US Pork International Trade Becca Hendricks AVP International

US Pork International Trade Becca Hendricks, AVP International Marketing National Pork Board

Checkoff Funding in International Trade “WE” • • Marketing and promotion Trade servicing Market intelligence New product development

US Pork Industry Export Goal • Compared to 2011 year-end data, by the end of 2014, US pork exports will increase by $1 billion and 0. 5 million metric tons (1. 103 billion pounds) • We are one quarter of the way to our goal • 2 nd half of 2013 to be better than 1 st half (down ~4%) • Predicted 60 -70% chance of meeting the value goal by the end of 2014 (up 9%) • Need SPS issues resolved and increased promotions

January-July 2013 Exports July exports up 8. 5% over 2012 • $3. 44 billion – ↓ 5% from J-J 2012 • 2. 711 billion pounds (1. 23 MMT) – ↓ 5% from J-J 2012 • Issues: – High domestic supplies in importing countries – Trade access…SPS issues replacing tariffs Source: USDA statistics compiled by USMEF 2013

Top US Pork Export Markets: Jan-July 2013 Value Volume Mexico ↑ 21% in July, ↑ham value 763. 6 M lbs, ↑ 2% Japan 553. 1 M lbs, ↓ 6% China/HK ↑in HK, ↑variety meats 527 M lbs, ↓ 5% Canada 290. 3 M lbs, ↑ 1% South Korea High supplies, full stocks 140. 3 M lbs, ↓ 31% ↑in July, customs issues, ↓domestic consumption Japan $1. 106 B, ↓ 6% Mexico $645 M, ↑ 3% China/HK C/S Am: ↑ 36% $508. 8 M, 0% ASEAN: ↑ 44% Carib: ↑ 23% Canada $486. 5 M, ↑ 3% South Korea $172. 9 M, ↓ 34% Source: USDA statistics compiled by USMEF, compared to Jan-July 2012

Exports Share of Production • 21. 8% of U. S. Pork (muscle cuts only) • 26% of U. S. Pork and Pork Variety Meats* • Value at $54/head Source: USDA *includes sausage casings

US Share of World Exports 40 • 33. 4% of world pork exports 30 • Share lost to Mexico, Chile and Brazil 25 Share 35 • US is the top exporter of pork in the world! 20 15 10 5 0 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

International Pork Primal Cut Utilization 45% Butt Northern Asia Mexico 65% Picnic N. Asia & 25% Loin Northern Asia 7% Belly Northern Asia Canada, Mexico, South America, Russia 40% Leg/Ham

International Pork Variety Meat Utilization Mexico & Russia >90% Tongue, Heart, Liver, Kidney >90% Stomach, Bladder, Uterus >90% Snout, Ears, Feet, Tail Northern & Southeast Asia

International Opportunities

It’s a BIG World • 96% of the world’s population lives outside of the US and pork is the world’s most consumed animal protein • 2050: 9 billion people, 100% more food • Over the next decade, increases in meat consumption in developing countries are projected to average 2. 4% annually, compared with 0. 9 % in developed countries

Decisions to Trade • Domestic issues: – Self-sufficiency – Disease – Regulations – Prices/Currency – Price and availability of other proteins – Quality – Product mix and – Demand • Cost of transport, fuel, freezer capacity • Time in transport, shelf-life • Duties • POLITICS

Trans-Pacific Partnership • US, Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam… 30% of world GDP • Now, Japan… 40% of world GDP • Nearing “end game”…APEC Summit in Oct • Most important FTA the US has ever negotiated • Goals: Removal of all tariff and non-tariff barriers, resolve sanitary and phytosanitary (SPS) barriers • Opportunity: 20, 000 more US jobs, $3 B in 10 yrs

Japan Pork Market • Economy/consumption/yen ↓ • Chicken consumption > pork • Challenges with custom inspections • High stocks, product not through customs, waiting for yen to adjust • 75% of all US pork export profits • ↑ 1% in July from July 2012 – Chilled pork – Seasoned ground pork US=16% of chilled pork

Japan • Pork is sensitive in TPP: – Gate price likely to disappear – Proposed tariff elimination of 80% • US would have market share advantage: chilled products, ability to send processed, lower value raw materials – EU bellies $ above gate price – Canada, Chile, Mexico – US will lose share w/o strong FTA • Exports to Japan could more than DOUBLE

Trans-Atlantic Trade Investment Partnership • • • EU production ↓ 2. 5% for year Current exports at $13. 3 M (↑ 14%) Potential of $2 B in 10 yrs Negotiations began in July, next in DC in Oct Goal: Eliminate TRQ (willing? ) and non-tariff measures (not willing? ) – Ban on ractopamine – Trichinae mitigation requirements – Prohibition on pathogen reduction treatments – Plant approvals – Other issues not currently on table: animal welfare, cloning, other

