China has the world’s biggest appetite for pork. It’s such a beloved staple that the written Chinese character for “home” depicts a pig inside a house. U.S. producers banked on that business being around for years.

That’s changed. As a result of the Trump administration’s clash with Beijing over trade, China’s tariffs on U.S. pork have climbed as high as 70%, making U.S. imports more expensive. At the same time, an outbreak of African swine fever in China has increased demand for imported pork.

To fill the void, Chinese customers are increasingly looking to companies in Europe and South America to fill their orders—and those companies aim to turn that opportunity into long-term business. The shift raises the prospect of not just a short-term hiccup for American hog farmers, but a fundamental realignment in the global supply chain in one of the world’s hungriest markets.

ElPozo Alimentación SA, one of Spain’s largest pork companies, started getting more calls from Chinese meat processors in September. John Hickin, manager of Asian sales for ElPozo, says processors told him they feared China’s domestic pork supplies could run thin as tens of thousands of hogs were being culled to stop further outbreaks of African swine fever—a disease fatal to hogs and harmless to humans.

The inquiries continued through a weeklong Chinese holiday in early October, when business usually shuts down. ElPozo’s Shanghai-based staff of three stayed at work that week to fill the orders.

“We are trying to be the Coca-Cola of meat,” said Mr. Hickin.

ElPozo is breeding more pigs on farms near its headquarters in the southeastern Spanish region of Murcia to fulfill what executives hope will be a 40% sales boost over the next four years, thanks to rising exports to Asia and Latin America. Mr. Hickin said he and his colleagues recently hosted around 20 potential new Chinese customers at their headquarters.

In Argentina, government officials are working out an agreement to ship pork to China by the end of this year, said Guillermo Proietto, representative manager for Argen Pork, a farmer-owned cooperative. Some of its 19 farmer-owners are investing in new deboning lines and cold storage space.

Near Talca, Chile, about 150 miles south of Santiago, Pablo Alvarez rolls out of bed around 5 every morning to respond to a growing number of WeChat messages, emails and voice mails from China-based pork buyers.

Mr. Alvarez manages exports for Coexca SA, Chile’s second-largest pork processing company. For most of 2018 he heard very little from his Chinese clients. China’s growing domestic pork supply had forced him to cut prices on the pork bones, heads and other products to preserve the 20% to 25% of company exports that go to buyers there.

That changed after the higher tariffs on U.S. pork took effect and swine fever spread, he said. The company aims to double pork production capacity by the end of 2019. Mr. Alvarez has booked four days of back-to-back meetings with buyers from China and other countries at an October trade show in Paris.

“It will be very busy,” he said.

Farmers in China will rear about 708 million hogs this year, the U.S. Department of Agriculture estimates—more than half the pigs on the planet. That won’t be enough to sate China’s appetite.

Chinese consumers eat 123 billion pounds of pork annually in everything from dumplings to fiery mapo tofu. In a nation of 1.41 billion people, that works out to about 87 pounds a person this year, up around 30% since 1998, according to the U.S. Department of Agriculture. Per capita pork consumption in the U.S. is expected to be 51 pounds this year, little changed from two decades ago.

China’s pork imports swelled to 3.6 billion pounds last year, nearly 10 times more than a decade ago, the USDA says. The surge has encouraged producers in other countries, including the $200 billion U.S. meat industry, to spend hundreds of millions of dollars on gigantic, state-of-the-art slaughterhouses to help fill that demand.

Chinese diners prize cuts of pork, such as hearts and feet, that get little love in Western markets. Income from those parts allows meat companies in the U.S. and other countries to keep prices on products like hams and bacon lower in their home markets. U.S. pork sales to the China and Hong Kong markets topped $1 billion in 2017, nearly a fifth of all U.S. pork exports, according to the U.S. Meat Export Federation.

“If the pork industry is going to be viable as a successful and growing industry, China’s critical,” said Steve Rommereim, a South Dakota hog farmer and president of the National Pork Board, who has traveled to China to meet pork buyers there.

A boom in China’s domestic hog production, fueled by government efforts to consolidate smaller, family-owned farms into giant commercial operations, helped push pork prices to a four-year low in May. Outbreaks of African swine fever have since driven domestic pork prices in September near their highest level in a year.

