Required Report - public distribution

**Date:** 8/6/2003

**GAIN Report Number:** TW3026

TW3026

**Taiwan**

**Livestock and Products**

**Annual**

**2003**

**Approved by:**

![](media/image1.wmf)Jonathan Gressel

American Institute in Taiwan

**Prepared by:**

Eric Trachtenberg & Rosemary Kao

**Report Highlights:**

As the Taiwan economy recovers in 2003-4, beef imports are expected to
grow from 2002 lows and U.S. market share will likely remain steady
despite a major setback dealt by the SARS epidemic to restaurants,
hotels and institutions (HRI), the primary consumers of U.S. beef. High
prices in Taiwan will stimulate pork meat imports although the vast
majority of consumption is supplied by local production. The local hog
industry is not expected to contract quickly in the next few years due
to continuing import controls on variety meats and a relatively
cost‑competitive domestic industry. However, some long-term contraction
is expected. Demand for imported beef and pork variety meats will remain
high.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Taipei \[TW1\]

\[TW\]

**Table of Contents**

[Executive Summary 3](#executive-summary)

[Beef 4](#beef)

[Production 5](#production)

[Consumption 5](#consumption)

[Trade 5](#trade)

[Beef Offals 6](#beef-variety-meats)

[Tariffs & Trade Policy 7](#tariffs-trade-policy)

[The Dairy Sector 8](#the-dairy-sector)

[Marketing 8](#marketing)

[Swine 9](#swine)

[Production 11](#production-1)

[Long-term Trends 11](#long-term-trends)

[Prices 12](#prices)

[Consumption 13](#consumption-1)

[Trade 13](#trade-1)

[Products Entering Under TRQs 14](#products-entering-under-trqs)

[Policy 15](#policy)

[TRQ Regulations 15](#trq-regulations)

[Non-TRQ Duties 16](#non-trq-duties)

[Special Safeguards 16](#special-safeguards)

[Sanitary Regulations 17](#sanitary-regulations)

[Checkoff Program 17](#checkoff-program)

[Cross-Straits Trade and Investment
17](#cross-straits-trade-and-investment)

[Taiwan Swine Sector Investment 17](#taiwan-swine-sector-investment)

[Marketing 18](#marketing-1)

[Internet Resources 18](#internet-resources)

# Executive Summary

As the Taiwan economy recovers in 2003-4, beef imports are expected to
grow and U.S. market share will likely remain near historical averages
despite a major setback dealt by the SARS (Severe Atypical Respiratory
Syndrome) epidemic to restaurants, hotels and institutions (HRI). Early
in 2003, imports of U.S. beef were up sharply as traders took advantage
of favorable prices. By late spring, fears of SARS cut the HRI business
by half, cutting deeply into U.S. beef consumption since most U.S. beef
goes to the HRI sector. With SARS fears fading, imports should recover
by early fall, especially as importers sell of their remaining stocks.
U.S. beef should also benefit from stronger retail sales. The trend is
expected to carry over into 2004, although forecast lower pork prices
may influence demand at the margins.

The privileged tariff position of U.S. choice and prime beef will
gradually be eroded as tariffs for all qualities of beef are equalized
in 2004. Imports of beef variety meats were fully liberalized upon
Taiwan's WTO entry. Without the cumbersome bidding for quotas and with
lowered import tariffs, imports of beef variety meats should grow
healthily in the coming years, though Australia and New Zealand are
taking the largest market shares.

Pork meat imports depend mostly on Taiwan pig prices. High 2003 prices
have been stimulating pork meat imports. The local hog industry is not
likely to contract significantly in the immediate post‑accession
environment because of continuing import controls on variety meats and a
relatively cost‑competitive domestic industry. While the Council of
Agriculture (COA) has predicted a medium-term, one million head decline
in Taiwan's seven million head pig population as a result of WTO-related
trade concessions, Post and most industry analysts believe the actual
decline will be only half that. Contraction in domestic production and
an anticipated increase in consumption may result in increased import
demand for pork meat and offal in the medium-term. In the long term, the
efficient pig industry will continue to produce pork for the local
market, while imports will enter for processing or to supplement
occasional shortfalls.

The demand for imported pork variety meats, which adds to the reduced
local supply since the 1997 foot-and-mouth disease outbreak, is expected
to remain strong for the foreseeable future. As Taiwan\'s current
leading supplier of pork and pork offal, U.S. suppliers should benefit
most from WTO market opening measures. Sanitary concerns are likely to
keep key competitors, such as South Korea and Mainland China, off the
market for several years

