By Naveen Thukral and Gavin Maguire
SINGAPORE (Reuters) - Last year, Southeast Asian farms offered a lifeline to U.S. grain exporters wounded in a bitter trade war with China. Now, African swine fever is set to tear through those markets, killing off business as surely as the fatal disease decimates vast herds of pigs once raised on U.S. crops.
U.S. feed crop exports to countries like Vietnam, Myanmar and the Philippines surged nearly 50% last year to a record 12.3 million tonnes. That helped to cushion the blow of a slump that wiped out nearly three-quarters of China sales of the same crops as Washington and Beijing exchanged tit-for-tat trade tariffs.
But the scale of the shipments to Southeast Asia that could be lost due to the incurable pig disease highlights the headache for growers in the U.S. grainbelt: Unless a trade deal unlocks China, farmers will have little option but to stockpile, not sell their crops.
"There will probably be a drop in hog production (in the Philippines) and also in demand for commercial feeds, just like what has happened in other countries," said Edwin Chen, president of the Pork Producers Federation of the Philippines. Feed grain demand is already slowing in the country, the world's fourth-largest soymeal importer, after outbreaks of the disease.
Though not harmful to humans, African swine fever is deadly to pigs, with no vaccine available. It surfaced for the first time in Asia more than a year ago, in China, and has now spread to over 50 countries, according to the World Organisation of Animal Health - including those that account for 75% of global pork production.
'WHAT IT TAKES'
Southeast Asia's mix of large population, sprawling cities, fast-growing economies and limited feed crop production have helped fuel a near-25% expansion in its corn and soymeal imports in the past five years.
The region has established itself as the third-largest market for those commodities, making any sharp slowdown in demand all the more alarming for suppliers.
(GRAPHIC: Corn and soymeal imports by region https://tmsnrt.rs/2mgH2tQ)
The rapid growth has also ensured stiff competition for the business, with exporter organisations regularly dispatching trade missions in the fight to gain market share.
The U.S. Soybean Export Council (USSEC) is one such body. It has helped promote sales of American farm products across the region as part of its 'What it Takes' strategy, designed at least partly to offset lost sales to China.
"The diversification of markets has been a primary focus for USSEC for several years, prior to the U.S.-China trade situation," said Rosalind Leeck, USSEC Regional Director of North Asia.
(GRAPHIC: U.S. exports of corn, soybeans and soybean meal to top consumers https://tmsnrt.rs/2nl60IW)
Those efforts paid off for the U.S. in 2018, when sales of bulk crops and soymeal into Southeast Asia reported their largest-ever annual gain, surpassing exports to China for the first time.
(GRAPHIC: U.S. crop and soymeal exports to Southeast Asia and China https://tmsnrt.rs/2l6HP0n)
These hard-won gains are now at risk of being reversed by African swine fever: Since Southeast Asia accounts for 15% of total corn and soymeal imports, any substantial downturn in animal numbers will lead to a commensurate drop in feed crop imports.
According to two traders who sell U.S. and South American crops into the region, corn and soymeal purchases are expected to drop by roughly 1 million tonnes each this year in Vietnam alone. The traders declined to be identified because they are not authorised to speak to media.
(Outbreaks of African swine fever https://tmsnrt.rs/2nsxi0l)
In Vietnam, the world's sixth-largest pork producer, about 4.7 million pigs have already been culled as African swine fever has spread to all 63 of the country's provinces since being detected in February. By end-July, the country's pig herd had shrunk by 18.5% to 22.2 million animals.
"In my village, there are a lot of pigs infected with swine fever," said Nguyen Thi Hai, a pig farmer at Tu Nhien village, outside Hanoi, in business since 2006. "At least, more than half of them (were) infected and killed."
Meanwhile Thailand - the world number five soymeal importer - this month began culling pigs amid heightened fears of a potential outbreak of African swine fever after the death of two hogs without explanation in a province close to swine fever-hit Myanmar earlier this month.
For now, industry watchers say Asia's farmers and U.S. grain exporters will need to strap in for a bumpy ride.
"It has been a big blow to feed demand as China has culled more than 30% of its herd," said Ole Houe, director of advisory services at brokerage IKON Commodities in Sydney.
"Now it is spreading into Vietnam, the Philippines and South Korea. It is more bad news for feed grains growers in America and livestock farmers in Asia."
(Reporting by Naveen Thukral; additional reporting by Kham Nguyen in Hanoi, Enrico Dela Cruz in Manila, Patpicha Tanakasempipat in Bangkok and Karl Plume in Chicago; Editing by Kenneth Maxwell)