Pig in the middle

WH Group hit by swine flu and trade war


At threat from African swine fever

The children’s cartoon character Peppa Pig was banned from Chinese social media in May. The British creation, the People’s Daily lambasted, had become associated with a subversive netizen counterculture that was distorting Peppa’s image to promote “gangster” attitudes (see WiC407).

But last week the pink-snouted piglet turned a new page in China when its owner Entertainment One and internet giant Alibaba’s movie unit announced that they will co-produce an animated feature film based on Peppa Pig.

The film is expected to be released during the Spring Festival next year, which will usher in the Year of the Pig. Chinese media outlets are now speculating whether the film could see Peppa meet her Chinese piggy counterpart Bajie, a major character in the classic novel Journey to the West.

The news is much bleaker for China’s wider porcine population. At the beginning of August, the authorities confirmed the presence of African swine fever after a number of pigs died in Shenyang in Liaoning province. It was the first time the virus – which had infected herds in Germany and Russia – was found in China.

The virus does not affect humans but is lethal to pigs. It has since been detected in three other provinces. Nearly 20,000 hogs have been culled as a result, with the majority from farms in Jiangsu. Having learnt from the mistakes made during response to another swine flu outbreak in 2009, Chinese officials quickly went into crisis mode. Guangdong, for instance, held a three-day meeting and training course for local officials, telling them how to prevent the spread of the virus. Even in cities and provinces where the virus has not been detected, health authorities went on high alert.

Pig farmers, too, seem better prepared this time round. Many have been taking their own measures to protect herds.“Pig farmers have no incentives to hide [an outbreak] because they know they can receive an Rmb800 ($117.1) subsidy for every pig infected with the virus. Government officials know there’s no benefits for them to do a cover-up,” Feng Yonghui, an industry analyst, told Caijing Xianjie, a financial blog.

For WH Group, the world’s largest pork meat processor, however, the African swine fever couldn’t have come at a worse time. One of its slaughterhouses in Zhengzhou in Henan province had to suspend operations after the virus was detected in dead pigs. Although WH Group claims that the operation in Zhengzhou is very small and shouldn’t affect its pork supply, the Hong Kong-listed company saw its share price drop 7.5% in one day. Shuanghui Development, its Shanghai-listed unit, also fell by the daily limit of 10%.

As if the swine fever issue were not bad enough, WH is also now caught in the middle of the US-China trade war because it exports American pork to China via Smithfield Foods (which it acquired in 2013).

In April, China slapped a 25% import duty on most US pork items in response to American tariffs on Chinese steel and aluminium. Pork products were again included in a second round of tariffs introduced in July. Plus the cost of soybeans, which are used for pork feed, has been pushed up because of the trade row.

WH reported last week that revenue from its fresh pork business was down 2.2% year-on-year to $2.4 billion during the first half of this year.

“At the moment, WH Group faces a dilemma. If Shuanghui continues to import pork from the US, margins will suffer. However, if it doesn’t import the pork, its US business Smithfield’s sales will inevitably be affected, which will also affect the overall performance of WH Group,” Feng said. “So in the short run, WH Group needs to find other markets to export its US pork meat.”

Already, WH Group has upped its US pork sales to Japan, South Korea and Mexico, to compensate as sales slow in China. “If the trade war ends soon, we won’t be impacted much, but if it lasts longer, we will speed up the adjustment [in exports],” said chairman Wan Long.

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