What COOL and the China sale mean

Monday, August 5, 2013

COOL and Smithfield's sale to a Chinese conglomerate have potential to have impact on imports of pork in the province of Ontario, but they are months away if history is any indication

by RANDY DUFFY

Two recent developments will have an impact on pork imports flowing into Ontario. The first is the release by the Canadian government of the list of U.S. products targeted for possible trade retaliation in response to the U.S. government's non-compliance with the WTO Country of Origin Labeling (COOL) ruling. The second development is the purchase of Smithfield Foods by the Chinese meat processor Shuanghui Holdings Ltd. which is not yet formally complete.

Figure 1 shows a comparison of Ontario live feeder pig and market hog exports to the United States versus pork imports from the United States into Ontario from 2003 to 2013. The live export values are average number of head per week while the pork import figures have been converted to market hog equivalents based on Ontario's average dress weight.

COOL was implemented by the United States in 2008. During the five years from 2003 to 2007, Ontario exported an average of 25,000 feeder pigs and 18,000 market hogs per week. From 2008 to the present, Ontario has exported an average of 15,000 feeder pigs and less than 6,000 market hogs weekly. In 2013, market hog exports are averaging less than 3,000 per week. Industry downsizing in Ontario and the Canada-U.S. exchange rate have also contributed to the decline in exports but COOL has definitely been a major reason. Feeder pig exports have been more stable since 2008. This is likely due to valued long-term business arrangements between Ontario and U.S. partners.

Meanwhile, the exchange rate has also been a contributing factor to the increase of pork imports from the United States into Ontario. Figure 1 shows that in 2012 about 30,000 market hog equivalents (mhe) per week of U.S. pork came into Ontario. So far in 2013, the pace of U.S. pork imports is down slightly but is still averaging 27,000 mhe per week.

In 2012, Canada imported $912 million worth of pork products from the United States. Of that, $640 million or 70 per cent of all U.S. imports flowed into Ontario.

On the list of potential U.S. products for COOL trade retaliation by the Canadian government are: meat of swine, fresh, chilled or frozen (HS code 02.03) and prepared or preserved swine cuts, other than ham and cuts thereof; other than shoulder and cuts thereof (HS code 1602.49). In 2012, these two categories represented $481 million of U.S. product into Ontario. This is significant as it represents 53 per cent of all Canadian pork imports from the United States.

The Smithfield purchase by a Chinese company may result in Smithfield exporting more pork to China. Depending on the product, it may result in some of the pork that normally would go to Canada being directed to China instead. However, another U.S. company may jump up to fill any void left by Smithfield.

Smithfield operates hog plants in North Carolina, Virginia, South Dakota, Nebraska, Iowa, Illinois and Missouri. Imports from these states account for $291 million out of the $481 million. Not all of the imports will be Smithfield product but as the largest U.S. pork processor it is safe to say that a large share probably is.

In summary, the Smithfield sale to a Chinese meat processor will have an impact on U.S. pork imports into Ontario. The COOL issue is a process that could take 18 to 24 months to resolve. The larger impact on U.S. imports will be felt if the Canadian government actually gets to the point of imposing tariffs. That could be months or years away if history is any indication. BP

Randy Duffy is Research Associate at the University of Guelph, Ridgetown Campus.