In recent decades, the sector has shown great resilience when faced with unexpected challenges that impact the industry. Diseases, economic crises, and political and social contingencies were some of the issues the sector was able to navigate, but not without difficulty. In 2022, these challenges are intertwined and occurring at the same time, which is testing the industry’s ability to respond and adapt.
The current global scenario poses various challenges for the pork industry: inflation, high prices of raw materials, political and social conflicts, and diseases such as the African swine fever (ASF), which become even more difficult when combined, and directly or indirectly impact production costs and the industry’s stability and outlook. Thus, analyzing the impact of each challenge is vital to stay competent and gain more and better destination markets for Chilean pork.
“Our biggest challenge as an industry will be to adapt to all these changes while following our long-term strategy to become an increasingly sustainable industry that supports Chile’s growth and drives development in rural areas,” said ChileCarne’s President, Juan Carlos Domínguez, about the potential scenarios.
Here is an analysis of the key aspects to consider to obtain an industry outlook:
Current and expected inflation
The entire world is seeing unprecedented inflation levels for this century. In April 2022, the International Monetary Fund reported that inflation is expected to average 7.4% globally throughout 2022. Emerging and developing economies are expected to be the hardest hit, with 8.7% inflation rates. In advanced economies, this number could be around 5.7%.
At the webinar “Quarterly Global Pork Outlook,” renowned analyst Brett Stuart, CEO of Global AgriTrends, highlighted that global food indices have been rising since the start of the pandemic, and although meat prices have gone up more slowly, pork will see a price hike in 2022.
The restrictions imposed during the pandemic continue to cause product shortages due to lower production and lockdowns. Disruptions in global shipping, for example in Chinese ports, have increased the cost of shipping and, in addition to the rise in oil prices, have a direct impact on the price of food and other products.
In terms of growth, Stuart highlights that global estimates for 2023 are 3.6%, similar to that of 2021 and very far from 2019, when growth estimates were 6.1%.
In the case of pork, prices in the United States, Mexico, the European Union, and Brazil are similar, whereas prices in China are higher. It should also be noted that Mexico’s pork exports are stable and growing, while the United States is increasing its pork imports, mainly from Canada.
Soaring raw material prices
This year, raw materials prices will remain high due to lower production and a demand that is still rising. The future of corn and soybean is uncertain: exports from the Black Sea are not guaranteed. Additionally, with corn being used for biofuel production, its demand will grow, making its availability for food even more uncertain.
On the other hand, as Brett Stuart points out, weather phenomena add an additional factor to the growing price of raw materials. The expert highlights the effects of phenomena such as “La Niña,” which produces severe droughts in South America and unusually hot summers in the United States, pushing corn prices up. The Food and Agriculture Organization of the United Nations reported “unpredictable and unfavorable” weather that have caused reduced harvest expectations.
Global fallout of the Russia-Ukraine conflict
The war between these two countries and the sanctions against Russia imposed by NATO have had negative economic consequences. Hydrocarbons, grain, and fertilizers are scarce and their value has been increasing since the beginning of the conflict. The CEO of Global AgriTrends points out that the European Union is experiencing high inflation in food, energy, fertilizers, and electricity prices because of the war. “The war is causing an increase in commodity prices,” Stuart points out.
According to data from Rabobank, Russia and Belarus accounted for more than 40% of the world’s potash exports in 2021. Additionally, Russia accounts for 22% of global ammonia exports, 14% of urea, and about 14% of monoammonium phosphate, all crucial fertilizers that are currently hard to find, leading to higher costs and a crisis at the base of the production chain.
African swine fever
The threat of ASF outbreaks is ongoing. Brett Stuart points out that not only Europe is at risk because of what happened in Italy or Germany, as there are always isolated cases in other areas and there is no clear information about what is happening in Haiti or the Dominican Republic.
This is why Stuart stresses the importance of maintaining strict preventive measures and analyzing what other countries have done in this situation. Prevention is necessary but also readiness, with contingency plans that forecast market disruptions, impacts on the industry, potential price variations, and the number of animals that would stay in production.