China Tightens Rules As US Pork Producers Push More Processed And Refrigerated Meats

SEATTLE -- It’s only 10 a.m., but all is quiet by the time Bonnie Geray walks through the warehouse to make a lap around the giant freezer she manages at the Port of Tacoma in Washington. Every day, employees arrive here well before dawn and maneuver forklifts to unload hundreds of cases of pork from railcars they've pulled up to the facility's edge. They spend the first hours of morning packing those cases into bulky containers that ride to China atop massive ships. Every day, more boxes of pork arrive.

Chinese consumers harbor a growing appetite for imported pork as their ranks and incomes swell. Now American pork producers are pushing to gain a bigger share of that market. Demand for pork in the U.S. has remained flat for the past 20 years, and farmers are eager for new customers. But their efforts come at a time when new rules about importation -- and a lack of infrastructure in China for distributing these products to supermarkets -- restrict their ability to break in.

Demand for meat in China is rising. In the 1960s, calories from eggs, poultry, dairy, meat and fish made up only 4 percent of calories in the Chinese diet. Now calories from meats and animal products make up 19 percent.

Pork is king among them. China's population of 1.37 billion people is roughly four times that of the U.S. Yet Chinese consumers eat more than six times as much pork as the U.S., totaling 57 million metric tons in 2014. But the nation can’t produce enough to feed its people; China became a net importer of pork in 2008.

“Pork is the staple meat in the Chinese diet -- there's no doubt about it,” David Ortega, a resource economist at Michigan State University, says.

China’s meat market has long been a “hot market,” says Chris Hodges, chief executive of the National Pork Board, which means consumers buy the meat of freshly slaughtered pigs sold in open stalls along city streets, meant to be served that night. But as life in China is increasingly crowded and urbanized -- there are 160 cities with more than a million residents -- the meat supply there has trended toward the processed and cold meats familiar to U.S. consumers.

Hodges says China’s hunger for these products has jumped significantly in just the past five years and that American farmers are beginning to seize the opportunity. In the first nine months of 2015, America's pork exports to China were up 6 percent, compared with the comparable period in 2014, and exports of "muscle meats" (valuable cuts such as pork loin, pork shoulder and ham) were up 22 percent. “The demand for pork in the urban areas is just exploding,” he says. “That's pretty exciting for U.S. pork producers.”

New Supermarket Shoppers

China's historic appetite for pork is humongous -- consumers there eat about half the pork that is served up globally each year. Though the country also produces close to 97 percent of the pork its residents eat, several recent trends have opened up a sliver of opportunity for other nations to gain a share of this massive market, according to Joe Schuele, vice president of communications at the U.S. Meat Export Federation.

"China's running a bit of a pork deficit," he says. The pork industry there has long comprised small family farms, which have lately been replaced by large industrial operations. This transition is still in progress, and the new facilities aren't yet producing the amount of meat Chinese consumers demand.

Those consumers also increasingly buy processed and refrigerated meats from supermarkets rather than fresh meat from stalls, and these products are easier to ship over long distances. Ortega recently surveyed 300 people in Beijing, and 47 percent said they purchased pork at traditional wet markets, while 39 percent bought their pork at supermarkets — many of which didn’t exist 15 years ago.

Domestic food safety issues have further pushed consumers to seek out imports for peace of mind. Another survey Ortega conducted indicates Chinese diners prefer the hot, fresh flavor of local meats but believe U.S. meats are safer.

Already, Chinese demand has lifted U.S. pork production. In 2008, U.S. producers sold $429 million worth of pork products to China, according to Ortega’s research. Over the next four years, the value of U.S. pork exports to China rose to more than $1 billion. But overall, the U.S. captures only about 18 percent of the market share of pork imports in China.

Hodges senses the industry's potential is far greater. The National Pork Board is embarking on a market analysis of Chinese consumer preferences and safety concerns that he hopes will better position American farmers to sell even more refrigerated and processed meats.

