Asia Pacific Agribusiness Insight October 2019

INSIGHT
October 2019
ISSN: 2054-1279
Asia Pacific Agribusiness Insight

Asia (Region) Contents
African Swine Fever: SE Asia Food Inflation Risks Asia (Region) .................................1
African Swine Fever: SE Asia Food
As Disease Spreads
Inflation Risks As Disease
Key View Spreads..................................................1
China................................................5
• African Swine Fever continues to spread in Asia, and is now widely present in China and
Vietnam. Is China Ready For Fake Meat? ....5
• Pork production will sharply decline in the region, and we have revised down some of
Thailand ..........................................8
our 2019 and 2020 pork production forecasts for China, Vietnam and the Philippines.
• Global pork prices remain elevated and food inflation in China has now reached an all- Thailand's Rice Production To
time high. Remain Elevated Despite
• Meanwhile, Chinese domestic pork consumption continues to decline, with rising pork
Drought .................................................8
imports and substitution with other meats working in concert to narrow the supply gap.
• Major pork and poultry exporters are benefiting from the increase in Chinese import
demand and international pork prices.
• Global feed demand growth will be in the doldrums in 2019 and 2020 due to the drop in
pork production.
The ongoing outbreaks of African Swine Fever (ASF) will be a defining agribusiness trend
over the rest of 2019 and in 2020 in Asia and globally, along with the protracted US-China
trade war. The impact of ASF in Asia has metastasised in recent months, and is
still spreading in the region. It is now widely present in China and Vietnam (where new
cases are still being reported as of September 2019), two key livestock and feed
consumers, and it has also officially spread to the Philippines, Laos, Cambodia, Myanmar,
South Korea, North Korea and Mongolia as of time of writing.
Sharp Decline In Pork Output

China - Production Balance ('000 tonnes) & Production Growth (%)
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As a result, pork production will sharply decline in China and South East Asia in 2019 and 2020, with production growth
remaining subdued thereafter at the earliest. In particular, we have revised down our 2019 pork production forecast for Vietnam to
2.4mn tonnes from 2.6mn tonnes previously, representing a 12.5% y-o-y decline. We have also revised down our 2020 pork
production numbers for China, Vietnam, and the Philippines to 35.9mn (-5.0% y-o-y), 2.3mn (-3.7% y-o-y), and 1.6mn tonnes (-1.5%
y-o-y), respectively. Farmers are unlikely to begin rebuilding herds in these countries while the epidemic is still ongoing, and even
when monthly outbreaks subside, it can take up to a year for new animals to be ready for slaughter.
ASF Outbreaks Continue

China - Number Of Monthly Outbreaks
Source: FAO, Fitch Solutions
In China, there have been 157 reported outbreaks of ASF since the August 2018 across 32 regions (as of September 2019) and
nearly 2mn pigs have been culled according to official estimates. Moreover, this coincides with the ongoing consolidation and
industrialisation of the Chinese pork sector, where many inefficient small-scale farmers are being pushed out by large-scale
operators due to stricter environmental regulations. ASF will only accelerate this process. These large-scale operators will most likely
invest in production capacity in the coming years and will be able to help ramp-up China’s pork output from 2021-2022 onwards.
• In Vietnam, 2,700 cases have been reported across all provinces since the first outbreak in February 2019 and, as of September
2019, over 4.7mn pigs have been culled.
• For the Philippines, seven ASF cases have been reported since July 2019 and over 7,000 pigs have been culled. Given that over
60% of the country’s pig population are located in backyard farms, where ASF has a tendency to spread quickly (as
demonstrated by China), we believe there is a strong possibility that the disease could continue to spread over the coming
quarters.
• In South Korea there have been nine confirmed cases of ASF since September 17 when the first outbreaks were reported, and,
according to the agriculture ministry, 15,000 pigs have been killed in response. We have maintained our 2019 and 2020 pork
production forecasts for South Korea for now as less than 1% of the country’s pig herd has been culled. However, should the
disease continue to spread rapidly we are likely to revise down our forecasts.
• Concerns of the disease hitting Thailand, the second largest pork producer and exporter in South East Asia after Vietnam, have
also intensified with ‘preventative’ pig culls already taking place in some high risk areas.
The widening pork supply gap in Asia is putting inflationary pressure on food prices. The rise in pork prices and food price
inflation so far has been the most spectacular in China. Domestic wholesale pork prices have reached record levels at CNY35/kg (as
of August 2019), nearly double its value from the beginning of the year. Wholesale chicken prices have also risen, growing by 11.5%
over January-August 2019. Pork prices will soon start to rise in South East Asia as well.
fitchsolutions.com THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings' credit ratings. Any comments or data
included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings' analysts do not share data or information
Page 2
with Fitch Solutions Macro Research.
Pork And Poultry Prices Spike In China