China’s tariffs on U.S. pork—a 25% duty in April, followed by a second duty in July, on top of existing import charges—have called the future of the U.S.-China pork trade into question. Competition is already tight: The European Union has been China’s top overseas pork supplier since 2009, according to Rabobank, one of the world’s largest agricultural lenders. The U.S. currently ranks third, behind Canada.

Many international pork suppliers acknowledge that the efficiency and scale of the U.S. meat industry, backed by abundant grain supplies to feed livestock, will ensure the U.S. remains a tough competitor.

“I think the Chinese will continue buying U.S. pork,” said Hendrik Voigt, owner of German meat trading company Vimex GmbH.

Hong Kong-listed WH Group, the world’s largest pork company since its 2013 acquisition of Virginia-based Smithfield Foods Inc., has slashed pork imports from the U.S. by more than 20%. WH’s overall profit over the first six months of the year declined 8%.

The company expects to make up for the drop with pork from plants in China and from suppliers in South America and Europe, executives said. Over time it aims to procure pork from its own plants in Poland and Romania, and to expand deeper into Europe.

John Zhong built his Shanghai-based company Heartland Brothers on free-range, artisanal pork products, such as tenderloin and tomahawk chops. Heartland’s pork comes from Berkshire hogs, a black, short-legged breed, bought from a handful of farms in Iowa and Minnesota. The pigs feast on a regimented mix of corn and soybean meal, with no synthetic feed additives—a method that costs more, but produces what Heartland says is a more flavorful meat.

Since China’s tariffs made those products more expensive, however, Mr. Zhong is shopping for additional goods to sell, including high-end Italian ham.

“The tariffs have nearly killed us,” said Mr. Zhong. He said he and his co-founder, who aren’t collecting a salary, are putting more money into the company to keep it afloat. “We are barely making ends meet,” he said.

Two years ago, Bernhard Simon of Wittlich, Germany, applied to ship meat to China from his 150-year-old family company, Simon-Fleisch, which processes about 23,000 hogs a week. Mr. Simon said growth depends on exports because discount retailers have lowered profit margins in Germany, where 70% of the company’s pork is sold.

In April 2016, Chinese auditors inspected everything from his suppliers’ farms to how his employees wash their butcher’s knives. He didn’t hear much after that, and wondered whether China would ever grant him market access.

That approval arrived in August, shortly after China boosted tariffs on U.S. pork. Simon-Fleisch shipped its first spare ribs, ears and heads to China in September. His new Chinese customers complain about the rising cost to import cuts such as collar butts from the U.S. because of the tariffs, he said.

Mr. Simon isn’t expecting a major sales bump in the short term, but over time, he said, sales to China could help him compete with larger European processors and potentially fund expansion. Access to China, he said, “can decide if you are able to survive in this market.”

Some 180 miles to the north, near Germany’s border with the Netherlands, Elfering Export GmbH is shipping more pigs’ feet, heads and bellies to importers in Hong Kong, which then sell them to Chinese buyers. Elfering’s pork exports to Hong Kong are about 20% higher than a year ago, said Grant Gouws, an account representative for the company.

Mr. Gouws said he is used to wrangling over price with his buyers, and he’s used to losing sales when he can’t match a competitor’s price. In recent weeks, however, his clients selling pork in China aren’t trying to negotiate nearly as hard, he said.

“For us, it’s definitely good news,” he said. “As soon as the [tariffs] came on, that definitely turned things around.”

In Spain, where the number of hogs slaughtered annually now outnumbers the country’s population of 47 million people, processors such as Costa Brava are expanding to take advantage of growing trade with China.

Export manager Ernest Xargayo said sales of pig’s feet, heads, cartilage and other byproducts to China are important to Costa Brava’s growth plans. For the first time in a year and a half, Mr. Xargayo said, he is selling higher-value products such as pork bellies, loins and legs in China.

Instead of sending those products in refrigerated trucks to Spanish and French supermarkets, they are being packed into shipping containers bound for China.

The company is preparing to increase its hog herd and pork production by nearly 50% over the next five years, with the goal of processing about 100,000 hogs a week. Designers are drawing up plans for expanded deboning plants north of Barcelona.

China’s efforts to buy low-cost pork from other countries suggest that the U.S. may have to cut prices to keep its sales there, Mr. Xargayo said. “Only the most competitive will survive.”

Source: The Wall Street Journal[:]