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Impact Of "Over-30" Cattle Impacts Will Be Minimal

Many U.S. cattle producers have serious concerns over expanding allowable beef imports from Canada. They believe a recent proposal by USDA

Many U.S. cattle producers have serious concerns over expanding allowable beef imports from Canada. They believe a recent proposal by USDA to open the U.S. border to cattle, and products from cattle, more than 30 months of age will trigger a deluge of additional low-price beef imports, driving down domestic cattle prices.

But the impact of this trade action depends to a great extent on whether it causes a net increase in U.S. beef supplies -- or whether imports from Canada simply replace imports from other countries.

Imports of "over-30" beef and cattle have been banned since the discovery of BSE in Canada in May 2003. It's the last stage to a full reopening of the cattle and beef trade between the U.S. and Canada.

"The proposed expansion of allowable beef products will likely increase U.S. imports of Canadian cull cows, cull bulls and Canadian processing beef," explains Gary Brester, Montana State University professor of agricultural economics in Bozeman. Brester and his colleague John Marsh recently analyzed the impacts of resuming Canadian cull cow and beef imports.

"It's recognized that increased imports of over-30 beef could potentially reduce U.S. cull cow prices," Brester says. "But changes in U.S. cull-cow prices will depend on the quantity and timing of these imports -- and the degree to which processing-beef imports from Canada displace processing-beef imports from other countries."

However, regardless of the form of imports -- processing beef or cull cows -- the primary consideration is the extent to which the expansion of allowable beef imports increases the supply of processing beef available to U.S. consumers.

"It seems more likely that the Canadian imports will simply displace other imports." Marsh says. "If so, the USDA proposal will have little impact on U.S. cull-cow prices."

Apart from Canada, four countries (Australia, New Zealand, Argentina and Uruguay) are major sources of U.S. beef imports. Most of these imports are used to produce ground beef. The 1995 Uruguay Round Agricultural Agreement altered the U.S. Meat Import Act by converting U.S. import quotas for fresh, chilled or frozen beef and veal to tariff rate quotas (TRQ).

A 10% in-quota ad valorem tariff was established for fresh and frozen boneless beef. The over-quota tariff was set at 31.1% for 1995. By 2006, the in-quota tariff had been reduced to 4.9% and the over-quota tariff had been reduced to 26.4%.

Brester and Marsh single out Uruguay, explaining that increased U.S. imports of beef from Uruguay have more than offset decreased imports from Canada (including the decline in Canadian cull-cow imports). Beginning in 2003, imports of beef from Uruguay increased substantially -- averaging 415.5 million lbs. (carcass weight basis) between 2004 and 2006. Most of these imports exceeded Uruguay's TRQ of 20,000 metric tons (61 million lbs. carcass weight).

"The added transportation costs and over-quota tariffs may make Uruguay's processing-beef imports more expensive than similar imports from Canada," Brester explains. He adds that imports of Uruguayan beef by U.S. processors did not appreciably exceed Uruguay's TRQ until 2003 -- the year U.S. beef imports from Canada were halted.

Both Brester and Marsh say that if USDA's proposed trade policy initiative increases U.S. beef supplies, U.S. cull-cow prices may decline by $1.55/cwt. if imports are not displaced. Cull-cow prices would fall 78¢/cwt. if only half of Canadian cull-cow and processing beef displaces beef imports from other sources.

"The timing of increased imports could influence total revenues received by U.S. cattle producers," Marsh says. "The impact would be less if the increased imports occurred from February through September."

In addition, the ability to import Canadian cull cows may allow U.S. cow-slaughtering plants to operate more efficiently, which would have positive effects on U.S. cattle prices.

Finally, the estimated impacts assume that beef demand by U.S. consumers isn't adversely affected by the prospect of additional imports from a region having a relatively higher prevalence of confirmed BSE cases than the U.S.

"The proposed trade initiative could help U.S. negotiators reopen important U.S. beef export markets," Marsh concludes.

Most economists believe the consumption of ground beef is relatively responsive to its price. Therefore, Brester says small declines in ground-beef prices could increase U.S. consumer beef expenditures as consumers substitute away from other meat products.

-- Clint Peck