Evaluating the consequences of imports on a local value chain: the case of Danish pig meat exports to the Australian market

Abstract

<p>Imports of pig meat into Australia have grown rapidly in recent years and now total around 150Kt pa (shipped weight). This is well over 300Kt in carcase weight terms, and makes up two-thirds of processed pig meat production and about half of domestic consumption. A recurring question is whether these trends have harmed the domestic pig industry and, if so, to the degree sufficient to warrant safeguard action under WTO regulations. While the Productivity Commission regularly examines the aggregate data to test this hypothesis, in this paper we investigate the value system that coordinates the imports of Danish pig meat into the Australian pig meat market, and we seek to identify which parameters impact this value system.</p><p>We find that the Danish pig meat industry built its current position in the Australian market (about 40Kt pa, mainly middles for bacon) based on the following determinants of value: economies of scale in production, processing and logistics; uniform quality of the middles; high food-safety and veterinary standards; the ability to supply a customised product "made to order"; and a long-term focus on the customer. Other conributing factors include Australians' strong preference for ham and bacon which means that Danish suppliers can obtain higher prices in Australia for middles than they can elsewhere, and the recent strength of the $AU: the $AU/Euro rate has fluctuated between 0.64-0.86 over recent years.</p><p>Import prices set domestic prices for manufacturing type pig meat, and imported products are typically cheaper than domestically produced pig meat suitable for manufacturing. Given the latitude allowed by the arguably ineffective country-of-origin labelling laws, cost efficient manufacturers will use imported product. This has resulted in a considerable degree of industry consolidation as well as a marked decline in the production of pigs more suitable for manufacturing pig meat in Australia. Those producers who are left have moved out of the processed market towards the fresh pork market and, to a lesser extent, towards export markets.</p><p>We also examine one of the dominant value chains in this system and analyse how it achieved and maintains success.</p>