North American Flu Threatens Pork Demand

The flu has also raised some less legitimate concerns, however. Some consumers around the world are playing "word association" with the former name of the disease and have concluded that perhaps this flu strain can be contracted from eating pork. This fear has led to decreased demand for pork worldwide. Some countries, such as China, Russia, Ukraine, and the Philippines, have banned pork imports from some potentially affected countries, or at least certain regions in the affected countries that have reported cases of North American flu. The countries banning such imports contend there is legitimate reason to fear eating pork because of the potential for flu infections. Although it appears that consumers are concerned about contracting the flu from eating affected meat, at least one Russian official was quoted as saying that the concern is that meat could be contaminated by a sick worker at a meat plant.

Given that most of the trade bans are specific to meat from certain states, it is possible that overall trade could be mostly unaffected, as meat from non-affected states could be substituted. Of course, that logic only holds as long as the flu remains limited in its spread. At any rate, the net effect will almost certainly be negative for the volume of meat exports, mostly pork.

Whether bans on meat trade are legitimate or not, they will likely affect livestock markets, especially hogs. Exports account for an increasing share of annual U.S. pork production, rising from 7% of production in 2000 to 20% in 2008. Japan has been the leading foreign buyer of U.S. pork for years, and Mexico's purchases have been fairly steady as the second-highest market. Meanwhile, Russia and China have fueled the rise in U.S. pork exports with their increased purchases. China's increased purchases in 2007 and 2008 were probably based on short-term factors, such as disease in the Chinese hog herd in 2007 and increased pork demand because of the Olympics in Beijing in 2008; therefore, a decrease in China's pork purchases was already expected for 2009. Reliance on Russia as a meat export market tends to carry an element of risk, especially because it is not yet a World Trade Organization signatory. Russia maintains quota and tariff systems for meat imports, and the associated rules can be euphemistically described as "variable." Recovering from the loss of Russia as a pork export market for a sustained period would be difficult.

Beyond the issue of the trade bans, the bigger risks to demand for U.S. pork probably lie closer to home. Mexican demand for U.S. pork has been partly fueled by its economic growth, and the potential damage to the Mexican economy from the flu outbreak could reduce its overall food demand. In addition, there is the danger that consumers will stay away from pork in droves if they believe that the flu is transmitted by eating pork products, even if their fears are misplaced.

The domestic pork market also may pose a risk if U.S. consumers shun pork. Although export demand has risen to 20% of total U.S. pork production, domestic demand still accounts for the remaining 80%. It will take a while to determine whether domestic demand for pork has been significantly damaged. So far, there has been a bit of anecdotal evidence of consumer wariness of pork in the United States, but experience from other potential meat safety issues, such as mad cow disease and avian influenza, indicates that on balance, U.S. consumer demand for pork is unlikely to suffer very much because of safety fears over "swine flu."

The flu issue is developing quickly, and IHS Global Insight will continue to monitor its effects on the entire economy, including agriculture.