China’s WH Group reported a 16.9% drop in first-half profit on Tuesday as higher meat prices due to African swine fever (ASF) dampen margins for the world’s top pork processor.
Profit attributable to owners of the company, before biological fair value adjustments, came to $463 million compared with $557 million a year earlier, while operating profit fell 11.8% to $765 million, Reuters reports.
“We anticipate the greatest challenge in China is the continuously soaring hog prices as a result of growing supply shortages, which will push down our packaged meats margin,” the company said in a statement.
Live pig prices have climbed since mid-June and in some areas in the south, they have doubled since April.
The sales of packaged meats in China were flat last month as the consumer market slowed and the firm raised prices. Packaged meats make up more than half of the group’s revenues, which came to $11.1 billion for the six months, Reuters reports.
Operating profits declined substantially as pork and chicken costs increased, and the company said they spent more on marketing.
Ma Xiangjie, president of the group’s China unit, Henan Shuanghui Investment and Development, told reporters that the company had raised prices three times during the first half. It also plans to introduce higher value products to offset high raw material prices that will continue into 2020.
Although the group in China slaughtered 8.58 million pigs in the first half, up 3.67% year-on-year, and took advantage of relatively low hog prices in the beginning of 2019, volumes are now constrained by the reduction in supply due to ASF and a softening demand.
The company said profits from fresh pork in the U.S. (where WH Group owns Smithfield Foods Inc) suffered from high hog prices, pushed up by trade disruptions and expectations of strong demand from China.
ASF, a deadly pig virus with no cure or vaccine, poses no threat to humans as it does not affect humans. It is not a food safety risk. For more information, visit porkbusiness.com/ASF.
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