Cattle Market Has Proved The Folly Of Being Anti-TradeCattle Market Has Proved The Folly Of Being Anti-Trade
November 13, 2014
Deciding once again in favor of Canada and Mexico, the World Trade Organization (WTO) recently ruled that the U.S. mandatory country-of-origin-labeling (COOL) law is a violation of its WTO obligations. At this point, even advocates of COOL are beginning to recognize that the law has done little but cost the industry money.
As the U.S. figures out how to extricate itself from this conundrum, however, it’s not the failure of COOL itself that should garner headlines. Rather, the focus should be on the ideology that gave us mandatory COOL in the first place – anti-trade.
If you recall, times and margins were tough when mandatory COOL was passed. In that economic climate, the demagogues were able to convince a significant portion of producers that beef imports were the problem. The thinking was that Canadian, Australian and South American beef producers were going to steamroll us because the U.S. was no longer competitive as the low-cost producer of high-quality, corn-fed beef.
The thinking of the time was that the competition was all about price, and the U.S. could not compete on that basis. The argument was that all U.S. producers needed to succeed was a protected domestic market; if we cut access to the U.S. market by the outside world, all would be good.
This argument, of course, is flawed in a number of ways. For one, the world continues to prefer grain-fed beef, and the U.S. remains the world’s foremost producer of high-quality, corn-fed beef. Secondly, tonnage has never been an accurate measure of the impact of trade. Net value difference is a more accurate measure. If we export more value than we import, then it’s a net positive for the industry.
However, even this value is misleading, as the most accurate measure comes in terms of the total value of the carcass with or without imports. It makes sense that if livers are worth three times as much when exported as they are if consumed domestically, that’s a positive thing. By this measure, the industry has enjoyed, and continues to enjoy, significant benefits from exports.
It is ironic that imports are perhaps as good an indicator as any of profitability, as the more we import, the more we tend to make. Last year, the U.S. saw imports jump by 25.5%, while it also experienced record prices. Things are not good for American cattlemen if imports are declining.
Part of the increase in beef exports is because supplies are tight—the demand for lean trimmings is high, and we’re selling more and more of the carcass for value-added products rather than grinding it for hamburger.
Nor is it advisable to look at exports strictly from a beef standpoint. While it’s true that the impact of beef exports has been and continues to be positive from an economic standpoint, we must look at the total protein complex. We don’t live in a world where one can be selective; you either have trade or you don’t.
Next year, USDA is projecting beef exports to be down, supplies to be tight, and cattle prices to again set records. Chicken and pork exports, however, are projected to increase. The U.S. is a major net exporter of protein; in 2014, 17% of our total production of protein is expected to be exported. Without those exports of pork and poultry, we would be looking at smaller industries and lower prices.
The General Agreement on Tariffs and Trade (GATT) in 1994 was the beginning of the modern anti-trade movement, but the data is clear that it increased the U.S. position as a net exporter of protein by a significant margin. It’s projected that exports in 2014 will account for 19% of chicken production, and will jump to 20% in 2015.
Meanwhile, USDA is projecting an increase in pork exports, which would equal nearly 22% of U.S. pork production! Admittedly beef, with its record prices and historically tight supplies, is expected to see exports decline by 2.8%, but even then the trade balance is expected to improve with imports declining by 4.4%. It bears repeating that the U.S. beef industry has enjoyed these record prices with imports increasing by 25.5% this year.
With 96% of the world’s population living outside of our borders, the growth of our industry is tied to exports. I suppose it could be argued that mandatory COOL was simply based on poor interpretations of the data. However, hindsight and past performance make it clear that increasing trade flows and market access, rather than restricting it, is a key to growing the beef industry and the overall protein complex. Building demand domestically and internationally is, and always will be, the key driver to profitability and industry size.
It’s in vogue today among some to attack the means of improving domestic demand, whether it be branded-beef programs, value-based marketing grids, or our primary tool to build demand – the beef checkoff. Previously, it was through the discredited notion that trade is bad for the U.S. industry, that we could not compete globally, and that we must set up walls around our industry.
I’ve been asked by many people why, in these “best of times,” are we seeing value-added production, foreign trade, and building beef demand being attacked, along with the institutions that provide those roles. I don’t have a good answer. Perhaps it’s desperation on behalf of our opponents; perhaps it’s because the opponents think they can destroy these institutions when times are good. Perhaps the good times are also widening the gap between the most progressive and innovative and those less competitive.
Regardless, I take heart in the fact that it’s become increasingly difficult to distort the facts. The results (our success) in trade, building demand, and value-based marketing are becoming more difficult to disguise.
The opinions of Troy Marshall are not necessarily those of beefmagazine.com and the Penton Farm Progress Group.
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