This holiday season will be the 10-year anniversary of “The Cow that Stole Christmas.” The past decade has taught us a hard lesson about the importance of and opportunity from beef exports for the bottom line of everyone in this industry. Even today, it is difficult to fully appreciate our export potential since we still do not have 100 percent market access around the world. But a decade has now passed since we lost nearly everything, making this a good time to again remind ourselves about the importance of beef exports.
U.S. beef exports in 2003 were $3.86 billion, with Japan leading the way at $1.4 billion. The November 2003 value of beef exports was $150 per head — a historic high. If hides and offal were added in, the value of these exports came to just under $200 per head. Currently, export markets account for almost $300 per head, which means that 17 percent of the value of a finished steer now comes from the international marketplace. The increased buying power of consumers across the globe for U.S. beef these past 10 years has been amazing, and recent changes suggest we may be seeing only the tip of the iceberg.
It took 10 years of unbelievably difficult diplomacy, but on Feb. 1, 2013, we were finally able to nearly normalize beef trade with Japan. Will our exports to Japan finally return to pre-BSE levels, and if so, could we have done things differently and gotten there sooner? Possibly. This year’s resurgence in exports demonstrates that the relationship between Japanese consumers and U.S. beef is still very strong. In the future, the greatest challenge facing this relationship may be that consumers from other countries have the ability to outbid Japanese consumers for the same cut of U.S. beef. Japan’s 38.5 percent applied tariff on all beef imports is now one of the highest that U.S. beef faces anywhere in the world. For the first time in nearly a generation we will have an opportunity to lower and eventually remove this tariff within the context of the Trans-Pacific Partnership trade negotiations.
In South Korea, we were successful in negotiating a straight-line reduction in that country’s 40 percent tariff on beef imports of 15 years, for a 2.67 percent-per-year decrease in that tariff . In 2014, we will be in the third year of implementation of the agreement, which will put the tariff on U.S. beef at 32 percent, or 8 percent less than everyone else exporting beef to South Korea. How big will this 8 percent be?
Apparently big enough for Australia’s beef export promotion arm, Meat & Livestock Australia (MLA), to consider closing its Korean office. South Korea is about the only place on the planet where U.S. and Australian beef go head-to-head. MLA spent a small fortune in Korea during the period when we were locked out of that market, in an effort to carve out a permanent market share upon our return. For the past several years, Australia has put an all-out effort into getting its own trade agreement with South Korea completed, but to date, it has not been successful. This could mean that in 2014, it is game over for the Australians in South Korea. So where are the Australians choosing to focus?
Back in 2003, China was barely a blip on the world beef-trade radar screen with U.S. exports of only about $30 million before the market closed, and Hong Kong was a $90 million market. This year Hong Kong is expected to import about $700 million in U.S. beef, and adding in Taiwan and Vietnam will make “Greater China” roughly a $1 billion market for U.S. beef in 2013. In an attempt to fully grasp the incredible phenomenon that is beef consumption in this part of the world today, consider these shocking statistics:
• 1.5 billion pounds more beef are going to China/Hong Kong this year versus last year. (To put this into perspective, Wal-Mart’s beef sales domestically are estimated at just over 2 billion pounds and total U.S. beef imports are about 2.2 billion pounds.)
• During the past two years, beef prices in China have increased 83 percent. (Since January 2012, U.S. beef prices are up 16 percent.)
• The retail price of beef in China is now $4.80 per pound. Here in the United States, it is currently $4.95 per pound.
• The United States is no longer the world’s largest beef importer. During the past five months, Greater China has been the world’s largest beef importer, with 80 percent of these imports coming from the Southern Hemisphere (Australia, Brazil, Argentina, Uruguay).
• Greater China bought 100,000 metric tons of beef per month this summer. A year ago it was 40,000 metric tons per month. In comparison, total U.S. beef exports to all countries are currently running about 70,000 metric tons per month.
Ten years ago, per-capita incomes in China relegated Chinese consumers to importing products like tendons, backstrap (ligaments), omasum, rectum, aorta and whatever else they could import at a price point of about $2.00 per pound. U.S. short ribs and chuck rolls, the staple in South Korea and Japan, were mostly out of reach for middle-class Chinese consumers who were dining out. The fact that this appears to no longer be the case has to be one of the biggest things to happen — possibly ever — to ranchers all around the world.
By 2020, it is projected that China will be home to 600 million middle-class consumers, up from 300 million today. With Chinese incomes at roughly one-sixth of our income, $4.80 per pound translates to approximately $28 to $29 per pound in terms of a U.S. consumer’s pocketbook. Yet even at this price, Greater China demand has pushed the wholesale price of U.S. short ribs $2 per pound, or $20 per head, higher than it would be otherwise. This market is now thought to be worth $60 per head for U.S. fed-cattle prices. The key take away here is that its value to U.S. beef producers may only be in its infancy.
One of the clear advantages of the port of Hong Kong is that Hong Kong’s tariff on beef is zero compared to a 12 percent duty for beef imported into mainland China. In the future, the difference in tariff rates between Hong Kong (zero percent), South Korea (32 percent and falling for U.S. beef) and Japan (38.5 percent) gives Chinese consumers a considerable advantage in their ability to bid away a limited supply of chuck rolls and short ribs, even with their lower per-capita incomes.
During the past decade Mexico has been our most reliable trading partner. U.S. beef exports to Mexico have been a consistent $800 million to $1.2 billion, and U.S. imports of Mexican feeder cattle during that period have averaged around 1 million head per year. The relationship between U.S. and Mexican ranchers has matured and grown stronger during the past decade. It has also been a time of dramatic change and improvement in Mexico’s processing industry, leading to a not-insignificant level of Mexican beef exports around the world. This is now a mature market and a mature relationship despite the disruption caused by country-of-origin labeling.
Of course, no legitimate discussion about agriculture trade is complete this day and age without a considerable amount of time spent describing the litany of sanitary and phytosanitary issues our products face around the globe. At present, we’re dealing with beta-agonists and GMOs, but do not let your guard down about antibiotics and animal welfare. Our detractors are extremely well-funded, politically connected, media savvy and communicate with each other globally. U.S. beef producers must match them stride-for-stride now and into the future. A critical step forward would be to develop a model among key trading partners to deal with these issues at the speed of commerce.
In the past 10 years we’ve rebuilt the beef export engine nearly from scratch. The headline for the 10 years ahead certainly appears to be China, where it is all starting to happen for beef. There are now several key U.S. beef export markets. Our non-U.S. customer base is now much more diversified than it was 10 years ago. These exports are not only important in terms of sources of new revenue to drive prices higher, they are also serving to provide a solid foundation for these current price levels that are almost double what they were 10 to 12 years ago.
Despite starting nearly from scratch in 2004, we’ll have taken beef exports from $5.5 billion last year to $6 billion in 2013. Our ability to move to $8 billion, or even $10 billion, in the coming decade has much more to do with our ability to produce the beef than it does finding a plate to put it on.
Thanks to Brett Stuart of Global AgriTrends (and Cattle-Fax) and USDA for help with these statistics.
Kansas native Gregg Doud has spent 20 years in Washington, D.C., with eight of those years as chief economist for NCBA, where he led the international trade portfolio. After NCBA, he worked on the U.S. Senate Agriculture Committee for Senator Pat Roberts and helped craft the 2012 Farm Bill. Currently, Doud is president of the Commodity Markets Council.