# Beef

Table 1. Taiwan Beef Production, Supply and Distribution

+-------------------+-------+-------+-------+-------+-------+-------+
| **PSD Table**     |       |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
| **Country**       | **Tai |       |       |       |       |       |
|                   | wan** |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
| **Commodity**     | ####  |       |       |       |       |       |
|                   | ##### |       |       |       |       |       |
|                   |  Meat |       |       |       |       |       |
|                   | , Bee |       |       |       |       |       |
|                   | f and |       |       |       |       |       |
|                   |  Veal |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
|                   | 2002  | Re    | 2003  | Est   | 2004  | For   |
|                   |       | vised |       | imate |       | ecast |
+-------------------+-------+-------+-------+-------+-------+-------+
|                   | USDA  | Post  | USDA  | Post  | USDA  | Post  |
|                   | Off   | Est   | Off   | Est   | Off   | Est   |
|                   | icial | imate | icial | imate | icial | imate |
|                   | \[    | \[    | \[    | \[    | \[    | \[    |
|                   | Old\] | New\] | Old\] | New\] | Old\] | New\] |
+-------------------+-------+-------+-------+-------+-------+-------+
| **Market Year     |       | 01    |       | 01    |       | 01    |
| Begin**           |       | /2002 |       | /2003 |       | /2004 |
+-------------------+-------+-------+-------+-------+-------+-------+
| Slaughter         | 0     | 27    | 0     | 27    | 0     | 27    |
| (Reference)       |       |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
| Beginning Stocks  | 0     | 0     | 0     | 0     | 0     | 0     |
+-------------------+-------+-------+-------+-------+-------+-------+
| Production        | 5     | 5     | 5     | 5     | 0     | 5     |
+-------------------+-------+-------+-------+-------+-------+-------+
| Intra EC Imports  | 0     | 0     | 0     | 0     | 0     | 0     |
+-------------------+-------+-------+-------+-------+-------+-------+
| Other Imports     | 89    | 88    | 95    | 93    | 0     | 97    |
+-------------------+-------+-------+-------+-------+-------+-------+
| TOTAL Imports     | 89    | 88    | 95    | 93    | 0     | 97    |
+-------------------+-------+-------+-------+-------+-------+-------+
| TOTAL SUPPLY      | 94    | 93    | 100   | 98    | 0     | 102   |
+-------------------+-------+-------+-------+-------+-------+-------+
| Intra EC Exports  | 0     | 0     | 0     | 0     | 0     | 0     |
+-------------------+-------+-------+-------+-------+-------+-------+
| Other Exports     | 0     | 0     | 0     | 0     | 0     | 0     |
+-------------------+-------+-------+-------+-------+-------+-------+
| TOTAL Exports     | 0     | 0     | 0     | 0     | 0     | 0     |
+-------------------+-------+-------+-------+-------+-------+-------+
| Human Dom.        | 94    | 93    | 100   | 98    | 0     | 102   |
| Consumption       |       |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
| Other Use, Losses | 0     | 0     | 0     | 0     | 0     | 0     |
+-------------------+-------+-------+-------+-------+-------+-------+
| TOTAL Dom.        | 94    | 93    | 100   | 98    | 0     | 102   |
| Consumption       |       |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
| Ending Stocks     | 0     | 0     | 0     | 0     | 0     | 0     |
+-------------------+-------+-------+-------+-------+-------+-------+
| TOTAL             | 94    | 93    | 100   | 98    | 0     | 102   |
| DISTRIBUTION      |       |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
| Calendar Yr. Imp. | 18    | 18    | 19    | 20    | 0     | 21    |
| from U.S.         |       |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+
| Calendar Yr. Exp. | 0     | 0     | 0     | 0     | 0     | 0     |
| to U.S.           |       |       |       |       |       |       |
+-------------------+-------+-------+-------+-------+-------+-------+

The conversion factor used to derive the carcass weight equivalent (CWE)
for beef in the above PSD table is 1.36. Beef variety meats imports are
not included in the beef PSD table. The PSD table and Trade table
include beef traded under HTS 0201 and 0202. Trade of processed beef,
under HTS 021020 and 160250, are negligible (less than 300 mt).

# Production

Domestic beef, mostly from culled dairy cattle, meets only 5 to 6
percent of Taiwan's total beef demand. Total production is not expected
to change significantly in 2003 or 2004.

# Consumption

Taiwan's ongoing economic recovery is expected to boost total 2003 beef
consumption by 5 percent to 72,100 mt (98,000 mt CWE). In 2004,
consumption is expected to increase further to 75,000 mt (102,000 mt
CWE). This year, expectations of higher consumption growth were
frustrated by the SARS outbreak. According to trade data, January to
April imports were up almost 10 percent year to year but industry
sources believe that shipments fell sharply from May onwards as SARS
keep people from eating out or traveling. U.S beef consumption was
especially hard hit by the lack of business travel to Taiwan. As a
result, restaurants lost between 50-60 percent of their business in the
spring. In some of the hardest hit areas, business fell by 90 percent or
more. Travel in Taiwan during the time period was down by 50-80 percent
from previous levels. The only bright spot was a 25 percent boost in
supermarket sales. U.S. beef exporters are making strong efforts to
develop premium U.S. brands for major hypermarkets while also marketing
less expensive cuts that compete effectively on both price and quality
with other imported beef.

As Taiwan moves beyond its Spring 2003 SARS outbreak, beef consumption
is expected to pick up in the later half year. Both leisure and business
travel should recover since the World Health Organization removed the
travel advisory for Taiwan in late June. In addition, consumption should
also be buoyed by Taiwan's ongoing economic recovery. Although Taiwan's
economic growth, forecast at 3.1 percent in 2003, lags behind the recent
historical average of 5 percent, continued stability of the New Taiwan
Dollar, increasing consumer purchasing power, and pent up demand should
boost beef consumption. Consumption was not significantly affected by
the discovery of Bovine Spongiform Encephalopathy (BSE) in Canada.
Barring a major disruption to the market, like another serious SARS
outbreak, consumption should grow steadily in 2004.

# Trade

Total imports are estimated at 68,380 mt (93,000 mt CWE) in 2003 and
72,100 mt (98,000 CWE) in 2004 with U.S. beef exports at 14,705 and
15,440 mt (20,000 and 21,000 mt CWE), respectively. Since Taiwan imports
95 percent of its beef consumption, imports tend to move with closely
with consumption except when stocks build up.

Imports from January to April 2003 totaled 26,701 mt, representing a 29
percent growth from the corresponding period in 2002. However, low
consumption and high stocks resulting from SARS sharply reduced monthly
imports beginning in May. Despite this, total 2003 beef imports are
forecast to grow by 6 percent to 93,000 mt CWE as the impact from SARS
fades away, the economy improves and stocks come down.

Year to year, market shares of major beef suppliers to Taiwan have been
stable since 2002. However, from late spring to early autumn, U.S.
market share will likely fall sharply since U.S. beef is mostly consumed
in the HRI (Hotel, Restaurant and Institutional) sector while beef from
other origins dominate the supermarkets.