China - Pork & Chicken Weekly Wholesale Spot Prices (CNY/kg)
Source: Bloomberg, China Ministry of Commerce, Fitch Solutions
Although the rise in pork prices in China is leading to a reduction in pork consumption, growing imports and
substitution with other meats will work in concert to narrow the supply shortfall in 2019 and 2020. Pork imports
reached multi-year highs in July 2019 at around 180,000 tonnes - up 106% from July 2018. Poultry demand has also spiked as
consumers continue to substitute pork with other meats. As of July 2019, China has imported over 400,000 tonnes of poultry, nearly
double its poultry imports during the same period last year. Despite the rise in Chinese meat imports, we believe other disease-
stricken Asian countries may have trouble importing meat as international prices have risen, which means pork consumption will
decline there. We have revised down our 2020 pork consumption forecasts for China, Vietnam, and the Philippines, expecting y-o-y
declines of 2.0%, 5.0%, and 1.0%, respectively.
Pork Imports At Multi-Year High

China - Pork Imports (tonnes)
Source: China Customs, Fitch Solutions
Major pork and poultry exporters are benefiting from the increase in Chinese meat import demand and international
pork prices. China’s main pork suppliers are the EU, Brazil, Canada, and the US, and its main poultry suppliers are Brazil and
Argentina. With regards to pork:
• The EU accounts for the majority of China’s pork imports at around 68%. EU exports into China have remained supported in
2019 so far, particularly from Spain and Germany. However, the ongoing outbreaks of ASF in Central and Eastern Europe pose
downside risks.
Page 3
• Although US pork exports to China have risen this year, they have done so at the slower rate than other suppliers. US meat
exporters have therefore largely missed out on the sharp rise in import demand so far this year.
• Canada’s pork exports to China, despite having spiked in H119, will remain constrained for the rest of the year due to a
temporary import ban.
• Brazil, having exported over 100,000 tonnes of pork to China in 2019 so far (as of July 2019), up 29.1% compared to the same
period last year, remains a key beneficiary the ASF fallout.
Pork And Poultry Exporters To Benefit

China - Meat Imports By Country (% total value)
Source: Trade Map, Fitch Solutions
Global feed demand growth will be in the doldrums in 2019 and 2020 due to the drop in pork production. We have
maintained our forecasts for Chinese and South East Asian soybean and corn consumption for now, as ASF-stricken countries are
implementing nationwide bans on swill feed, favouring grain and oilseed feed sources instead. These countries are also fattening
their existing non-ASF pig herds in an attempt to offset some of the losses from reduced her size. In addition, there will be a slight
uptick in feed consumption from countries such as Brazil, Spain, and Germany that have so far benefitted from the rise in pork
import demand.
PORK PRODUCTION (2015-2023)

Geography Indicator 2015 2016 2017 2018 2019f 2020f 2021f 2022f 2023f
Pork production, '000

China 56,450.0 54,300.0 54,500.0 54,050.0 37,835.0 35,943.3 36,662.1 40,328.3 45,571.0
tonnes
China Pork production, % y-o-y -3.0 -3.8 0.4 -0.8 -30.0 -5.0 2.0 10.0 13.0
Pork production balance,

China -850.0 -2,000.0 -1,450.0 -1,350.0 -9,255.0 -10,205.0 -11,839.6 -11,180.5 -9,543.5
'000 tonnes

Philippines 1,463.0 1,540.0 1,563.0 1,602.0 1,640.0 1,615.4 1,663.9 1,713.8 1,765.2
tonnes
Philippines Pork production, % y-o-y 4.4 5.3 1.5 2.5 2.4 -1.5 3.0 3.0 3.0

Philippines -174.0 -194.0 -240.0 -285.0 -314.9 -413.8 -441.5 -461.0 -474.8
'000 tonnes
South Pork production, '000

