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Changing Supply/Demand Picture Reshaping Foreign Outlook

The key drivers in the short-term outlook for U.S. meat exports include politics, economic variables, domestic production, market access, consumer trends and competitor developments. Here’s a market by market analysis:

Asia/Pacific Rim. These drivers appear to be the basis for the four major themes that impacted beef marketing in the Asia/Pacific region in 2007 and into 2008, says Joel Haggard, U.S. Meat Export Federation (USMEF) senior vice president. Each country in Southeast Asia presents its own basic meat demand parameters the U.S. must meet if market access is to increase, he says.

The first major theme is the access constraints U.S. beef continues to face from Korea and Japan. “Partial market access has reduced sales to 60% of the capacity seen before 2003, the equivalent to $50 million/week in lost sales,” he says.

Haggard says it’s important to recognize that cuts exported to Asia vary by country, but the Asia Pacific region tends to prefer an equivalent to USDA Choice or higher.

  • Before Korea was closed to U.S. beef in December 2003, it was the third-largest and growing destination for U.S. beef; annual sales were $815 million in 2003. The U.S. and Korea concluded an agreement April 18 to fully reopen South Korea’s market consistent with international standards and the World Organization for Animal Health (OIE) guidelines.

    Once the U.S.-Korea Free Trade Agreement is ratified and implemented and the current 40% tariff on U.S. beef is fully lifted, it’s expected to generate annual tariff savings of $500 million for U.S. beef exporters based on 2003 trade volumes.

  • In China, signs for U.S. beef exports are positive, though the vast majority of consumers are still considered poor, Haggard says. Market access is an issue but positive signs include increasing incomes, an improving distributional infrastructure and the spread of Western-style retailing and foodservice.

    “Over 800 million Chinese consumers would be considered ‘rural’ and make $500-$600/year, while another 500 million consumers are in the urbanized ‘mass market,’ ” Haggard explains. There’s currently no substantial middle class in China but the goal is to move half of Chinese households to that level by 2020.

    China is projected to be the world’s largest tourist destination by 2020. And Haggard says the Chinese are beginning to allow Chinese tourists access to other countries, including the U.S., bringing home with them international tastes.

    There’s anecdotal evidence that U.S. beef is currently reaching the closed Chinese market, notably the hotel/restaurant trade, via Macau and Vietnam. Haggard notes the Chinese have found it a challenge to build a domestic grain-fed competitive beef industry.

  • Malaysia and Indonesia are considered major Halal countries (1.8 billion Muslims) consuming mainly beef and poultry.

  • Thailand, which consumes mainly pork, poultry and beef, imports very little meat product.

  • Singapore prefers pork, seafood and poultry.

  • Vietnam, a major seafood and pork producer, primarily consumes pork and poultry.

  • The Philippines, whose consumers have a higher acceptance of fat, are a large beef importer for processing, have higher processed meat consumption, and prefer beef, pork and poultry for consumption.
Europe. Europe is now a net importer of beef. Commercial beef production plummeted from 1,200 metric tons (mt) annually in 1993 to less than 200 in 2003 mostly due to changing agricultural subsidy policies. This more than offset 30% consumption decreases after 2003 and recurring BSE incidences, dioxin scares and concerns over foot-and-mouth disease.

Currently, two-thirds of beef supplied to the European Union (EU) is Brazilian (200,000 mt). Based on EU-imposed traceability requirements, Brazil will reduce the number of farms serving as a source of EU-bound beef from 6,000 to less than 1,000 farms. To assure traceability, meat packers in Brazil have agreed to not commingle cattle from multiple sources, and EU beef import officials carefully watch Brazilian exporters to ensure compliance.

U.S. beef exports to the EU are limited to beef from non-hormone treated cattle (NHTC). The dispute over the EU ban on beef from animals administered certain growth-promoting hormones dates back to 1996. In March 2008, a World Trade Organization dispute-settlement panel ruled the 2003 amended ban by the EU on beef from certain hormone-treated cattle continues to be scientifically unjustified.

