African swine flu threatens to cause massive disruption to world’s intensive livestock industry
This year might well be the year 2008 (the year of the global financial crisis) of the poultry and pig industry worldwide.
African swine flu (first identified outside Africa in Portugal in 1957) is spreading rapidly throughout China and other countries in the Far East (Mongolia, South Korea and Vietnam).
People in the industry feel, rightfully or not, that some farmers and countries are under-reporting the extent of the disease for their own reasons. A report in the Economist estimated that in 2019 Chinese pork production would fall by 20 to 50 percent. This will have a massive impact considering that half of all the pork in the world is grown and eaten in China.
The disease has kept below the radar, which can be attributed to the fact that, fortunately, it is completely harmless to people. The spread of the disease has been associated with small family farms, which adhere to lower biosecurity standards.
Denmark, another large pig-growing country, is building a 47-kilometer fence to keep out wild boars, which might be a disease vector.
The knock-on effects of the disease will be huge. No vaccine has yet been developed for the disease so the time it will take to solve this problem is unknown. A drop in the supply levels of pork of the above magnitude will have massive effects on the whole market.
Declining supply disrupts the global industry. The spot price of pork is rising from China to New York. In a normal economic system, the price rise should cause an increase in supply as new investments are made in the industry in unaffected areas. In this case, however, investors are reluctant to take a position in the pork industry as they fear the disease might spread to new farms, areas and countries.
The fall in the pork supply and the consequent rise in price will have a spillover effect, which will be translated into higher demand for chicken and other poultry meat.
An economic analysis in Europe showed a positive cross elasticity of demand for chicken as compared to pork of 0.62. This means that consumers regard chicken and pork as interchangeable at a rate of about 60%.
All this indicates that on a world level there will be a big increase in demand for poultry meat (on top of the year by year increase). Investment in the poultry industry is the logical response to the African swine flu.
About 60% of the fall in the pork supply will be met by increased demand for poultry. As long as the African swine flu remains an ongoing issue and unsolved, it seems more logical to invest in new chicken farms than in pig farms.
At the same time, the new pig farms that will be built will need to be of the best design and quality with a big emphasis on biosecurity.
By Stanley Kaye
The writer is a poultry consultant for Agrotop. He has 30 years hands-on experience in poultry farming. He holds an economics degree from Leeds University and an MBA from Heriot Watt University – Scotland.