1,217.0 1,266.0 1,280.0 1,375.0 1,402.5 1,430.6 1,459.2 1,488.3 1,518.1
Korea tonnes
Page 4
Geography Indicator 2015 2016 2017 2018 2019f 2020f 2021f 2022f 2023f
South
Pork production, % y-o-y 1.4 4.0 1.1 7.4 2.0 2.0 2.0 2.0 2.0
Korea
South Pork production balance,

-596.0 -628.0 -646.0 -635.0 -719.5 -733.5 -748.8 -763.7 -777.9
Korea '000 tonnes

Thailand 1,035.0 1,057.0 1,061.0 1,066.0 1,082.0 1,098.2 1,114.7 1,131.4 1,148.4
tonnes
Thailand Pork production, % y-o-y 1.5 2.1 0.4 0.5 1.5 1.5 1.5 1.5 1.5

Thailand 155.0 159.0 154.0 143.0 129.5 115.2 100.2 84.5 67.9
'000 tonnes

Vietnam 2,550.0 2,700.0 2,730.0 2,790.0 2,441.3 2,350.9 2,487.3 2,611.6 2,705.7
tonnes
Vietnam Pork production, % y-o-y 4.9 5.9 1.1 2.2 -12.5 -3.7 5.8 5.0 3.6

Vietnam 25.0 40.0 30.0 30.0 -263.6 -218.6 -185.1 -148.9 -137.7
'000 tonnes
f = Fitch Solutions forecast. Source: National Sources, Fitch Solutions
China
Is China Ready For Fake Meat?
Key View
• Traditional use of mock meats has laid the way for Chinese consumer to embrace fake meat products.
• The consumer spending outlook on food and growing demand for meat indicates a consumer group ready for new and higher
priced food trends.
• Fake meat drivers include ethical considerations surrounding meat, environmental questions and health concerns, but the key
driver of this trend in China will be food security.
• Chinese fake meat companies already exist, and international players are now investigating the market.
Building On A Tradition
Chinese cuisine has a tradition of utilising mock meats such as seitan and tofu, and so the fake meat trend can be viewed as the
next step in this tradition as opposed to a completely new development, making the embracing of this trend by consumers much
more likely.
Fake meat products can be marketed and consumed across all consumer preferences appealing to those seeking a plant based diet
and those seeking a flexitarian diet. Within China, we highlight that cultural and religious considerations can impact consumer
purchasing and note that some schools of thought within the Buddhist religion (18% of the Chinese population) espouse
vegetarianism.
The wider demand for fake meat can be reflected in the overall spending outlook for consumers on food and the spend levels on
meat, which fake meat products seek to emulate, thereby ensuring their appeal to meat eating consumers.
Food spending by Chinese consumers is projected to grow by 10% over our medium term forecast period (2019-2023) from
CNY10.0trn (USD1.5trn) in 2019 to CNY15.0trn (USD2.6trn) by 2023. Spending on meat and poultry is forecast to grow by 9.3%
over the forecast period reaching CNY3.6trn (USD505.0bn) by 2023.
Page 5
Growing Appetite For Meat

China - Meat & Poultry Sales, CNYmn
e/f = Fitch Solutions estimate/forecast. Source: National statistics, Fitch Solutions
We note four key drivers that typically led to the development of demand for fake meat:
1. Food Security
The key driver of the fake meat trend in China will be food security. As noted consumers are spending greater levels on meat from
their household budgets, with greater volumes being consumed. According to our Agribusiness team meat consumption by kg per
capita (poultry, pork and beef and veal measured) has grown from 42.1kg per capita in 2000 to a projected 48.3 kg per capita in
2019 and is forecast to grow by 16% to 56.1kg per capita by 2023.
Production has not been able to keep up with demand, with China’s meat self-sufficiency rates declining and the country becoming
more reliant on imports (see chart below).
China Can No Longer Sustain Meat Sufficiency