By September, both imports and U.S. market share are expected to return
to historical averages as the HRI sector recovers from SARS and stocks
fall. This should be especially promising for quality U.S. beef and
should partially reverse 2002 gains in market share made by Australia
and New Zealand as consumers shifted their beef intake to the cheaper
muscle meat. Any further changes in U.S. market share will depend on
prices, exchange rates relative to competitors and any possible
reemergence of SARS.

In the long run, market efforts by the newly formed U.S.- New
Zealand-Australia-Canada Beef Alliance should increase demand for beef
products (Canada joined in 2003). Industry sources believe that imports
could rise to more than 80,000 tons as a result of this effort.

**Table 2. Taiwan Beef Imports, 2002 and Jan-Apr 2003 (mt)**

  ----------- -------- -------- ----------- --------- -------- ---------- --------
  Supplying   U.S.     Canada   Australia   New       Panama   Paraguay   Total
  Source                                    Zealand                       

  2002        13,167   3,604    33,227      14,703    329      25         65,055

  *-'02 Share *20%*    *6%*     *51%*       *22%*     *\>1%*   *\>1%*     
  (%)*                                                                    

  2003        5,649    1,360    11,099      8,473     120      0          26,701
  (Jan-Apr)                                                               

  *-'03 Share *21%*    *5%*     *42%*       *32%*     *\>1%*   *0%*       
  (%)*                                                                    
  ----------- -------- -------- ----------- --------- -------- ---------- --------

Source: Board of Foreign Trade

## Beef Variety Meats

Although beef variety meat imports should stay high because local demand
exceeds supply, trade is not expected to increase very rapidly in 2003
because the Taiwan market generally does not offer high prices for beef
offal. Imports should be supported because local demand exceeds supply.

Although imports of variety meats should grow in coming years, Australia
and New Zealand will likely take the largest market shares because of
their location close to Taiwan. Since offals are a lower cost product
than meat, their lower transport costs will give them a major advantage
in the Taiwan market. The U.S. market share is forecast to fall from 33
percent in 2001 to 11 percent in 2003.

Imports of beef offal, once subject to an import quota, were liberalized
on January 1, 2002 in line with Taiwan's accession to the World Trade
Organization (WTO).

Table 3. Taiwan Beef Offal Imports, 2002 and Jan-April 2003 (mt)

+-------------+-------+-------+--------+----------+--------+---------+
| Supplying   | U.S.  | C     | Aus    | New      | Others | Total   |
| Source      |       | anada | tralia | Zealand  |        |         |
|             |       |       |        |          |        | Imports |
+-------------+-------+-------+--------+----------+--------+---------+
| 2002        | 719   | 264   | 2,108  | 766      | 32     | 3,856   |
+-------------+-------+-------+--------+----------+--------+---------+
| *-'02 Share | *19%* | *7%*  | *55%*  | *20%*    | *\<1%* |         |
| (%)*        |       |       |        |          |        |         |
+-------------+-------+-------+--------+----------+--------+---------+
| 2003        | 177   | 94    | 976    | 308      | 1      | 1,556   |
| (Jan-Apr)   |       |       |        |          |        |         |
+-------------+-------+-------+--------+----------+--------+---------+
| *-'03       | *11%* | *6%*  | *62%*  | *20%*    | *0%*   |         |
| Share(%)*   |       |       |        |          |        |         |
+-------------+-------+-------+--------+----------+--------+---------+

*Source: Board of Foreign Trade*

\* Offal imports are not included in the PS&D table.

## Tariffs & Trade Policy 

Taiwan grants a small preferential tariff to Special Quality Beef (SQB)
to encourage imports of SQB versus lower quality beef that competes with
Taiwan's own limited production. USDA-graded prime or choice beef and
Canadian AAA beef are automatically considered SQB while beef from other
sources is dutiable at a higher rate. Upon accession to the WTO on
January 1, 2002, Taiwan cut the tariff rate for SQB to NT\$20/kg. It
will drop to NT\$10 in 2004. The tariff rate for non-SQB was lowered to
NT\$24/kg upon accession and will decline to NT\$10/kg in 2004. The
tariff gap between SQB, in which the U.S. dominates, and non-SQB will be
narrowed until it no longer exists in 2004, ending a market advantage
for U.S. beef

Tariffs for beef offals in 2003 range from 17.5 to 20 percent. Upon
Taiwan's WTO accession, import tariffs for beef offal, formerly ranging
from 20 to 50 percent with most falling under the 50 percent category,
were lowered to 20-25 percent. They will be phased down to 15 percent on
January 1, 2004.

Muscle meat such as shin, shank, short plate, brisket, ribs, and rib
finger is classified as shin/shank/intercostal (s/s/i) cuts. The duty of
U.S. s/s/i has been bound at NT\$23.8/kg with its definition being
detailed in the U.S.-Taiwan Beef Agreement in 1990. This preferential
duty applies to U.S. s/s/i only, not to Canadian AAA s/s/i, let alone
non-SQB s/s/i. By 2004, s/s/i will also lose its duty advantage.

Table 4. Tariff Comparison for Beef and Beef Offal

  --------------- ------------- -------------- -------------- --------------
  Beef            2001          2002           2003           2004
  Category/Year                                               

  Special Quality NT\$22.1/kg   NT\$20/kg      NT\$15/kg      NT\$10/kg
  Beef                                                        

  Non-SQB         NT\$27/kg     NT\$24/kg      NT\$17/kg      NT\$10/kg

  SQB-S/S/I       NT\$23.8/kg   NT\$23.8/kg    NT\$16.9/kg    NT\$10/kg

  Beef Variety    20-50%        20-25%         17.5-20%       15%
  Meats                                                       

  Bovine Bones    50%           35%            35%            35%
  --------------- ------------- -------------- -------------- --------------

**Sanitary Regulations**

In order to export meat to Taiwan, a country's meat quarantine
inspection and health certification system must be reviewed and found
acceptable by the Taiwan authorities. Currently, the only countries
eligible to supply beef or beef variety meats to Taiwan are: the United
States, Australia, New Zealand, Panama and Sweden. Although Taiwan
accepted Japan's FMD-free status in late 2001, entry is still banned
along with Canadian and most types of European beef because of concerns
about Bovine Spongiform Encephalopathy (BSE). Unlike neighboring
economies, Taiwan consumers did not associate beef consumption with BSE.
Press coverage was rational and short-term, allowing beef exports to
recover 2003.

