In a China Trade War, U.S. Meat Looks Like Dog Food
As Donald Trump’s campaign threats of a trade war with China loom over American industry, executives are left to determine how they might navigate that conflict. For the U.S. meat industry, the answer might be snoring softly next to the food bowl in your kitchen.
The U.S. sells billions of dollars of beef, pork, and chicken to countries all over the world, a mutually beneficial relationship that allows companies to find buyers for cuts of meat Americans shun, like offal and pig ears. If those markets should close, said Tyson Foods Inc. Chief Executive Officer Tom Hayes, such technically edible animal parts will likely land in your dog’s breakfast.
“If in fact there was a situation where there wasn’t a primary use market, we’d use it for rendering,” Hayes said in an interview this week with Bloomberg. “We do a lot of rendering of our products for pet food.” Rendering is the process of grinding up giant heaps of raw food and animal material, heating them, and separating them into components like liquid and solid fats for use in soap, explosives—and Fido’s kibble. It’s a safe and effective way to recycle the approximately 59 billion pounds of what would otherwise be waste produced by the meat, supermarket, and restaurant industries.
“We supply people that make pet food and we have our own pet foods business,” Hayes said. Of a trade war with China, he said: “Our view is that things won’t get there, but if they do, we have options.” He noted that the 82-year-old company has “been through tough times before.”
But while American dogs and cats (if they knew what was going on) might be salivating over the possible influx of pig ears, there’s a catch for the meat industry: profit. An American-raised pork product sold to China (and perhaps included as the main ingredient in pig ear salad) fetches a higher price than if it was rendered and sold domestically, ending up on a shelf at your local Petco. “Rendering is often below 10 cents a pound,” says Brett Stuart, chief executive of market analysis firm Global Agri-Trends. “A year ago, it was $2.80 a pound for pig ears in China.”
And it’s not just the ears. The U.S. pork industry exported a total of $791.4 million in “pork variety” in 2016, with Hong Kong purchasing $256.7 million and China buying $245.2 million, according to the U.S. Department of Agriculture. China is the world’s largest pork importer, and, according to an October 2016 USDA report, “remains an important market for U.S. exporters.” Between January and August 2015, the country accounted for 6 percent of total U.S. pork shipments. For the same period in 2016, it was 12 percent.
While trade restrictions would mean major changes across the agriculture industry, meat producers will face a particular challenge thanks to international variations in consumption preferences. “Grain is grain is grain,” Stuart said. “But once you start talking about meat, there are so many different products and different values in all markets.”
For now, though, Hayes is reluctant to alter a company strategy that brought in $4.1 billion in sales from 115 countries last year. “It’s really important to the countries that we export to that they continue to have availability of our products,“ he said.
Stuart echoed the sentiment: “One would hope that we don’t hurt through trade restrictions a thriving, globally competitive manufacturing business at home.”