International regulations for imports and exports keep changing
Erin Borror, economist with the U.S. Meat Export Federation, says many things have changed since last year.
“Regarding access to markets, the U.S. is in a better position than a year ago. Prior to the coronavirus, this should have been a good year. The U.S.-Japan Trade Agreement and Phase One Trade Agreement with China pretty much resolved the major issues we were facing last year,” she says. “It brought the U.S. to a level playing field with Japan, and we are also benefitting from tariff reductions.”
“This is crucial and has been one of the drivers of growth in our beef exports,” Borror explains. “The Phase One Trade Agreement with China is a non-typical agreement. It did make some changes on the beef side for access into China and went beyond what I thought would be likely or possible in removing the biggest barriers.”
Export barriers
“China agreed to establish import maximum residue limits for growth-promoting hormones and to accept our traceability system – there will be no more trace-back of the individual animal to the birth farm,” she continues.
The remaining barrier is China’s testing for residues of beta-agonists, such as ractopamine, fed in the final days of the finishing period and issues such as product labeling. Beef exported to China comes through a China-specific supply chain, and producers often have to establish this supply chain at the feedlot rather than from birth.
“Part of the reason we haven’t seen shipments to China explode, even though they are growing, is likely the perceived risk with U.S. and China’s relations,” Borror says.
“For example, China has been waiving the retaliatory tariff on U.S. beef since early March,” she explaines. “For part of 2019, U.S. beef was subject to a 47 percent import duty compared to the most-favored-nation (MFN) rate of 12 percent.”
“The retaliation was a response to U.S. tariffs on imports from China as a part of the Section 301 actions which address U.S. concerns about China’s treatment of intellectual property and other issues,” says Borror. “Since early March, importers of U.S. beef have been paying the 12 percent MFN rate, making our product much more competitive, especially as Australia, our primary competitor, has significantly reduced production with accordingly higher prices. But, the U.S. still accounts for just one percent of China’s massive beef imports.”
Trade quotas
There was also a new agreement with the European Union (EU) to carve out a U.S.-specific share of the high-quality beef quota, which was created out of the U.S. and EU memorandum of understanding on the hormone case, won by the U.S. through the World Trade Organization (WTO). The EU refused to change its practices, and instead, opened a duty-free quota for non-hormone-treated beef, meeting the high quality or grain-fed, definition.
“To meet WTO rules, the quota had to be open to all suppliers meeting the definition and soon the quota was fully utilized by the competition, including beef from Uruguay, Australia and Argentina,” notes Borror. “The U.S. successfully negotiated an agreement last year to give us a U.S.-specific share of this quota, and the agreement started Jan. 1, 2020. We had a banner first quarter and then the coronavirus shut down European food service. It was a rough second quarter, but toward the end of the second and into the third quarter, it has started to regain traction with an encouraging outlook,” says Borror.
“The agreement includes a seven-year implementation and we end up with 35,000 tons of the 45,000 ton total once fully implemented,” she explains. “This year we have 18,500 metric tons out of the 45,000 tons specific for the U.S. and it will increase to 23,000 tons next year. We had only been shipping around 12,000 or 13,000 tons prior to the agreement because the balance was fully used by the competition.”
The agreement is important because it allows the U.S. to ship beef into Europe weekly, and because imports are chilled, the customers in Europe can be assured they can get fresh product every week. This encourages more chefs to include U.S. beef on the menu and more retail features, whereas before, U.S. beef was rushing to clear product in the first few days of each quarter. Since the quota is managed on a quarterly basis, it was getting used up at the beginning of every quarter.
“This was unsustainable,” Borror states. “If a producer is feeding non-hormone treated cattle (NHTC) for Europe, can only kill within a very tight window and not be past the landing in Europe by a certain day – including clearance by customs – people had only so much product to work with for the next three months, which is not sustainable for anyone in the chain.”
U.S. beef interest
“China suspended four important Australian beef plants so there is heightened interest in U.S. beef, and this goes back to markets before the coronavirus issue,” Borror continues. “So, it is not only the U.S. who has tenuous relations with China, it’s also affecting Canada and Australia. Canada was out of the market for the second half of last year. This is a reminder every country faces their own battles with China.”
The trade regulations and restrictions are ever-changing and sometimes hard to keep up with.
“On the demand side, we see a rebound in demand for U.S. beef,” she shares. “In our markets we saw very strong retail demand which helped offset the losses in food service.”
“There has been a strong food service comeback, especially in places like Taiwan, which is a record-setting market for U.S. beef on a value basis for the past eight years,” Borror adds.
“In places like Japan food service is recovering, but there are still challenges, especially with restaurants more dependent on travel and tourism,” she says. “Fortunately we are a big supplier into retail, not just food service, in Japan, Korea and Taiwan and this helps sustain generally strong demand.”
“We didn’t really see a disruption in our exports until we had supply chain issues in our own plants. As long as we can keep everything going, the demand on the export side should regain momentum,” she continues.
The reason the U.S. exports beef is international trading partners often pay higher prices for items such as chuck, short ribs, short plate and variety meats, according to Borror.
“This provides higher margins on carcasses and enables the packer to pay more for cattle, helping the market for producers, when maximizing the value of each animal going through the system,” she explains.
Over time, more export dollars per head correlate with stronger cattle prices. Heather Smith Thomas is a corresponding writer for the Wyoming Livestock Roundup. Send comments on this article to roundup@wylr.net.
