Feed additive given to hogs pares exports

China’s ban on its use has U.S. growers weaning off

Hog farmers in the U.S., the world's biggest exporter, are losing out on a big payday because of growers' use of a feed ingredient that many have been giving their pigs for the past 15 years.

As hog and pork prices surge in China, the top pork consumer, its record imports this year will be from Europe, not the U.S., according to agricultural research group Rabobank. Like dozens of countries, China bans the use of ractopamine that is fed to more than three-quarters of American hogs to help them gain muscle faster while eating less grain.

With U.S. shipments to China dropping and U.S. pork output exceeding that of beef for the first time in half a century, farmers like Randy Spronk are weaning their animals off the drug. The problem is that stopping its use is no guarantee that overseas sales with rise.

Co-mingling of meat in the U.S. makes separating out the ractopamine-free pork difficult, and only a handful of processing plants -- including some run by Smithfield Foods Inc. -- can sell to China. There's also more competition from Europe, which has a surplus and a cheaper supply.

"We need to access that market," said Spronk, who raises 150,000 hogs a year with his family in Edgerton, Minn. "This is an opportunity I don't want to miss."

So far, pork importers are going elsewhere. U.S. pork exports to China are down 41 percent through the first six months of the year to 200.4 million pounds, the lowest since 2010, government data show. Shipments are headed for a fourth-straight annual decline. Total sales this year to all foreign buyers are down 5.3 percent at 1.086 million tons.

At the same time, pork production is to reach a record 24.6 billion pounds this year, exceeding beef output for the first time in 63 years, the U.S. Department of Agriculture said last month. While wholesale-pork prices are up 8.2 percent this year to 90.17 cents a pound as of Aug. 7, they are the lowest for that date since 2009 and down 34 percent from an all-time high in July 2014.

It's easy to see why farmers covet Chinese buyers. Spronk estimates that selling his hog carcasses there can increase his sale price on each animal by $10 because China uses parts, such as ears and organs, that few U.S. consumers want. Using ractopamine -- among a class of drugs known as beta agonists -- can yield $2 more per head on the few animals that need it, but then the rest of the herd would be barred from the Chinese market, he said.

As much as 80 percent of U.S. hogs are raised using ractopamine, according to Brett Stuart, the chief executive officer of research firm Global AgriTrends. The drug was a hit after the Food and Drug Administration approved the first commercial version of it from Eli Lilly and Co. in 1999, and it got even more popular when corn feed costs rose during the past decade.

While users of the additive also include Mexico and Australia, and more than 100 countries accept pork raised with it, ractopamine is banned in China, Russia and the 28 nations of the European Union.

Elanco, the Eli Lilly unit that makes a ractopamine product called Paylean, said in a statement that the additive is safe and there are no known human-health problems associated with its use. Greenfield, Ind.-based Elanco is working with the pork industry and supporting U.S. government efforts to promote more open markets, spokesman Christina Gaines said in an email.

China has been restricting beta agonists since 2002 and singled out ractopamine in 2009, according to Elanco. The U.S. has argued that the actions weren't based on any scientific evidence. The Chinese government has said its ban on growth enhancers is designed to improve food safety after instances of tainted products raised public concern there. The country also is seeking to limit use of illegal pesticides and veterinary drugs.

While many U.S. farmers say China's ban isn't warranted, some question the benefit of ractopamine now that feed costs have dropped and the biggest importer doesn't want it used.

China consumes more than half of the world's pork and hasn't been able to produce enough of the meat to meet demand. The need for imports increased after a slump in prices bankrupted many hog producers. Retail pork has since surged, and the USDA forecasts record imports of 800,000 tons this year.

American meatpackers may not benefit. Minn.-based Cargill Inc., which slaughters 10 million hogs a year, sees its ability to boost exports "constrained by the supply of hogs that have not been fed beta agonists," Mike Martin, a spokesman, said in an email.

U.S. exporters face competition from Canada and Europe, which benefit from a stronger dollar, making American supplies more costly.

Olymel LP, Canada's largest pork exporter, has one ractopamine-free plant exporting to China, and rising demand is boosting prices, said Richard Davies, executive vice president of sales and marketing. Danish Crown A/S, Europe's top processor, has seen increased Chinese demand over the past two or three months, said spokesman Jens Hansen.

Smithfield Foods, purchased by Hong Kong-based WH Group in 2013, has been working to remove ractopamine from all company-owned animals, it said in a May 22 statement. Smithfield is the world's largest hog producer and pork processor.

Last year, several U.S. plants were disqualified as exporters to China because of ractopamine-residue violations and labeling issues, according to the USDA.

"We've got to get more plants re-listed," said Chris Hodges, CEO of the National Pork Board in Des Moines, Iowa. "Europeans have taken most of our market share."

Information for this article was contributed by Jeff Wilson, Megan Durisin and Alfred Cang of Bloomberg News.

SundayMonday Business on 08/16/2015

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