Imports of beef and products from Canada were suspended on May 21, 2003
in response to a BSE detection there. The United States is expected to
take half of the Canadian market share as long as the ban stays in place
while New Zealand is poised to take the remaining half. In July 2003,
Nicaragua was approved to supply beef and products to Taiwan. Products
from Denmark, once a major supplier, are still banned.

## The Dairy Sector

The dairy industry, one of the few profitable agricultural sectors in
Taiwan, is not expected to contract dramatically following the removal
of the fluid milk import ban resulting from WTO entry (see Dairy Annual
TW2041). Although some consolidation is expected, Taiwan's dairy
industry is expected to successfully compete against milk imports since
fresh milk is normally supplied locally and is expensive to ship. The
stable market for fluid milk and the limited market share of competing
milk powder will also boost prospects. In the years to come, Taiwan's
diary sector will remain stable and will likely begin to buy some seed
stock overseas to improve its genetics. Reflecting a more open approach,
the old Holstein-only policy has ended. Other breeds now have market
access although imports of seed stock still require Council of
Agriculture approval, reportedly for "management purposes only".

# Marketing

Traditionally, the largest buyers of U.S. beef were in the HRI sector,
especially the high-end channels who are supported through exporter
sponsored training and promotion programs. The competition from
Australia and New Zealand is more intense in the lower end food service
sector and in supermarkets.

After the SQB duty differential ends, there will be more competition for
U.S. products once favored by the tariff advantage. On the other hand,
falling duties are expected to increase trade overall, especially in
shoulder cuts or products customized for the Taiwan market. Lower duties
may also open the way to exports of less expensive U.S. beef products.

One of the most significant changes in beef marketing in Taiwan has been
increasing competition, especially between the U.S., Canada, Australia
and New Zealand. As a result, profit margins were reported to be half of
levels found 15 years ago. The ability to add value to products through
custom cutting or other quality enhancements is a key element to
avoiding relentless price competition. U.S. beef exporters have tried to
meet the competition in two ways: 1) developing premium brands or a
premium image working with key hypermarket chains and 2) developing new,
less expensive cuts which compete favorably with Australia and New
Zealand beef on flavor, tenderness and price.

While the four major beef suppliers compete strongly, they also have
decided to work together in the Beef Alliance to promote overall
consumption of beef and grow the market. With per capita beef
consumption of only about 3 kg, there is room for growth. BY emphasizing
the nutritional benefits of beef, especially to women, the Beef Alliance
hopes to make it a more regular part of the family menu. This effort
will likely take a number of years to bear fruit.

# Swine

# 

Table 5. Taiwan Swine Production, Supply and Distribution

  -------------------- ------------ ---------- ---------- ---------- ---------- ----------
  **PSD Table**                                                                 

  **Country**          **Taiwan**                                               

  **Commodity**        **Animal                                      (1000      
                       Numbers,                                      HEAD)      
                       Swine**                                                  

                       2002         Revised    2003       Estimate   2004       Forecast

                       USDA         Post       USDA       Post       USDA       Post
                       Official     Estimate   Official   Estimate   Official   Estimate
                       \[Old\]      \[New\]    \[Old\]    \[New\]    \[Old\]    \[New\]

  **Market Year                     01/2002               01/2003               01/2004
  Begin**                                                                       

  TOTAL Beginning      7165         7165       7000       6793       6900       6800
  Stocks                                                                        

  Sow Beginning Stocks 838          838        795        795        0          800

  Production (Pig      10100        10540      10000      10300      0          10500
  Crop)                                                                         

  Intra EC Imports     0            0          0          0          0          0

  Other Imports        0            0          0          0          0          0

  TOTAL Imports        0            0          0          0          0          0

  TOTAL SUPPLY         17265        17705      17000      17093      6900       17300

  Intra EC Exports     0            0          0          0          0          0

  Other Exports        0            0          0          0          0          0

  TOTAL Exports        0            0          0          0          0          0

  Sow Slaughter        0            0          0          0          0          0

  OTHER SLAUGHTER      9700         10060      9500       9700       0          9900

  Total Slaughter      9700         10060      9500       9700       0          9900

  Loss                 565          852        600        593        0          600

  Ending Inventories   7000         6793       6900       6800       0          6800

  TOTAL DISTRIBUTION   17265        17705      17000      17093      0          17300

  Calendar Yr. Imp.    0            0          0          0          0          0
  from U.S.                                                                     

  Calendar Yr. Exp. to 0            0          0          0          0          0
  U.S.                                                                          
  -------------------- ------------ ---------- ---------- ---------- ---------- ----------

Table 6. Taiwan Pork Production, Supply and Distribution

  -------------------- ------------ ---------- ---------- ---------- ---------- ----------
  **PSD Table**                                                                 

  **Country**          **Taiwan**                                               

  **Commodity**        **Meat,                                                  
                       Swine**                                                  

                       2002         Revised    2003       Estimate   2004       Forecast

                       USDA         Post       USDA       Post       USDA       Post
                       Official     Estimate   Official   Estimate   Official   Estimate
                       \[Old\]      \[New\]    \[Old\]    \[New\]    \[Old\]    \[New\]

  **Market Year                     01/2002               01/2003               01/2004
  Begin**                                                                       

  Slaughter            9700         10060      9500       9700       0          9900
  (Reference)                                                                   

  Beginning Stocks     0            0          0          0          0          0

  Production           907          935        890        902        0          920

