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EU Pork Sales to China Are Booming, But Herds Are Barely Growing

Megan Durisin
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EU Pork Sales to China Are Booming, But Herds Are Barely Growing

(Bloomberg) -- German farmer Florian Hollmann has seen his pig prices soar 30% in just six months because of the deadly swine virus sweeping through Asia, yet he’s hesitant to expand his herd.

Like Hollmann, many European Union producers aren’t rushing to boost output despite a surge in sales to China, with EU production set to remain about steady this year. That’s because regulation in recent years has made it harder to expand operations, and farmers are worried that any disease outbreak in their own backyard or a U.S.-China trade deal could hurt their exports.

“Prices can be down as fast as they’ve been rising,” said Hollmann, whose farm in northwest Germany markets about 12,000 pigs a year. “Even though prices are good at the moment and margins are good, the situation is very unstable.”

The EU has been among the biggest winners from the recent jump in Chinese pork imports. Still, the hurdles in boosting European output highlight the difficulties China and other Asian countries face in filling a shortfall as African swine fever cuts pig herds by the millions. The world’s top pork consumer may have to look elsewhere if it wants to import even more meat quickly.

EU Output

Investing in herds is a challenge for European farms that faced market downturns in recent years and need time to reduce debts, while stricter environmental and animal-welfare rules raised costs. For Germany, that’s happening at a time when pork demand slows in the bratwurst-loving land.

Herds in the EU’s top producer shrank 7.8% in the past five years, and other northern European nations have also seen slaughter declines. After steady output this year, the EU forecasts production to grow just 1.4% in 2020.

Still, it’s been good news in terms of sales. EU exports jumped 16% this year through July and average prices are near the highest since 2013, at 1.63 pounds ($2.03) a kilogram.

Preventing Spread

Although Europe’s key exporters have remained free of the disease, cases at eastern farms picked up in recent months and Belgium reported the virus in wild boars, raising concerns it could cross borders and threaten exports.

“Everyone knows they’re just one false step away from an outbreak being reported in their own country,” said Justin Sherrard, global animal protein strategist at Rabobank International. “If you’re going to increase production, you want to be sure you’re going to retain access to the market you’re increasing for.”

Hollmann’s farm built a fence last winter to keep out wild boars -- something Denmark’s government is doing on its border. Farmers like Denmark’s Soren Sondergaard are also limiting visitors to barns and stepping up sanitation. While prices there are up about a third since spring, he doesn’t plan to expand further after buying a small farm nearby.

“It’s a completely new world compared to just six months ago,” said Sondergaard, a fifth-generation farmer near Billund who raises about 35,000 pigs a year. “We don’t really know where the end of this is, how fast Asia can get back in business.”

Trade Threat

One reason Europe’s exports have done so well is because the U.S. and Canada have trade restrictions with China. The Asian country recently eased its stance on U.S. pork, saying it won’t be subject to additional tariffs and encouraging purchases.

“At the moment the trade war stops, the U.S. will export large amounts,” said Tim Koch, market analyst at AMI in Bonn, Germany.

Not everyone is so cautious. In Spain, which may top Germany as Europe’s top pork producer in 2020, the nation’s contract-farming structure and more land availability has made it easier to expand. Granja Los Alecos, which markets more than 350,000 hogs annually, tripled its breeding herd since 2010 and may expand 20% in the next few years.

“Now that the short-term situation has improved, we’ll probably try to go faster,” said Chief Executive Officer Liborio Oficialdegui Manterola.

--With assistance from Dominic Carey.

To contact the reporter on this story: Megan Durisin in London at mdurisin1@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Nicholas Larkin

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