CRS Report Assesses Impact of 2009 H1N1 Flu Virus

May 31, 2009 07:00 PM

via a special arrangement with Informa Economics, Inc.

Impacts on trade and direct and indirect effects on prices

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

The following is from a recent Congressional Research Service (CRS) report on the potential farm sector effects of the 2009 H1NI flu:

Share of U.S. pork exports represented by countries restricting trade:
Countries that have instituted full or partial bans, as of mid-May, on U.S. pork exports represent 13-16 percent of U.S. annual pork trade, based on trade data for the past three years from 2006 through 2008. The bulk of this lost potential is the result of restricted trade from Russia and China. Other countries restricting U.S. pork imports comprise a small overall share of annual U.S. pork trade. Japan, the largest U.S. market for U.S. pork, with more than one-third of the market in 2008, has repeatedly indicated it will not restrict U.S. pork exports; also, Hong Kong, despite mainland China's trade restrictions, has also indicated it will not restrict trade.

International obligations of U.S. trading partners:
Under WTO rules, health and safety measures applied to imports must be supported by scientific evidence. Obama administration officials and many in Congress are strongly urging all U.S. trading partners to base any food safety measures on scientific evidence and to act in accordance with their international obligations under the WTO, OIE guidelines, and WTO member obligations under the Sanitary and Phytosanitary (SPS) Agreement.

Regarding 2009 H1N1, OEI – the global animal health standards organization – asserts that, “the imposition of ban measures related to the import of pigs and pig products do not comply with international standards published by the OIE and all other competent standard setting international bodies for animal health and food safety. Accordingly, it is argued, there currently is no justification for imposing trade measures against the import of pork and pork products based on 2009 H1N1.

International actions being taken:
As some countries continue to pursue trade restrictions on North American pork products, some affected exporting countries are considering formal trade actions within the WTO. The U.S. Trade Representative (USTR) is urging all U.S. trading partners to base any food safety measures on scientific evidence in accordance with their international obligations. In a statement, USTR said that “restrictions on U.S. pork or pork products or any meat products from the U.S. resulting from the recent outbreak do not appear to be based on scientific evidence and may result in serious trade disruptions without case.” USDA also has emphasized that “the science is clear that consuming or handling pork, consistent with safe handling practices, is of no risk to consumers.” Many in Congress also are urging U.S. trading partners to base these decisions on science, and therefore not to ban imports of U.S. pork.

Media reports indicate that Mexico has issued a statement asking its trading partners to “eliminate any restrictive measures established on Mexican products, which are not in accordance with the scientific information available or with their international obligations”; other reports indicate that Canada has said it will consider bringing a WTO challenge to China's ban on imports of Canadian pork. The European Union (EU) Standing Committee on the Food Chain and Animal Health also asserts that, based on the available evidence, trade restrictions are not justified.

Many regard the trade bans and restrictions as politically motivated or intended to protect pork producers in their own countries. Russia, for example, is not competitive on the global market in red meats and poultry, and its domestic production has not kept pace with consumption as income rise, even though government policies have attempted to encourage domestic production. In recent years, imports have accounted for a growing share of Russian pork consumption, and reached more than 50 percent of supplies in 2008. Russia periodically has imposed SPS measures that have impeded U.S. meat and poultry imports in recent years. In March 2002, Russia announced a ban on U.S. poultry imports over the possible presence of avian influenza in the United States. U.S. officials countered that the ban was not scientifically defensible and was discriminatory.

China is among the world's largest pork markets and producers, and imports account for a negligible share of overall supplies. However, imports have grown in recent years an are important to exporting nations such as the U.S., given the sheer size of China's market.

The National Pork Producers Council (NPPC) has said it expects current restrictions on U.S. pork exports because of concerns about the H1N1 virus to be temporary, particularly as international authorities continue to emphasize that the virus is transmitted through human contact and not through pork consumption. However, many producers are concerned that these initial trade restrictions will be difficult to remove, once fully instituted. For example, the EU's livestock beef production has not returned to the level it maintained prior to the outbreak of BSE, which also affected U.S. beef producers in 2003 when the first U.S. case was announced. Russia was among the many countries to bank U.S. beef, although it had not been a major purchaser of such products.

Other U.S. ag markets affected by the outbreak:
Initially, as domestic pork sales fell in response to the spread of the H1N1 flu, futures prices for corn, soybeans, and wheat declined sharply. This was a result of concerns that lower pork demand and production could reduce demand for other commodities, including U.S. feed grains and protein meals (i.e., soybean meal), as well as other farm inputs. Grain prices have moved higher since their initial drop.

In other livestock markets, wholesale beef and cattle futures prices were initially higher following reports of the outbreak. The U.S. produce sector also expressed concerns about possible restrictions on fresh produce trade with Mexico and the processing of agricultural guest labor workers from Mexico because of the 2009 H1N1 outbreak, but these fears so far have not materialized.

Estimated aggregate market costs to U.S. ag sector:
Initial reports of the aggregate economic effects to the farming sector – especially to U.S. hog producers – were grim. Analysts at the University of Missouri estimated the U.S. pork industry could see losses of up to $400 million in the next few months, given lower market prices. Analysts at Purdue University estimated that from 25 percent to 33 percent of U.S. hog producers may be “forced to reconsider their positions in the industry.” Yet 2009 H1N1 is expected to have less of an impact on the pork industry than BSE had on the beef industry in 2003 or avian influenza on the poultry industry in 2005-2006. Other analysts noted that although pork prices have declined, supplies are also lower than last year, and it remains unclear whether pork sales have actually decreased.

In other markets, analysts at the University of Illinois highlighted that “grains have had quite a rally in prices, after the market's initial 'knee-jerk' reaction,” although pork prices continue to be lower.

NPPC has sent a letter to USDA to request assistance for the U.S. pork industry to compensate for losses it said it has incurred since the outbreak. Specifically, NPPC is asking USDA to implement a purchase program for $50 million of pork products to help boost cash hog prices; to work with U.S. trading partners to remove all restrictions on exports of U.S. pork and pork products; to develop a comprehensive surveillance program for early detection of swine diseases; and to work to keep open the border between the U.S. and Canada to allow for movement of hogs.

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


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