crucial to maintain a good relationship with China once trade relations are established.
Chances are the Chinese market will not make U.S. hog prices skyrocket. On the other hand, logistical problems will eventually be solved; and exports to China will provide a new market for U.S. pork. With that will come some measure of price security.
"There may be a slight immediate uptick in exports," says Giordano. "This is not an overnight sensation, but over time the United States should sell substantially more pork to China and Taiwan."