DALIAN, China -- WH Group, the world's largest pork producer, is struggling to maintain steady production, with its cross-border supply chains in China and the U.S. undercut by separate epidemics affecting pigs and people.
The African swine fever sweeping through China took a toll on WH Group, wiping out one-fifth of the producer's pig stock last year. The Chinese company's supply has tightened further after five pork processing plants operated by U.S. subsidiary Smithfield Foods were forced to shut in April due to the coronavirus pandemic.
China and the U.S., the top pork producing nations, generate 90% of WH Group's operating profit. But the unforeseen circumstances leave the company scrambling to correct the overexposure.
A Smithfield facility in the state of Illinois was ordered closed by a county health department, citing concerns over the coronavirus and disease mitigation protocols.
One of the unit's slaughterhouses, in South Dakota, accounts for roughly 5% of U.S. pork production. Though Smithfield has restarted some operations at the plant, the company has not disclosed the number of infected employees, either in total or by location.
The lack of disclosure has aroused suspicion among local residents. A plant in Missouri faced a lawsuit on behalf of employees who alleged unsafe working conditions.
Meat processing plants are considered hot spots for outbreaks. Mass infections have been reported at facilities run by U.S. rival Tyson Foods.
It is unknown when all plants can return to full capacity, and this wait to normalize operations is weighing heavily on WH Group.
The company, whose forerunner was founded in 1958, took off in 1992 with the sale of its hit sausage. In 2013, the group became the world's biggest pork producer by acquiring Smithfield for $7.1 billion. The Chinese company later bought another U.S. competitor.
WH Group established fruitful synergies with its cross-Pacific operations. The company supplied Smithfield-branded sausages in China, benefiting from diversifying food preferences linked to the country's economic growth.
The U.S. and China account for about half of global pork production and consumption, U.S. Department of Agriculture data shows. By dominating both markets, WH Group's fortunes seemed secure.
But at home, the outbreak of African swine fever, first confirmed in 2018, remains ongoing. In September 2019 alone, the nationwide pig population shrank by roughly 30% from a year earlier, official statistics show.
Not only did WH Group's own Chinese swineherd decrease by 19% last year, it plummeted about 65% on the year during the first quarter of 2020. Government authorities predict supplies will not recover until the end of the year.
The price of pork in China, a key staple of the cuisine, has climbed to 28 yuan ($4) per kilogram, roughly doubling from prior to the swine fever outbreak.
Smithfield rescued WH Group from that supply crunch. The parent company expanded cheap U.S. imports to take advantage of the rising prices in China. Imports last year more than doubled in terms of frozen products, a record.
The Chinese company logged an increase in both sales and profit on the year during the January-March quarter. "We'll engage in more imports from the U.S. in 2020," WH Group CEO Wan Long said.
But the U.S. plant closures have crimped that cross-border strategy. WH Group did not reply to questions from Nikkei regarding the impact to earnings.
WH Group once identified correcting the overreliance on the American and Chinese markets as a mid- to long-term goal. Recent events have turned that objective into an urgent matter.
Last year, WH Group fully bought out Polish pork processor Pini Polonia. The group plans to shift into a three-front operation that puts Europe in the mix. Yet that region's coronavirus outbreak and subsequent lockdown orders have frustrated this growth strategy as well.
"The problems at Smithfield have verifiably cut pork exports from the U.S. to China, so the unstable supplies will likely persist for the near term," said Zhu Danpeng, a food industry analyst in China.