But even if the EU were forced open to beef from hormone-treated cattle, John Brook, USMEF director for Europe, Russia and the Middle East, says surveys indicate up to 82% of consumers in the UK, Germany, Italy, Spain and the Netherlands wouldn’t purchase such product if it were in the meat case. In addition, U.S. beef is still too expensive compared to other origins, such as South America. Plus, there aren’t enough cattle in the NHTC supply chain, nor enough U.S. packing plants approved to ship product to the EU.

Despite these challenges, U.S. beef exports to the EU doubled from 2006 to 2007 and are projected to double again in 2008.

“Europe really would like for the U.S. to become a substantial supplier,” Brook adds. “Brazil lacks control, Argentina’s president is limiting exports, Uruguay doesn’t have enough meat, Paraguay doesn’t have good enough animal health, and Australia has a drought.”

In the EU, animal welfare is a big and growing issue, warns Brook. So are environmental concerns regarding beef production being espoused by activist groups, as well as concern over meat from cloned animals.

Russia and the Middle East. Projections for U.S. imports into Russia are very positive. “Russia is changing,” Brook says. “Beef consumption is rising, massive economic change is underway as a result of high oil and gas prices, and restaurants are opening faster than you can keep track.”

Brazil increased beef exports to Russia by 50% in 2007, says Erin Daley, USMEF manager of research and analysis. “Brazil should continue to fill the growing demand for beef in Russia and the Middle East.” She says the weak U.S. dollar vs. the strong Brazilian real and Australian dollar makes U.S. exports more competitive in Russia.

“Even prior to the U.S. return to the market in December 2007, 25% of Russian retailers interviewed saw opportunities for high-quality U.S. beef in the modern retail sector,” Daley says.

Beef and live-cattle import dynamics in the Middle East are changing as beef and cattle traders look beyond Europe for new suppliers. The Middle East is seeing an economic boom with the rise of luxury hotels and restaurants, including those catering to tourists.

Australian live-cattle exports to Egypt resumed this year after a two-year suspension due to animal-welfare concerns. Construction of a state-of-the-art feedlot and abattoir there, and ironclad assurances on animal treatment, have reinstated the trade, which reached more than 200,000 head/year prior to the 2006 suspension.

Mexico. Mexican beef production is increasing in tonnage but still has a shortfall relative to consumption. This gap resulted in nearly 594 million lbs. of beef imports in 2006, says Homero Recio, CEO, Agri-West International, Inc.

The U.S. exported more than 490 million lbs. of beef to Mexico, not including 160,000 mt of beef variety meats. The two next leading exporters to Mexico are Canada (75 million lbs.) and New Zealand (11 million lbs.).

Mexican beef production increased to nearly 1.6 million mt from 1990-2006, Recio says. At the same time, Mexican cattle numbers have decreased from nearly 32 million head to less than 30 million.

The increase in Mexican production efficiency, he explains, is due to increased grain feeding in the northern part of the country. Today, more than 90% of cattle in Mexico are fed some grain, and only 7-8% are traditional grass-fed cattle.

In 2007, the U.S. imported more than 1.09 million head of cattle – mostly lightweight feeder steers – from Mexico. The beef-production equivalent from exported calves from Mexico nearly fills the gap for which they import beef product from other countries.

Recio says challenges for Mexican beef production include high U.S. calf prices, a high percentage of cattle in the hands of small producers, cost of grain, and the U.S. cutout value for USDA Select carcasses is lower than local carcass price.

While concerns over a global economic slowdown may be affecting the demand for the high-value U.S. beef cuts, Greg Doud, National Cattlemen's Beef Association chief economist, is optimistic.

“In 2007, the U.S. sold beef to 108 countries, and set all-time records in 22 of them,” he says. “In nearly every country we have market access, we expect in 2008 to exceed or come very close to pre-2003 levels, with possible exception of Russia, Hong Kong, China, Japan and Korea.”