China - Meat* Self-Sufficiency (%)
*Meat defined as pork, beef, veal and poultry self-sufficiency. **Pronounced dip in 2019 attributed to outbreak of African swine fever (ASF). e/f = Fitch Solutions estimate/
forecast. Source: USDA, Fitch Solutions
A divergence in domestic supply versus demand would already be creating food security issues and an environment whereby new
options would need to be investigated and encouraged. We believe that the two recent developments of an increase of tariffs on US
soya bean (increasing the cost of feed for Chinese pig farmers) and African swine flu epidemic (mass-culling of pigs) will be
increasing the focus on meat security in China and will act to drive demand momentum for fake meat.
Page 6
2. Environmental Concerns
Chinese consumers making a connection between meat consumption and environmental concerns will take time to develop, with
12.3% of respondents answering that they pay attention to environmental or financial news (fourth after social, political and
economic news) according to a survey on the ‘Climate Change in the Chinese Mind Survey Report 2017’ from the Energy
Foundation China. The government is also playing a role in this driver, issuing, in 2016 daily recommendations to curb citizens’ meat
intake by 50% in a bid to help reduce greenhouse carbon emissions caused by animal farming.
3. Ethical Considerations
A driver for consumers to choose a plant based diet or decrease their meat consumption can, as noted stem from cultural or
religious reasons, it can also be due to ethical considerations, such as animal welfare in the meat production process. A move by
Chinese consumers toward a plant based diet due to animal welfare concerns is not as well documented as in for example the
United States or Europe, but concerns do exist and have been acted upon, with a number of animal welfare laws passed in China the
last decade illustrating this.
ANIMAL WELFARE DEVELOPMENTS

Laws/Regulatory Bodies Date Overview
Ministry of Urban and Rural Housing Development 2011 Ban the use of animals in circuses and ensuring appropriate case of
regulation animals in zoos
China Food and Drug Administration regulation 2014 Restrictions on animal testing on ordinary cosmetics, such as
shampoo and skincare products, produced and sold in China.
Wildlife Protection Law 2016 New Wildlife Protection Law passed, replacing the old law which
allowed domestication and breeding of wildlife.
China's National Medical Product Administration 2019 The NMPA has drafted new regulations banning animal-testing on
(NMPA) regulation draft imported cosmetics.
Source: Fitch Solutions
Organisations advocating for vegetarian and vegan diets are also not so well developed in China, but we do note that Shanghai was
voted in PETA’s list of “Top 10 Vegan-Friendly Cities in Asia” in 2016.
4. Health Worries
Although there is a shift in the Chinese diet to increase vegetable intake, meat still remains an important component in consumers'
diet. Globally a move away from meat, specifically red meat for health reasons has been driven by the WHO's report into a
connection between red meat consumption and a prevalence of certain cancers. Chinese consumer's awareness of the
WHO's report and the impact on their consumption habits is difficult to ascertain, as health concerns in China surrounding meat are
typically focused on food safety issues.
Competitive Landscape
Domestic companies have started to emerge to serve Chinese consumer’s demand for fake meat, but international companies are
starting to explore the market. Distribution channels for fake meat in China include mass grocery retail, hospitality and e-
commerce.
• Qishan Food, also known as Whole-Perfect Foods, a Shenzhen-based company, has collaborated with the government this
year to open a research institute at Shenzhen University to develop various plant-based products. The company has recently
Page 7
partnered with Walmart to develop products to sell across China.

• Zhen Meat, is a start-up set-up in collaboration with Beijing Technology and Business University and Shuangta Food, and is
already selling artificial pork moon cakes for the mid-Autumn festival on Taobao, China’s biggest online platform.
• From an international perspective, US companies are also eager to break into the Chinese market. Impossible Burger, JUST,
Omnipork and Beyond Meat are all reported to be actively looking to enter Chinese market in the near term.
Thailand
Thailand's Rice Production To Remain Elevated Despite Drought
Key View
• We have maintained our 2019/20 rice production forecasts for Thailand despite the recent drought, as only a small proportion of
rice-growing regions were affected.
• That said, concerns of tighter supply has put upward pressure on Thai export prices, posing upside risk to our CBOT rice price
forecasts.
• Meanwhile, import demand remains firm, from Africa in particular, further supporting domestic rice prices.
• Longer term, we expect rice production to remain elevated owing to continued government support.
We are maintaining our 2019/20 rice production forecasts for Thailand despite the recent drought recorded in the
country, as only a small proportion of non-irrigated rice-growing regions were affected. While a severe drought over
June-July 2019 in the northern and north-eastern regions of Thailand has recently cast uncertainty over domestic rice production
for the upcoming 2019/20 season, we believe the overall impact will be minimal. In particular, we believe that the main rice crop,
which is planted in May-to-August 2019 and will be harvested over November-December 2019, will not see a significant decline in
output. According to the Ministry of Agriculture, only around 128,000 hectares (ha) of the total main crop area (around 1%)
experienced below-average rainfall. Moreover, the crop benefited from improved rainfall in August 2019. Over the coming months,
the Thai Meteorological department also expects precipitation to come in at above-average levels (when the main crop is entering
its reproductive stage).
Thai Rice Prices Spike