  Intra EC Imports     0            0          0          0          0          0

  Other Imports        25           31         35         45         0          40

  TOTAL Imports        25           31         35         45         0          40

  TOTAL SUPPLY         932          966        925        947        0          960

  Intra EC Exports     0            0          0          0          0          0

  Other Exports        0            0          0          0          0          0

  TOTAL Exports        0            0          0          0          0          0

  Human Dom.           932          966        925        947        0          960
  Consumption                                                                   

  Other Use, Losses    0            0          0          0          0          0

  TOTAL Dom.           932          966        925        947        0          960
  Consumption                                                                   

  Ending Stocks        0            0          0          0          0          0

  TOTAL DISTRIBUTION   932          966        925        947        0          960

  Calendar Yr. Imp.    16           18         20         27         0          24
  from U.S.                                                                     

  Calendar Yr. Exp. to 0            0          0          0          0          0
  U.S.                                                                          
  -------------------- ------------ ---------- ---------- ---------- ---------- ----------

The conversion factor used to derive pork meat to carcass weight
equivalent (CWE) is 1.43. Imports of pork bones are also included in the
PS&D Table at a conversion factor of 1.0. Imports of pork variety meats
(offal) are not included in the PSD table. This report includes pork
trade under HS 0203. Trade of processed pork, under HS 021011, 021012,
021019, 160241 and 160242, has been negligible (below 500 mt).

# Production

In 2003, swine production (fat pigs slaughtered) is estimated at 9.7
million head, down 2 percent from the 2002 total of 9.9 million and 4
percent from the post-FMD outbreak peak of 10.1 million head in 2001.
Post forecasts that total 2004 slaughter will increase by 2 percent to
9.9 million. These totals exceed COA's "target" production of 9.3
million.

The most recent pig inventory survey conducted in May 2003 pointed to
shrinking herds compared to 2002 \-- despite high 2003 pork prices.
Despite attempts to increase herd size, production has been undermined
by an outbreak of Porcine Circovirus Infection (PCV), which has a high
mortality in pigs weighing between 15 to 30 kg. Despite this, high
prices and an eventual decline in PCV will likely result in a larger
number of breeding and standing pigs in late 2003 and through 2004.

Table 7. Taiwan Hog Population Data

  --------------------- ---------------- ---------------- ----------------
                        May 2002         Nov. 2002        May 2003

  No. of farms          12,931           13,054           13,022

  Pigs on farm          6,920,763        6,793,941        6,747,658

  Boars                 36,640           36,572           36,586

  Sows/gilts            800,603          795,480          797,769

  Sows                  720,911          711,136          717,395

  Gilts                 79,692           84,344           80,374

  Fattening pigs        6,083,520        5,961,889        5,913,303

  Piglets               1,061,922        999,256          1,027,807

  Under 30 kg           1,795,175        1,664,814        1,734,710

  30-60 kg              1,632,069        1,639,748        1,582,556

  Above 60 kg           1,594,394        1,658,071        1,568,230
  --------------------- ---------------- ---------------- ----------------

Source: Council of Agriculture

## Long-term Trends

In the long term, the largely efficient Taiwan swine industry will
continue to produce pork for the local market, with imports mainly for
processing or to supplement occasional shortfalls. Pork production will
likely stabilize because of Taiwan's relatively cost‑competitive
structure, with current production costs estimated at 1.2 to 1.7 times
North American and European levels. Although pessimists feared that
total herd size would fall to 6.0 million, it seems more likely to
stabilize at 6.5 million in the next 3-4 years.

The decline of Taiwan's swine sector is expected to continue because
several factors:

1.  Realization that export markets lost because of Taiwan's 1997 Foot
    and Mouth Disease (FMD) outbreak will not recover fully in the near
    term.

2.  High feed prices.

3.  Increasing post-WTO accession import competition, especially from
    imported offals.

4.  Rising environmental pressures (especially waste disposal) that will
    increase costs of production.

5.  Retirements of elderly farmers.

6.  Increasing pressure to divert land to more valuable uses.

The most serious problem facing Taiwan's swine industry is the loss of
export channels resulting from the 1997 FMD outbreak. Before 1997,
Taiwan was a net exporter of prime pork meat to Japan with the offal
left for domestic consumption. The FMD outbreak caused massive losses
from suddenly closed export markets and the costs of depopulating 30
percent of the swine population (3.8 million head). The number of swine
farms fell by almost half from 25,300 in 1997 to 13,000 in 2002, with
smaller farms failing the most often. Despite this contraction, 43
percent of total farms still have less than 100 head while 25 percent
have less than 20. Most swine production is concentrated in the
southwest part of Taiwan in Pingtung, Yunlin, Changhua and Tainan
Counties.

Although Taiwan has been FMD-free since 2001 and was officially declared
FMD-free in 2003 with vaccination by the Office International des
Epizooties (OIE), exports are not likely to recover to pre-1997 levels.
COA hopes to restart exports to Japan in 2005 although they admit this
estimate is quite optimistic and dependent on Taiwan avoiding another
FMD outbreak. In addition, Japan will only accept imports from countries
that have been declared FMD-free without vaccination, which can only
come after a region has been FMD free for a year without vaccination.
Even if Taiwan does resume exports, it is very unlikely that trade will
return to pre-1997 levels because of a loss in marketing channels and
positive consumer awareness in Japan. The most optimistic estimate is
that Taiwan will export from 80-100,000 mt by 2005 \-- which is down
sharply from 270,000 mt in 1996. In addition, hard-won access to foreign
markets will remain tenuous because of possible FMD or other disease
introductions caused by contraband imports of Chinese swine.

Pig farms have also suffered because of price competition. Post-WTO
offal imports have lowered revenue from offal sales by as much as half,
from NT\$400 versus NT\$800 per head. This will force pork meat
exporters to raise their prices, further reducing their competitiveness.
This has created a growing realization that exports will not return to
pre-FMD levels, which is causing farmers to stop swine production.
Farmers are also aging rapidly, which will also likely reduce the number
of farms, especially smaller facilities. After consolidation, production
costs should be even lower than at present, leaving the remaining farms
more competitive. This contraction in domestic production and the
ongoing consolidation of small farms will likely result in increased
import demand for pork meat and offal.

## Prices

Pig prices, which rose to over NT\$6,000/100 kg (US\$174) in July, are
expected to remain high for the next several months. High prices in 2003
will likely spur farmers to expand herd size in 2004 in spite of
increasing import competition caused by increasing TRQ sizes for pork
belly and offal. The potential for increasing supplies has caused
concern in COA that late 2004 or 2005 may being a collapse in pig
prices. This threat of overproduction has also been magnified by a
short-term migration of the unemployed into farming.

Table 8. Taiwan Pig Auction Prices (NT\$/100 kg)

  -------- -------- -------- ------- -------- -------- ------- -------- --------
  Time     CY2001   CY2002   Jan.    Feb.     Mar.     Apr.    May 2003 July
                             2003    2003     2003     2003             2003

  Prices   3,982    4,342    4,951   4,605    4,562    4,647   5,015    6,300+
  -------- -------- -------- ------- -------- -------- ------- -------- --------

*Source: Livestock Monthly & Other Industry Sources*

\* Roughly NT\$34.5=US\$1 in 2001; NT\$34.5=US\$1 in 2002 and 2003.

In 2002, the break-even point for hog production was slightly more than
NT\$4,000/100 kg live weight. Taiwan farmers tend to keep the pigs
longer (about 6.5 months) on farm than their U.S. counterparts. The
average weight for slaughter pigs has remained at 110 kg/head for years.
The direct cost of hog production was NT\$3,898/100 kg in 1999 and
NT\$3,676/100 kg in 2000. (source: Animal Technology Institute, Taiwan)
In 2001, production costs were estimated at around NT\$3,800/100 kg and
auction prices averaged NT\$3,997/100 kg.

# 

# Consumption

Taiwan's pork consumption tends to be very stable from year to year,
moving in a box around 940,000 to 970,000 tons. Estimated consumption is
947,000 mt in 2003 and forecast consumption is 960,000 mt in 2004. Pork
and beef are not close substitutes in the Taiwan market: Changes in pork
prices do not affect beef demand significantly or vice versa. Taiwan's
pork consumption is around ten times as large as its beef consumption.
The latter also tends to be more specialized in the HRI sector.

## 

# Trade

Spurred by high Taiwan prices, pork meat imports are expected to total
45,000 mt (CWE) in 2003. Lower prices in 2004 will likely cut imports to
40,000 mt (CWE) despite falling import tariffs. Unlike beef, the vast
majority (96 percent from 2002-3) of pork meat consumed in Taiwan is
produced domestically. Although post-WTO liberalization and high Taiwan
pork prices have resulted in sharply increased pork meat imports in 2002
and 2003, total volumes remain low. Given the competitiveness of Taiwan
pork production, trading volumes and market shares are very sensitive to
price and imports mostly exist on the margin. According to industry
sources, imports can rise above 3,000 tons per month if Taiwan pig
auction prices rise above NT\$5000/100 kg. However, high supplier prices
can sharply cut trade -- even when Taiwan has high prices. For example,
if prices of imported products exceed 38 cents/pound, imports will fall
by more than half, to around 1,400 tons per month. Trade sources believe
that the market for imported pork meat opens when local auction prices
rise above NT\$5,500/100 kg.

As another indicator of this market's extreme price sensitivity, U.S.
market share has suffered major losses so far in 2003 because of high
U.S. prices and lower prices in Canada. Canada has doubled its market
share in the last two years at the expense of the U.S.

In contrast, pork offal demand remains strong in 2003 as processors find
new ways to utilize variety meats. It seems likely that the offals TRQ
will be fully utilized in 2003 but 2004 remains uncertain. As a result
of high prices, the U.S. lost market share, but in the next half-year
share should recover, as imports of pork offal will continue to
supplement the depressed supply in the Taiwan market. U.S. packers have
been modifying their production specifications in order to remain the
dominant overseas suppliers to the Taiwan market.

**Table 9. Taiwan Pork Meat Imports, 2002 and Jan-April 2003 (mt)**

  ----------- --------- ---------- ---------- ---------- ----------- ---------
  Country     U.S.      Canada     EU\*       Hungary    Australia   Total

  2002        11,470    7,694      196        0          61          19,421

  *-'02 Share *59%*     *40%*      *1%*       *0%*       *\<1%*      
  (%)*                                                               

  2003        4,783     4,776      48         111        34          9,752
  (Jan-Apr)                                                          

  *-'03 Share *49%*     *49%*      *\<1%*     *1%*       *\<1%*      
  (%)*                                                               
  ----------- --------- ---------- ---------- ---------- ----------- ---------

Source: Directorate General of Customs, Ministry of Finance

-   Denmark/Sweden

-   \*\*Trade data do not distinguish between imports in and out the
    TRQs. However, out-of-quota imports are negligible.

## Products Entering Under TRQs

Total 2002 TRQ imports were 4,382 mt for pork belly and 9,614 mt for
pork offal. (Source: Central Trust of China) According to CTC, the
10,000 mt pork offal TRQ was nearly all filled while the 6,160 mt pork
belly TRQ had 1,778 mt unfilled. Belly spare ribs (soft ribs) have been
the most popular items in the belly quota. Country breakdown for TRQ
imports are given below. Given these trends, it is likely that the 2003
pork offal TRQ will be fully utilized but that pork belly may not. With
demand for imported bellies estimated by COA at 10,000 mt and offals at
20,000 mt, the 2004 TRQs may not fill.

