Pork Industry Flourished Following Swine Flu Outbreak

Despite widespread concern about the 2009 outbreak of the swine flu A(H1N1), hog production and pork exports grew substantially for four years following the outbreak, largely for export markets in Asia.

At the time, the swine flu was a major event, with widespread reports of a potential pandemic that would infect thousands and decimate the hog industry. In the end, relatively few were affected.

The effect on the pork industry was short-lived but dramatic. Despite a consensus among international health organizations that pork products were not a source of infection, international pork demand, pork sales, pork prices, and futures prices dropped suddenly. The changes then rippled through other ancillary markets, including grain prices. Several major U.S. hog and pork importers, including Russia and China, instituted trade bans and restrictions.

Once the infection rate died down, the pork industry turned around. Trade restrictions were lifted a few months after they were enacted, and prices and exports would rebound, far surpassing the levels they were at pre-outbreak.

But despite the rebound, the largest pork producer, Smithfield Foods, would sell itself to a Chinese company in 2013 in what was the largest takeover of a U.S. company by a Chinese firm.

Details of the Outbreak

The Centers for Disease Control (CDC) would eventually list approximately 14-34 million cases of H1N1 and as many as 6,000 related deaths between April and October of 2009. The U.S. government would declare a state of emergency and the WHO would formally declare a pandemic.

According to internal briefings from the CDC at the time, there were no indicated deaths and only a few hundred reported cases. There were a number of outbreak clusters surrounding military bases like Fort Benning, and the agency deployed surveillance and screening for the disease at ports of entry. Schools were closed in various parts of California, Texas, New York City and Ohio.

The CDC briefings gave talking points for media interviews to rebut other alarmist news stories warning of a forthcoming wave of deaths from the disease or that it was created by terrorists.

The U.S. Department of Agriculture (USDA) would help pork producers affected by the outbreak by buying approximately $200 million in pork products for food and nutrition assistance programs.

Numbers Went Up Post-Pandemic

Rather than decimating the pork industry, the virus appeared to be a boon to producers after a short blip.

Hog production in the six years following the swine flu, 2009-2014, was 1 1⁄2 times the total production of the previous six years (2003-2008). Since 2014, production has leveled off.

Cull stocks—the amount of hogs that were culled for economic or potentially as a result of the disease—following the outbreak did grow, but not on a substantial scale. The total amount culled over the six-year period only amounted to about 10 percent of the change in production of that same time.

While production was up, that didn’t necessarily mean it was going to domestic consumption. Availability of pork products to retail consumers—essentially total production minus exports and other non-consumption uses—plummeted to historic lows not seen since the seventies following the outbreak.

Pork exports had been growing steadily ever since the early nineties, but that growth increased even more in 2008, immediately before the outbreak, and it continued to grow through 2014. Most of that growth was due to increased exports to China and other Asian countries.

Hog carcass prices took a small dip during the outbreak, but then rallied to double in average price over the next five years according to USDA data.

Affect on Smithfield

In a 2009 annual report for pork producer Smithfield Foods, the company notes that it experienced a temporary decline in sales and a drop in pork prices “due to perceived risk”, but the risk was short-lived. Still, public perception could affect prices and exports.

Despite little concern over the virus, in 2009 the company would endure its first annual loss in over three decades from “record input costs, an oversupply of hogs, a worldwide recession, and [the] A(H1N1) influenza.”

While total sales were higher in 2009, input costs—specifically higher grain costs—drove the company into the red according to the annual report.

Feed grain costs were at a relative high in 2008, before the outbreak, and were reported to drop in the early stages of the outbreak, but then rallied as concern died off. Prices then spiked even higher post-outbreak through the first half of 2013 according to USDA survey data.

The company’s return on stock—stock value assuming reinvested dividends—collapsed between 2008 and 2009, dropping substantially more than the S&P and the Meatpacking Index—a composite index of numerous meatpacking companies.

In 2013, Smithfield Foods was bought out by the Shuanghui Group, China’s largest meat processor now known as W.H. Group, for an estimated value of over $7 billion. The two firms had been in discussions about a merger since 2009, and a separate Chinese company, Cofco, purchased a stake in Smithfield in 2008.

Because of the scale of a deal involving a foreign company taking over a large American company—it was the largest takeover of a U.S. company by China—it had to be approved by the Committee on Foreign Investment in the United States (CFIUS) for national security concerns. CFIUS found no involvement by the Chinese government, despite being funded by the government controlled Bank of China and approved the deal in 2013.

Larry Pope, former President and CEO of Smithfield during the outbreak and the merger, would take in $37.5 million in compensation in 2014 and $25 million in 2015.