China Situation • • • High domestic prices Disease Need food security, control destiny Water and phosphorus issues Ractopamine ban Impact of closure $10 immediately Strong imports from EU and Canada Imports ↑ in July Rebound in Hong Kong Variety meat imports ↑ 44% in value

China Opportunity • Appear to be more open to free trade…“willing to import 5% of consumption” • Increased interest in buy-outs • Largest opportunity ever • Increase of 1% of consumption: $1 B, 1 B lbs, 5% of US production, $14. 88 live hog value • Need for education

Mexico • Q 1 exports ↓ 15% – Increased poultry imports – Increased domestic slaughter – Lower domestic hog and pork prices – Slow economic growth • Exports ↑ 2% in July from 2012, hams over $. 90/lb • Long-term ‘Pork Demand Enhancement Campaign’ in 500 stores, consumer media – 5% more people consuming pork, 5% increase in number of people that consume pork once a week – More restaurant featuring, expansion in retail/delis, further processing

South Korea • Exports down due to FMD rebound • Very high supplies despite government intervention • Cold storage full • US share is up (to 39%) due to promotion/phase out of duties – Chilled, raw material sales up – Taste demos – Influential chefs – Processors

Central and South America • ↑ 34% in tonnage • Population growth and GDP are driving demand • Increased import demand as domestic production flat • Education/training modules in 12 locations • Penetration of retail segment • Trichinae restrictions! • Chile-Peru-Colombia-Mexico FTA, lower duties, now 20 -30%

Russia • • Exports down 75% from 2012 Negotiating racto-free program Canada agreed to an “EVP”: 17% of sales, 40% of exports Impact of Russian closure is already through the market Bone-in hams, boneless rollouts, boneless picnics Exports to Ukraine up…? ? ? EU building a fence to keep ASF out “Brink of catastrophe”

Other Issues • Chile Safeguard Case – Investigation of all imported frozen pork – 14. 3% duty proposed – 12 th largest destination for US pork BUT – Domestic production = 96% of consumption – Industry research and legal analysis • MCOOL – 2011: violates WTO – 2013: USDA revised rule, 6 month implementation – Industry litigation, request extension until: – WTO compliance review … 2014 retaliation

Upcoming… • 2014 strategic plan • Product matrix • Defending US Pork’s value proposition • Variety meat research

International Value Proposition Session • • Confront international attacks Be proactive Be positive Consolidate messaging • Outcome and use: marketing and defense

Derived Messaging • US Pork is working to serve as each customer’s primary, long-term trade partner. – Consistent, high-quality, nutrient-dense meats – Unparalleled food safety history (farm-to-customer safety programs) – Reliable and versatile supply to meet your frozen & chilled meat requirements – In-country market development & education support – Transparent, responsible production methods – Producer/packer/government commitment & collaboration

Variety Meat Research • For every $1 million of muscle meats exported, live value increases by $0. 05/CWT • For every $1 million of variety meats exported, live value increases by $0. 20/CWT • About 1 billion lbs go into rendering…blood meal, meat and bone meal, fat and grease with little value • And our competitors (mainly EU) have this market

Variety Meat Research • These products are highly valued in specific countries and in many cases sell for price premiums Variety Meat Domestic Product Price/lb. Bungs $0. 10 $1. 50 Ears $1. 20 $2. 60 Front Feet $0. 40 $1. 00 Hind Feet • USDA EMP Grant • RFP’s out in September Exported Price/lb. $0. 20 $0. 70 Stomach $0. 80 $1. 50 Tongues $0. 60 $1. 65

Thank You! Questions?

MCOOL Nov. 18, 2011 WTO Panel Rules MCOOL Violates US WTO Obligations May 23, 2013 Implementation Period Ends – USDA Published Final Rule 6 Month Implementation Period for Rule March -April 2014 WTO Compliance Panel Issues Ruling Mar. 23, 2012 US Appeals WTO Panel Ruling Canada and Mexico Initiate WTO Compliance Review 1 st Request Rejected by U. S. Aug. 2013 nd Request Granted 2 Sept. 2013 August 2014 WTO AB Issues Compliance Ruling June 29, 2012 WTO AB Upholds Panel Ruling Nov. 2013 USDA Final Amended Regs. Implemented (Meat Groups Request Extension in Sept. 2013) September – December 2014 WTO Retaliation Proceedings Continue and Retaliation is Authorized