In 2013, Virginia-based Smithfield Farms, the world’s largest pork producer, was acquired by a Chinese company called WH Group in the largest Chinese acquisition of an American company to date. Many of the boxes that pass through Geray’s warehouse today are from Smithfield and destined for China.

“Smithfield's probably leading the charge, but I think you'd have to say they're also just getting started,” Hodges says. “This is all such a new opportunity for U.S. pork producers.”

Delivering On Demand

But no matter how appealing the Chinese market is to the U.S. industry, or how safe Chinese consumers believe U.S. meats to be, American farmers and food companies that wish to ship large quantities of meat to Chinese families still face logistical hurdles that could stymie these grand plans.

From her office above the warehouse she manages for PCC Logistics, Geray says shipping pork to China has become far more difficult in recent months. In the past, China has willingly accepted boxes that were damaged or crushed as long as the product inside was not affected. Companies have also often issued “in lieu of” certificates if they made changes to a shipment, but China prohibited them for pork products in March. Now officials insist that each package arrives in pristine condition and the paperwork accompanying each shipment remains unchanged from the moment it is originally inspected.

Geray helps a dozen customers, including Smithfield Foods, ship 3,000 to 4,000 containers a year of poultry and pork from the U.S. to Asia. Chinese officials recently refused one of her clients’ shipments because the company neglected to write “Co.” after its name on the USDA export health certificate. It was only the third time in her 17-year career in logistics that she saw a shipment sent back across the Pacific Ocean.

“It’s got everybody a little nervous right now because the requirements are so stringent,” she says. Geray hired an extra employee to triple-check the hundreds of details that could be mixed up between the paperwork and labels of each shipment.

She’s not sure why the rules are suddenly so strict, but she suspects it's a way for China to stave off a flood of American pork imports. China has used this strategy before, in different forms: A long-standing ban on beta agonist feed additives, which are used by the vast majority of American pork farmers, remains the primary roadblock to the growth of American pork exports. Schuele says fewer than a dozen U.S. processing plants are eligible to ship pork to China because of that ban and other government requirements that make it difficult for American suppliers to break in. Recently, seven more eligible American plants came online.

Geray also points out that nations such as Japan and Korea have long held their imports to higher standards, and China is likely finally trying to catch up. China’s new overarching Food Safety Law took effect in October and deals primarily with improving the country's domestic supply.

“I think they’re trying to basically say, 'We demand just as good of quality for our people as the rest of the world does. We're not a second-rate country,'” Geray says.

Once the pork that Geray's workers so carefully pack arrives in China, further challenges remain. Meat requires refrigeration, and China’s infrastructure of refrigerated trucks and warehouses lags behind consumer demand for these products.

Tim McLellan sees that problem firsthand from his offices in Shanghai. He is managing director for international development at Preferred Freezer Services, which was one of the first U.S.-based companies to begin building out China’s cold supply chain six years ago.

His drivers still often transfer packages from large trucks to smaller ones or even three-wheeled scooters to deliver within cities, and he frequently sends trucks back to the warehouse empty. Even pallets are difficult to come by -- many of the loads are transferred by hand. He compares China’s existing infrastructure to that of the U.S. in the 1960s and 70s, and says China’s march toward modernity skipped over a few details.

“You see all the buildings and infrastructure, but when you get to the basics of moving food, it's 30 years behind,” McLellan says, “because everyone was focused on building trains and skyscrapers.”

Other American producers are eager for a chunk of China’s swelling demand for meat, but all will have to contend with the remaining gaps in China's supply chain. McLellan recently met with the governor of Maine, who visited China in October to promote lobster, and ranchers hope China will end its ban on American beef imports that has been in place since the 2003 U.S. outbreak of mad cow disease.

For now, McLellan says China’s demand -- and the potential for U.S. pork producers -- will only increase. “It will continue to grow,” he says. “Absolutely, it's a huge market.”