Beef exports have been on the rise following a strong 2017, but a trade war with multiple countries is having an impact in the form of retaliatory tariffs. Current trade disputes and negotiations could spell trouble for the U.S. beef industry’s ability to export beef going forward, according to a new report by CoBank.
CoBank’s Knowledge Exchange Division released a report on beef exports titled “U.S. Beef Exports Are Growing, but so Are Trade Risks” and authored by analyst Trevor Amen.
“Beef production in the U.S. is on the rise, and export outlets have never been more important,” Amen says. “However, the U.S. is threatening to retreat from key trade deals and the U.S.’s beef exporting competitors are forging their own deals with major global beef importers.”
The top five export markets for U.S. beef by value are Japan, South Korea, Mexico, Canada and Hong Kong. Those markets account for 83% of all U.S. beef exports. Hong Kong is the only country that will be unaffected by trade negotiations.
Some of these trade agreements include the North American Free Trade Agreement (NAFTA) and the United States-Korea Free Trade Agreement (KORUS), which could both be renegotiated. Beef trade with South Korea has the potential to decline if KORUS is renegotiated, while NAFTA has the same risks with Canada and Mexico. During the current trade war over steel and aluminum, Canada has imposed retaliatory tariffs on beef from the U.S.
The Trans Pacific Partnership (TPP) was a trade deal that the U.S. dropped out of and could have increased access to major export destinations like Japan while leveling the playing field with competitors like Australia. Had the U.S. stayed in TPP there would have been opportunities to modernize trade with Mexico and Canada, as well.
U.S. beef just reentered China in 2017 after a 14 year absence from the market. Steel and aluminum tariffs have also spilled into beef trade with China enacting their own retaliatory tariffs, similar to Canada.
Another factor with trying to gain a foothold in the Chinese market is profitability for the cattle producer. Because of China’s trade requirements that impose regulations such as traceability to ranch of origin and not allowing cattle to be fed ionophores, there is added cost of production. CoBank estimates there is an additional $200-250 per animal cost across the supply chain to be eligible for export to China.
Competition is also increasing from countries in the Southern Hemisphere with Brazil, Argentina and Australia all upping their beef production. Lower transportation costs have been a major reason the U.S. has maintained an advantage over Argentina and Brazil, while quality has provided an advantage for U.S. beef ahead of all three countries. As stated earlier trade agreements such as TPP will continue to impact beef trade. For instance, Japan imposes twice as much of a tariff on U.S. beef compared to Australia.
Despite the murky trade picture Amen believes the U.S. is poised to take advantage of growing demand for beef globally.
“The U.S. cattle herd is expanding and near-term exports are slated for a healthy uptick in 2018. Asia’s appetite for reliable, high quality grain-fed beef is expected to grow for several years, and an expected weaker U.S. dollar, in comparison to the two previous years, will aid U.S. shipments,” Amen says.
To read the full report, click here.
A video explaining the report can be watched below: