Tyson Foods bans growth drug from US hog supply as meat firms chase China demand

Oct 17 (Reuters) - Tyson Foods Inc in February will stop buying U.S. hogs raised with a growth drug banned by China, the company said on Thursday, as global meat suppliers seek an edge in boosting sales to Chinese buyers facing a huge pork shortage due to an outbreak of a fatal pig disease.

The halt in the use of the drug, ractopamine, reflects a change in strategy for Tyson, company watchers say. The company previously sought to profit by filling holes in U.S. supplies that were left when industry rivals like Smithfield Foods and JBS USA sent American pork to China.

Now, Tyson, Smithfield and JBS - the top three U.S. pork processors - are vying for business in China, the world's biggest pork consumer, where an outbreak of African swine fever has devastated the hog herd, pushed pork prices to record highs and sent imports rocketing. Though not harmful to humans, the disease is deadly to pigs, with no vaccine available.

But U.S. companies have to cope with a significant handicap compared to suppliers based elsewhere. Beijing has imposed tariffs on imports of U.S. pork due to the long-running trade war between the world's two biggest economies.

"Of course it's all to pave the way to get ready to start shipping very large amounts of pork to China," said Dennis Smith, a commodity broker for Archer Financial Services in Chicago.

Tyson, the biggest U.S. meat producer, is "the last shoe to drop," said Smith, who said he learned of the policy change from a farmer. The company already generates almost $1 billion in pork export sales annually.

"We believe the move to prohibit ractopamine use will allow Tyson Fresh Meats and the farmers who supply us to compete more effectively for export opportunities in even more countries," Steve Stouffer, president of Tyson Fresh Meats, said in a statement.

China's pork imports climbed 76% in September from a year earlier with African swine fever having decimated its domestic hog herd, according to Chinese government data.

The disease surfaced more than a year ago in China - the first time it had been detected in Asia - and has since spread to more than 50 countries, according to the World Organization of Animal Health, including those accounting for 75% of global pork production.

Chinese authorities blocked the use of ractopamine in livestock in 2002 over health concerns, and the European Union also prohibits the drug. The United States and other countries say it can be safely used to add lean muscle to pigs.

Tyson previously offered a small amount of ractopamine-free pork to export customers by working with farmers who raise hogs without the feed additive. Those programs "no longer adequately meet growing global demand," Tyson said.

Tyson's share price was down 1.3 percent at $80.80 in Thursday morning trade.

JBS USA, owned by Brazil's JBS SA, said this month it would remove ractopamine from its hog supply chain.

Smithfield, owned by China's WH Group, raises pigs on company-owned and contract farms without the drug, but still processes pigs from other farmers who use ractopamine.

Elanco Animal Health manufactures a ractopamine feed ingredient under the brand name 'Paylean'.

“We’re disappointed in any decision that would take safe, proven technology out of the hands of farmers,” Elanco spokeswoman Keri McGrath said in a statement Thursday.

(Reporting by Tom Polansek; Additional reporting by Julie Ingwersen in Chicago; Editing by Kenneth Maxwell and Chizu Nomiyama)