**Table 10. Pork Belly Imports under TRQ**

  ----------- ------- -------- ----------- --------- -------- --------- --------- ----------
              U.S.    Canada   Australia   Denmark   Sweden   Hungary   Total     TRQ Size
                                                                        Imports   (Annual)

  2002        2,431   1,635    60          914       0        0         5,040     6,160

  2003        1,704   1,708    67          0         125      178       3,782     10,780
  (Jan-May)                                                                       
  ----------- ------- -------- ----------- --------- -------- --------- --------- ----------

Source: Directorate General of Customs, Ministry of Finance

In 2003, the demand for pork offal has been very strong and the TRQ will
be fully utilized. The demand for pork belly is less strong but in 2003,
encouraged by high domestic pig prices, TRQ may be almost filled.
Outside the TRQ, both pork bellies and pork offal are subject to special
safeguards (SSG), which allow higher (up to 33 percent) duties under the
WTO Agreement on Agriculture. According to the calculation of the
Council of Agriculture (COA), the trigger level for pork belly imports
for 2003 is 13,475 mt and that for pork offal is 23,437 mt. The 2003
high out-of-quota duty (55% for pork offal and 287.5% for pork offal)
will definitely discourage any imports after quota is filled, let alone
the duty surcharge under the SSG.

**Table 11. Pork Offal Imports under TRQ**

  ----------- ------- -------- ----------- --------- ------- -------- --------- --------- ----------
              U.S.    Canada   Australia   Denmark   Japan   Sweden   Hungary   Total     TRQ Size
                                                                                Imports   (Annual)

  2002        7,703   1,138    70          617       28      0        0         9,556     10,000

  2003        5,708   1,457    266         1,034     22      52       142       8,681     18,750
  (Jan-May)                                                                               
  ----------- ------- -------- ----------- --------- ------- -------- --------- --------- ----------

####### Source: Directorate General of Customs, Ministry of Finance

Trade in pork bones from January to April 2003 was up sharply from 2002
levels, which totaled only 943 mt. From January to April 2003, trade
totaled 1,809 mt, including 1,110 mt from Canada, 146 mt from Denmark,
63 mt from Australia, 78 Sweden; 63 Australia, 4 mt from Hungary \-- and
417 mt from the U.S.

# 

# Policy

Upon Taiwan's WTO accession, the former global quotas for pork bellies
and pork offal were transformed into Tariff Rate Quota (TRQ). In 2003,
the quotas sizes are 10,780 mt for bellies and 18,750 mt for offal.
Tariff rates were also lowered with WTO entry. In 2003, quotas for pork
bellies and pork offal increased and tariff rates declined as detailed
in Table 10. In 2005, the TRQs will be phased out and duties bound at
12.5% for pork meat and 15% for pork offal. However, SSG duties will
come into effect when trigger levels are reached. For more details on
SSG, please see TW3011.

Table 12. Taiwan Pork Belly and Pork Offal TRQ

  -------------- --------- --------- --------- --------- --------- ----------
                 Pork                          Pork                
                 Bellies                       Offal               

                 2002      2003      2004      2002      2003      2004

  Tariff Rate    15        13.7      12.5      25        20        15
  (%)                                                              

  TRQ Qty. (mt)  6,160     10,780    15,400    10,000    18,750    27,500

  Out-of-Quota   60        55        50        310       287.5     265
  Rate (%)                                                         
  -------------- --------- --------- --------- --------- --------- ----------

All TRQ items have been moved to a new Chapter 98 of Taiwan's Tariff
Schedule. Pork products that are not subject to TRQ or enter outside of
the TRQ (and are subject to out-of-quota rates) are classified under the
original tariff classifications in Chapter 2 (for uncooked meat),
Chapter 5 (for animal offal) and Chapter 16 (for processed meat). TRQs
are open to all WTO members meeting Taiwan's quarantine requirements,
except products from the People's Republic of China, which are banned.

## TRQ Regulations

On August 8, 2002, Taiwan announced its 2003 TRQs, which total 10,780 mt
for pork bellies and 18,780 mt for offals. The application period ran
from October 7-9, 2002. On October 23, 2002, the 2003 TRQ for pork belly
was allocated through a lottery. Importers or exporters registered with
Taiwan's Board of Foreign Trade are eligible to apply. The 2003 TRQ
performance bond (NT\$2,150/mt for pork belly and NT\$2,200/mt for pork
offal) must be paid by June 1, 2003, which is two months earlier than
under the 2002 TRQ mechanism.

Quotas are tradable. Under the terms of Taiwan's WTO accession
agreement, TRQ certificates are valid from January 1 to September 1 and
can be extended to December 31 upon presentation of a signed contract.
Arrival dates can be postponed to December 31, 2003 if a signed contract
is presented to the Central Trust of China (CTC) before the deadline
(application made to CTC from August 1 to 25, 2003). Unused TRQs will be
reallocated in September.

## Non-TRQ Duties

Effective January 1, 2002, Taiwan redefined "pork offals" to include
only hocks, feet, skirt, guts (including intestines and rectum) and
stomachs. Remaining pork variety meats were liberalized with WTO entry.
Items such as kidneys, tails and hearts no longer require a quota and
are effectively liberalized.

The out-of-quota rates for pork bellies fell to 55 percent in 2003 and
will decline to 50 percent in 2004. Out-of-quota rates for pork offal
are 287.5 percent in 2003 and will be 265 percent in 2004. Imports will
be liberalized in 2005 and tariffs for all pork offals will go down to
15 percent. A tariff comparison for other pork products not subject to
TRQ is listed below:

Table 13. Tariff Comparison for Pork Imports Not Subject to TRQs (%)

  ---------------------------- ------------- ------------- ---------------
  Pork Category/Year           2002          2003          2004

  Carcass, Hams, Shoulders and 15            13.7          12.5
  Cuts                                                     

  Other Pork Cuts              14            13.2          12.5

  Non-TRQ Variety Meats        25            20            15

  Pork Bones                   35            35            35

  Pork Tendon\*                25            20            15
  ---------------------------- ------------- ------------- ---------------

\* Imports of pork tendon were liberalized in 2002 upon WTO entry,
meaning that quota certificates are no longer required. However, the
import duty for this item was raised from 15% to 25% in 2002. To Post's
knowledge, this is the only agricultural item subject to a higher tariff
after Taiwan's WTO accession.

