US Pork International Trade

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

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

3. 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 • 2nd half of 2013 to be better than 1sthalf (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

4. 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

5. Top US Pork Export Markets: Jan-July 2013 • Japan $1.106 B, ↓6% • Mexico • $645 M, ↑3% • China/HK • $508.8 M, 0% • Canada • $486.5 M, ↑3% • South Korea • $172.9 M, ↓34% Value Volume ↑in July, customs issues, ↓domestic consumption ↑21% in July, ↑ham value Mexico 763.6 M lbs, ↑2% Japan 553.1 M lbs, ↓6% China/HK 527 M lbs, ↓5% Canada 290.3 M lbs, ↑1% South Korea 140.3 M lbs, ↓31% ↑in HK, ↑variety meats C/S Am: ↑36% ASEAN: ↑44% Carib: ↑23% High supplies, full stocks Source: USDA statistics compiled by USMEF, compared to Jan-July 2012

6. 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

7. US Share of World Exports • 33.4% of world pork exports • Share lost to Mexico, Chile and Brazil • US is the top exporter of pork in the world!

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

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

10. International Opportunities

11. 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

12. 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

13. 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, $3B in 10 yrs

14. Japan Pork Market • US=16% of chilled pork • 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

15. 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

16. Trans-Atlantic Trade Investment Partnership • EU production ↓2.5% for year • Current exports at $13.3M (↑14%) • Potential of $2B 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

17. 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

18. 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: $1B, 1B lbs, 5% of US production, $14.88 live hog value • Need for education

19. Mexico • Q1 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

20. 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

21. 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%

22. 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”

23. Other Issues • Chile Safeguard Case • Investigation of all imported frozen pork • 14.3% duty proposed • 12th 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

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

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

26. 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

27. 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

28. Variety Meat Research • These products are highly valued in specific countries and in many cases sell for price premiums • USDA EMP Grant • RFP’s out in September

29. Thank You! Questions?

30. MCOOL