Select Countries - Export Rice Price (25% Broken, USD/tonne)
Source: FAO, Fitch Solutions
That said, concerns of the drought impacting the off-season rice crop has put upward pressure on Thai export prices,
posing upside risk to our CBOT rice price forecasts. Thai export prices have recently spiked, with some rice varieties surging
by over 30% month-on-month in August, according to the FAO. Given that Thailand is the second-largest exporter of rice in the
Page 8
world after India, this poses upside risks to our price forecast for CBOT rice. Meanwhile, import demand remains firm,
particularly from Africa, further supporting domestic rice prices. The strength in the Thai Baht recorded in 2019 so
far has also contributed to making Thai rice prices less competitive.
We are, however, maintaining our Thai production forecasts for now. While rice exporters are currently pricing in a potential drop in
the rice area for the off-season crop, which will be planted in November 2019 to January 2020 and harvested over March-May 2020,
we still believe that the impact to overall rice production will be muted. Firstly, most of this area is irrigated, according to
national sources, and therefore should be able to withstand dry weather. Secondly, the off-season crops usually accounts for only
30% of total domestic production. When harvests of the main crop begins in November, we will have a better indication of how the
drought has impact production.
Africa A Key Export Market

Thailand - Rice Exports By Destination (% total value)
Source: Trade Map, Fitch Solutions
Longer term, we expect rice production to remain elevated owing to continued government support. Although the Thai
government has persisted with efforts to liberalise the market somewhat, notably easing on the rural support compared to the
generous help provided through the Rice Pledging Scheme of 2011-2014, some mechanisms remain place. In August 2019, the
government allocated a budget of THB21.5bn for the Paddy Rice Price Guarantee Programme. Under this scheme, the government
will set farmgate prices at around one-third higher than the market rate, according to the USDA.
RICE PRODUCTION AND CONSUMPTION (THAILAND 2015-2023)

Indicator 2015 2016 2017 2018 2019f 2020f 2021f 2022f 2023f
Rice production, '000 tonnes 18,780.0 15,800.0 19,200.0 20,577.0 20,715.0 20,900.0 21,422.5 21,958.1 22,507.0
Rice production, % y-o-y -8.1 -15.9 21.5 7.2 0.7 0.9 2.5 2.5 2.5
Rice production, % of global 3.9 3.3 3.9 4.2 4.2 4.2 4.2 4.3 4.4
Rice consumption, '000 tonnes 10,400.0 9,100.0 12,000.0 11,000.0 11,011.0 11,022.0 11,044.1 11,055.1 11,066.2
Rice consumption, % y-o-y -2.1 -12.5 31.9 -8.3 0.1 0.1 0.2 0.1 0.1
f = Fitch Solutions forecast. Source: USDA, Fitch Solutions
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INSIGHT

Asia Pacific Agribusiness Insight

Sharp Decline In Pork Output

f = Fitch Solutions forecast. Source: USDA, Fitch Solutions

© 2019 Fitch Solutions Group Limited. All rights reserved.

ASF Outbreaks Continue

Source: FAO, Fitch Solutions

Pork And Poultry Prices Spike In China

Source: Bloomberg, China Ministry of Commerce, Fitch Solutions

Pork Imports At Multi-Year High

Source: China Customs, Fitch Solutions

Pork And Poultry Exporters To Benefit

Source: Trade Map, Fitch Solutions

PORK PRODUCTION (2015-2023)

Pork production, '000

Pork production balance,

Pork production, '000

Pork production balance,

South Pork production, '000

South Pork production balance,

Pork production, '000

Pork production balance,

Pork production, '000

Pork production balance,

Growing Appetite For Meat

e/f = Fitch Solutions estimate/forecast. Source: National statistics, Fitch Solutions

China Can No Longer Sustain Meat Sufficiency

ANIMAL WELFARE DEVELOPMENTS

Source: Fitch Solutions

partnered with Walmart to develop products to sell across China.

Thai Rice Prices Spike

Source: FAO, Fitch Solutions

Africa A Key Export Market

Source: Trade Map, Fitch Solutions

RICE PRODUCTION AND CONSUMPTION (THAILAND 2015-2023)

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