Pork Industry Still Reeling From Swine Flu

After H1N1 was labeled 'swine flu,' industry lost $1.1 billion.

October 15, 2009, 5:51 PM

LINCOLN, Neb. Oct. 16, 2009— -- After a lifetime of farming and a long year of financial hardship, Danny Kluthe was ready for better days.

But then came April 24, the day the National Pork Producers Council considers the birthday of the "swine flu" as a household term.

"We were about to turn the corner and start making a profit," said Kluthe, 53, who owns a hog farm near Dodge, Neb. "And here somebody labeled H1N1 the 'swine flu,' and it just totally took a nosedive."

The earliest detected H1N1 virus was found in a 5-year-old boy who lived near a pig farm in Mexico, hence the name "swine flu." Almost instantly, concerns over pork safety spread around the world. Indonesia and Japan initiated a nationwide medical examination of their hogs. In Iraq, zoo hogs were killed. Egypt ordered that hogs across the country be slaughtered.

The United States, the world's largest pork exporter, felt the hit in the weeks following the first outbreak, when 27 nations blocked all U.S. pork imports. Domestic demand plunged as well. And all of that came "obviously from fears of H1N1," pork council spokesman Dave Warner said.

In the past two years alone, the U.S. pork industry has lost $5 billion, according to the NPPC. Pork producers lost 66 percent of their equity, meaning that a hog farm previously worth $100,000 is now worth only $34,000.

Of that $5 billion, $1.1 billion has been lost since April 24, continuing the downward trend started by the economy and high feed costs.

"I bet you my bottom line backed up good, probably a good 30 to 40 percent plus," Kluthe said of his 15,000-hog operation, comparing his actual profits this year to what he had expected.

Although there have been no documented cases of a pig passing H1N1 to a human, U.S. pork producers are "treading water that they've never tread before," Kluthe said, appealing to public officials, media and citizens to stop making the connection between "swine" and "flu."

"It's like you're getting blamed for something that's not your fault," said Terry O'Neel, whose 500-sow farm is near Friend in southeastern Nebraska. "It's not just a financial aspect, it's really disheartening, especially when the media use the label so loosely."

The Export Debacle

Since the first wave of panic, domestic consumption has picked up and many countries have resumed their import of U.S. pork. But one crucial market – China – remains closed. "Clearly, they are very concerned with H1N1," said Dr. John Lawrence, livestock economist at Iowa State University in Ames.

But China is also the world's largest pork producer, with a vast and growing demand, and Chinese domestic hog farming has been undermined by an animal disease outbreak and economic hardship. The Chinese industry is now pleading for government support. On top of everything, many U.S. restrictions on various Chinese imports such as tires and cooked poultry have complicated the trade relationship between the two countries.

In this setup, Lawrence said, any economic or political issue may have contributed to China's decision to cite H1N1 fears as a reason behind a blanket ban on U.S. pork.

In 2008, China bought almost $690 million worth of U.S. pork products, according to the pork council. That made it the third largest pork export market for the United States, after Japan and Mexico.

Pork export to China for the first two quarters of this year was half that of 2008, the council reports, and Canada is now the third largest market, with China fourth.

Without exports to China, unsold pork piled up and prices plunged. Before the H1N1 outbreak, hog farmers were already losing $11 off each hog they sold. The loss grew to about $21 per hog.

"The pork industry is really, really in difficult shape," said Sen. Mike Johanns, R-Neb., former secretary of agriculture. "It hasn't been profitable for a while. It's been one compounding crisis after another."

Johanns headed the U.S. Department of Agriculture during the trade embargo on beef after the spread of the bovine spongiform encephalopathy, also known as "mad cow disease." Restoring pork export markets now won't happen "unless the USDA gets on the road and beats the drum," he said.

"Literally, you have to go country by country," he said, calling for a developed strategy to send scientific expertise overseas and restore the good image of U.S. pork.

Handling Surplus

But, for now, the pork surplus continues to grow, even with the recovering domestic demand.

"Well, sure, things are looking a little better," said Larry Sitzman, CEO of the Nebraska Pork Producers Association in Lincoln. "But what are you going to do with all this supply we've got in the meantime?

"You can't just stop the system and say, 'Hey, we've got too many pigs," he said. "So when the people aren't buying, the system builds up, the prices go down; basic supply and demand."

The profits have dropped so much that Peggy Johnson and her husband, who farm near Nebraska City, Neb., have stopped raising hogs for now and will re-evaluate when the economy picks up. "The price just isn't there," Johnson said.

The packers still get all of the pork, she said, but pay far less for it.

U.S. pork producers have reached out for help to the USDA, asking the federal government to purchase excess pork for food programs. It's common practice for the USDA. The government spent approximately $65 million on such purchases in 2008 and $165 million in 2009, a department spokesman said.

But from the $50 million pork producers requested in fiscal year 2009 to handle the so-called swine flu, they received $30 million. The decision on another $50 million requested for fiscal year 2010 has yet to come.

But even if the USDA granted U.S. pork producers all of the money they had asked for, "it wouldn't get us back into black," said Warner of the National Pork Producers Council.

On the state level, Sitzman of the Nebraska pork association agreed. "Basically, we're going to have to eat our way out of this," he said.

Although the national pork council was leery of drawing conclusions about how much the mislabeling of H1N1 has affected the industry, Sitzman blames it for all the losses.

On a daily basis, he said, he gets phone calls from upset hog farmers: After hearing so many questions about pork safety, even those who raise pigs become confused and doubtful.

Sitzman and several other Nebraska farmers tell almost identical stories of a hog farmer who went to buy some pork at a grocery store and heard a whisper behind him as he put pork loin or pork chops in his shopping cart: "Don't buy it, it'll kill you, it's got that flu virus."

Such sentiments, whether based on actual conversations or not, rub pork producers wrong. They are optimistic about next summer, when prices may go up and export markets may reopen. But, for now, "you've got to backtrack" the tie between hogs and the spreading flu, Kluthe said. "But the damage," he said, "has been done."

ABCNews.com contributor Alina Selyukh is a member of the ABC News on Campus program at the University of Nebraska in Lincoln.

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