## Special Safeguards

Both pork bellies and pork offal are subject to a Special Safeguards
(SSG) regime, based on Article 5 of the WTO Agreement on Agriculture.
According to the calculations of the Council of Agriculture (COA), the
trigger level for pork belly imports is 12,886 mt and for pork offal it
is 21,376 mt. Although demand for pork offal is strong, the high
out-of-quota duty will strongly discourage imports above the TRQ level.
Lower out-of-TRQ duties make it possible but still unlikely that pork
bellies will exceed SSG trigger levels in 2003. Given the low 2002 TRQ
and high out of quota rates, it is unlikely that imports will rise above
SSG trigger levels until 2004 when the TRQs rise above them. Although
liberalization in 2005 could likely trigger SSG duties, some industry
sources do not believe import demand will be strong enough to trigger a
SSG response.

## Sanitary Regulations

In order to export meat to Taiwan, a country's meat quarantine
inspection and health certification system must be reviewed and found
acceptable by the Taiwan authorities. Taiwan currently allows imports of
pork/pork offal from the U.S., Australia, New Zealand, Canada, Denmark,
Japan and Hungary. A Dutch request to export pork to Taiwan in 2001 was
rejected after a European Foot-and-mouth disease (FMD) outbreak although
other EU countries have applied for import permission. Korea's
application for FMD-free recognition was also denied in December 2001.
South Korean pork offal is regarded by Taiwan importers as potentially
very competitive if allowed entry. Paraguay was also disqualified in
2002 because of FMD.

Countries not currently approved to export meat products to Taiwan must
formally apply for approval. The approval process requires bilateral
negotiations and on‑site inspections of production and processing
facilities, which can take several years to complete. FMD concerns are
likely to keep competitive South Korean pork products off the Taiwan
market for at least two-to-three years. Disease problems complicated by
cross-strait political issues will likely keep PRC pork off the Taiwan
market for an extended period (see below).

## Checkoff Program

Starting January 1, 2003, Taiwan collected a NT\$10/head fee to fund a
checkoff program for price stabilization, research and marketing. COA
plans to expand this to other livestock and poultry sectors. There were
no further details available on how the money will be spent. The program
ran into difficulties as some farmers and legislators objected to the
checkoff, despite participation by the vast majority of farmers.

## Cross-Straits Trade and Investment

Currently Mainland Chinese pork, pork offals, and pork products are
banned entry into Taiwan. Taiwan is expected to gradually relax these
administrative controls, but the Mainland will still face SPS hurdles in
exporting to Taiwan. Even if permitted, imports from the Mainland would
face other barriers such as the lack of a working relationship between
China and Taiwan's quarantine services and the lack of direct shipping
routes. Taiwan authorities have also banned investment by Taiwan
companies in Mainland livestock and meat packing operations although
there may well be covert investment in these sectors.

## Taiwan Swine Sector Investment

In recent years, uncertainties over the effects of post-WTO trade
liberalization have kept Taiwan's swine industry from investing in
imported breeding stock. Now that Taiwan is a WTO member and swine
farming has remained profitable, the industry will begin to buy
seedstock overseas to improve Taiwan's swine genetics. In the first half
of 2002, Taiwan imported breeding stock from Canada. Taiwan previously
allowed only 4 lines of purebred pigs, Hampshire, Yorkshire, Duroc and
Landrace, to be imported for breeding purposes. This limit has
reportedly been lifted in line with WTO accession. However, imports of
breeding pigs still require a Council of Agriculture approval,
reportedly for management purposes only.

CY2002 live pig imports only totaled only 25 head but between 300 and
500 head are expected in 2003 with even higher numbers expected in 2004.

# Marketing

Since pork meat demand in Taiwan depends so strongly on the prices of
locally produced pork, export prospects for pork meat can vary greatly
from year to year. When Taiwan does import, buyers prefer carcasses
because U.S. cuts are different from what is used in Taiwan. In
addition, competitors sometimes give money to importers for
\"promotion\", which can undermine U.S. competitiveness. As for offals,
U.S. pork ears are popular this year and U.S. bone products doing well
in the market. Note: Offals for retail sale mostly go through wet
markets rather than supermarkets.

# Internet Resources 

Taiwan's tariff schedule is available at
[http://www.doca.mof.gov.tw.]{.underline} After Taiwan's accession to
the World Trade Organization (WTO) on January 1, 2002, a new chapter,
Chapter 98, was established in Taiwan's Customs Tariff Schedule to cover
all products which are permitted entry under Tariff Rate Quota (TRQ).
However, this chapter is used to tabulate current tariff rates and trade
restrictions for the TRQ items. Actual trade statistics are available at
[http://www.trade.gov.tw.]{.underline} Most Taiwan (.tw) domain websites
are only in Chinese, but the amount of English content is increasing.

[http://www.coa.gov.tw/english/index.htm]{.underline} for agricultural
statistics and general agricultural information (in English).

[http://www.baphiq.gov.tw]{.underline} for Taiwan quarantine
requirements (English version available).

[http://www.trade.gov.tw/english.index.htm]{.underline} for trade
statistics, trade rules, TRQ bidding rules and general trade information
(English version available).

[http://www.wto.org]{.underline} The WTO's website for information about
Taiwan's WTO accession.

[http://www.docamof.gov.tw]{.underline} for tariff reduction schedule
(soon in English) and TRQ implementation measures.

[http://www.ctoc.com.tw]{.underline} for Central Trust of China's TRQ
announcement (Chinese only).

[http://www.dgoc.gov.tw]{.underline} for Special Safeguards application
(Chinese only).

[http://www.naif.org.tw]{.underline} for pig auction prices and pork
retail prices (Chinese only).