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We are temporarily in a period where every major factor stimulating growth for pork producers has a green light, except of course for the price of hogs. There is strong global demand and a glut of most if not all of the feed grains practically worldwide, assuring low production costs for the entire meat complex. The only disciplining factor on producers is market price of hogs which is warning about processing capacity.
However, trade is everything today with major producing countries so with the tremendous success of the EU selling pork to China (up to 70% of Chinese imports of pork came from the EU last year per USDA), something as simple as a shift in exchange rates could bring the house tumbling down for key production areas within EU, especially Spain. None of that seems likely for now as the new administration in the US is initially creating a lot of market optimism which is driving the dollar up. Most of it based on the idea that stagnant relationships, rules and political (vs. economic) underpinning of trade could be wiped away creating a season of unprecedented new opportunities and deals. The impact on the Mexican peso however, (crushed by the US demand for a new border and trade relationship) could eventually impact the flow of pork from the US to Mexico, a huge buyer.
If you live in a country where the profitability of pork production depends on exports, and that is everywhere throughout the world where pork can be produced with a competitive advantage, you now live in a world suddenly playing (or about to be playing) by a new set of rules. Complex, multilateral and bureaucratic trade associations and trading rules are about to become history. Joining them on the way out the door as well are “industry-only benefits” as the judge of what is a good deal for the US (vs the broader consumer benefit). If the US is successful in getting some of these new deals, other trading blocs with multi-lateral agreements are likely to fall and be renegotiated too.
Multi-lateral trade deals laden with political goals are about to give way to simplified, bi-lateral deals, negotiated by business people rather than politicians and focused on economics exclusively. This increases the likelihood, but of course doesn’t guarantee, that the best interests of the nations involved in the trades will be achieved vs. the best interests of narrow political constituencies with historical clout and/or highly paid lobbyists. Will all this work out or will it disrupt current trade, costing pork producers a bundle? We must live it to find out. Nobody knows yet.
You can make a powerful argument going back to some of the first and most famous economic writings that if everyone acts in their own self-interest, everyone winds up with the best outcome as though an “invisible hand” was at work allocating resources etc. That essentially applies to individuals interacting with other individuals or countries with other countries. Where it breaks down is when a relatively small group of individuals gains access to political power such that they impose their self-interests on the great majority of others by engineering policy prescriptions. This is exactly what happened with COOL (country of origin labeling) where a small group of western fruit and cattle producers originated the idea to block competition from products produced outside the US. Unfortunately, many pork producers jumped on the bandwagon.
This was an interesting strategy in cattle and hogs since it blocked the Canadian animals from being imported due to an inadequacy of processing technology, the inability to track primal cuts back to the originating carcass so origin identity was lost. In the meantime, it destroyed millions upon millions of dollars of cross-border business arrangements and had the potential of raising the cost of meat and other food in the US to all consumers while lowering the cost to Canadian and other country’s consumers. Small groups with political clout try to win while the country’s consumers lose. Multiply this model dozens of times and you find these types of strange arrangements layered in current multilateral trade deals.
The current mindset is to sweep these deals to the side and create, lean, bi-lateral trade agreements that focus on a win-win for the broadest group of constituents in each country. There is a lot of concern but the rush behind the scenes to put together new arrangements is off and running.
