Despite the impact of COVID-19 and African swine fever, China’s appetite for meat is showing no sign of slowing down. The country is the world’s largest consumer of meat by some margin, with citizens expected to eat 40.3 million metric tons of pork in 2020, according to the United States Department of Agriculture (USDA).
To put that figure in context, pork consumption in the country is set to be more than double that for all European Union countries combined in 2020. While pork is the most widely-eaten meat in China, the consumption of beef and chicken is also expected to be higher than for any other country apart from the United States.
Meeting Domestic Demand
In the pork industry, not only is China the world’s leading consumer, but it is also the largest producer by some margin. In recent months, large scale Chinese hog producers have been very focused on restocking and it is forecast that a total of 36 million metric tons of pork will still be produced in 2020. This compares with 24.1 million metric tons for the European Union in second place and three times more than the U.S. in third place.
The fact that per capita consumption of certain meats in China still remains well below levels seen in developed markets highlights the huge potential for future growth in this area.
Even so, domestic production still does not meet all of China’s demand from its citizens, particularly after the national herd was reduced by African swine fever. The outbreak caused pork production levels in China to fall by 21% year-on-year in 2019, and despite best efforts by the Chinese hog industry, output levels are estimated to drop by a further 15% in 2020, according to the USDA.
While pork in China rose to record high prices because of this, consumer demand remained strong, with the substitution effect marginal at best. China was the world’s largest importer of pork in 2019, and import levels are forecast to soar by 76% in 2020 to 4.4 million metric tons, accounting for 43% of the global total. Imports are likely to receive a further boost after China reduced tariffs on U.S. pork following the signing of the Phase 1 trade deal in January, while it also agreed to purchase an additional $32 billion worth of U.S. agriculture products, including pork, in the coming two years.
Future Growth in Consumption
The meat momentum is expected to continue in China, as disposable incomes increase and the middle class continues to expand. The average person in China only consumes 24.4 kilograms of pork and 14 kilograms of chicken a year, according to the OECD.
The fact that per capita consumption of certain meats in China still remains well below levels seen in developed markets highlights the huge potential for future growth in this area. For example, the annual average per capita consumption of beef in the U.S. is 26.3 kilograms, compared with just 4.1 kilograms in China. Even after accounting for dietary preferences and shifts, there remains substantial room for growth.
Over the last decade, that rising demand for meat had already begun to exert some pressure on global supplies. In early 2019 this pressure exploded in dramatic fashion in the U.S. pork market. The CME Lean Hog futures prices made a sharp series of multi-day rallies, rising by 22% over a two-week period to reach a near-two year high.
The trigger was a U.S. Export Sales report released on March 7, 2019 showing China had made its biggest weekly purchase of pork in two years. This confirmed previous market speculation that African swine fever was spreading widely on mainland China and that domestic production had been severely reduced, necessitating large scale purchases from the global markets.
Lean hog futures volumes responded to African Swine Flu outbreaks in China.
Factors That Could Dampen Meat Demand
The past few years have seen significant progress made in the development of meat alternatives. Big names, such as U.S.-based Beyond Meat and Impossible Foods, have introduced laboratory-grown alternatives with color, texture, and taste that is much more like actual beef than previous alternatives. These alternative meats typically use pea protein or soy protein as their main ingredient. Beyond Meats’ Beyond Burger even contains beets to give it the appearance of “bleeding”.
While early products focused on providing an alternative to beef, the market has since evolved to look for pork replacements. Hong Kong-based Right Treat was the first company to produce a pork substitute when it launched OmniPork and OmniMince, which uses a blend of pea, soy, shiitake mushroom, and rice protein, to replicate pork.
Specifically aimed at the Asian market, it was developed with Asian chefs to enable it to act as a pork substitute in traditional Asian dishes. China also has two homegrown meat substitute companies, Zhenmeat and Starfield, focusing on traditional Chinese fare such as dumplings and mooncakes.
Impact Of Meat Substitutes
Investors have given artificial meat an enthusiastic response. The price of shares in Beyond Meat more than doubled on its first day of trading in May 2019, rising from $25 to $65, and then soaring to an all-time high of $239 just two months later. Meanwhile, Impossible Foods recently secured a further $200 million in funding, giving it an estimated valuation of just over $4 billion, after raising a total of $1.5 billion in the private market.
Consumers in China are similarly enthused. The country’s “free from meat” market, which includes plant-based meat replacement products, has grown 33.5% since 2014 to be worth $9.7 billion in 2018, according to Euromonitor. It predicts that the industry will be worth $11.9 billion by 2023. Impossible Foods is currently awaiting regulatory approval to enter China, which it has named as its top market for overseas expansion. Meanwhile, Beyond Meat is planning to open a production plant near Shanghai, and Nestle is expanding its factory producing plant-based products in Tianjin.
Nevertheless, one major barrier to increasing market share is always cost. The fact that meat-substitutes typically cost more than the real thing is a key hurdle, especially among consumers that are price sensitive. Another big barrier is taste – while recent alternatives have made significant inroads into replicating the flavor profile of real meat, it still isn’t the same thing.
The Greek philosopher Heraclitus famously said that change is the only constant in life. With pork prices soaring by 53% in China in the past year, imports vulnerable to further disruption and declining costs of production for plant-based meat substitutes, will we see more and more Chinese consumers flocking to meat-substitutes, or will old habits die hard as they stick to the tried and tested when it comes to meat consumption? Only time will tell.
About Nelson Low
Nelson Low is the Executive Director of Commodity Products, Asia, for CME Group. He is based in Singapore. This piece was first published by CME Group’s Open Markets.