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Cheaper US beef heightens appetite for export access to Australia

by Jon Condon, 19 April 2017
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A YAWNING gap is emerging between the value of beef in the United States and Australia later this year, which some stakeholders believe will heighten pressure from the US to re-gain access to the Australian domestic beef market after a 14-year absence.

Beef Central has seen comparisons based on current US live cattle futures and Australian forward pricing on similar 100-day grainfed cattle, which suggest US beef will have a compelling motivation to restore trade access to Australia by August or September.

While Australia is never likely to be a significant market for US beef, it holds colossal ‘credibility’ value to the US beef industry, being one of the countries with the highest animal health and human health standards in the world.

a US cow exportIn short, technical access to Australia would add considerable ‘cred’ to US beef, worldwide.

Comparing latest US live cattle futures prices with Australian forward price on identical weight grainfed slaughter cattle, in Australian dollars terms, the comparison yesterday was A$118/carcase, falling to $106 in April; A$209 in June; A$286 in August and A$289 in October.

In Ac/kg, the Australian forward contract price on grainfeds is 551c/kg carcase weight for May, falling to 492c/kg in October. Converted to Ac/kg terms, US live feeder cattle futures yesterday were worth 381c/kg for April, and 385c/kg for May.

The large contrast in price is being driven by two things: Australia’s chronic shortage of slaughter cattle caused by two years of drought, forcing prices higher; and the considerable momentum in US beef herd rebuilding and cheap grain, pushing US prices lower, and heightening US appetite for export.

The US/Australian price contrast was even greater just a few weeks ago (as much as A$360 a head for August delivery), but the US futures market has rallied somewhat since just before Easter. Nevertheless, any market destination where there is a price advantage of close to, or above $300 a head is likely to attract ‘significant’ supply interest, trade contacts told Beef Central yesterday.

Big challenge in issues management

The big challenge for Australia now is in balancing its vigorous free-trade policy advocacy with inevitable domestic market and political negative sentiment over re-admitting US beef to Australia.

Given US president Donald Trump’s recent protectionist mood, any perceived stalling or delaying tactics over access to Australia could have repercussions in Australia’s own access to the US beef trade, one large stakeholder told Beef Central this morning.

Opinion among well-connected stakeholders contacted this week is divided, with some suggesting full access for US beef could well be gained some time in the back half of this year. Others suggest the process could take a further two years to fully ratify, and perhaps not even until after an Australian Federal election is held.

State of play in re-entry process

So where is the current process over US beef access to Australia up to?

The US, along with four other countries – Japan, Holland, New Zealand and Vanuatu – are currently the subject of an imported beef access review. In the case of NZ and Vanuatu, that is simply a ‘renewal’ of an existing access entitlement.

The US access request for beef is being processed in two separate two components – human health issues, and animal health issues.

The human health component, assessed through FSANZ, and primarily focused on BSE, is now complete, and approval has been granted, based on US negligible risk status. That process was completed some time back – some say deliberately, to break the access issue down into smaller, less divisive components.

The animal health risk component, being conducted through the Department of Agriculture, focuses on exotic disease risk, traceability and related issues.

A call for stakeholder comment on the animal health risk side concluded in mid-March, and the departmental biosecurity risk analysis is now considering those submissions.

Beef Central understands there were relatively few submissions made on the animal health considerations. The red meat industry was primarily represented in a combined submission delivered through the Red Meat Advisory Council. That submission has not been made public, at this time.

Once the department makes its final decision, having considered the public submissions, its conclusion will then be passed on to the minister for final approval. Ultimately, the final risk assessment decision will be made on the combination of the human and animal health risk studies, Beef Central was told. The minister apparently retains some right of veto, even if both recommendations are in favour of resuming trade.

Heightened biosecurity awareness, following issues like the infamous recent white spot contamination in the prawn industry, apparently from imported prawns, will only add to the complexity of the final decision.

Earlier moves to re-establish US beef trade into Australia, initiated six or seven years ago, attracted vigorous opposition from fringe beef producer groups and rogue right wing independent* politicians like Bill Heffernan and Pauline Hanson. That application process was ultimately put on hold while a lengthy parliamentary rural affairs review was conducted, on biosecurity risk on all imported foodstuffs.

Others would say with wholesale and retail beef in Australia still near record highs, now is the time to consider re-admission of US product into the Australian marketplace.

“It may be that some supplementary US beef supply, over high domestic consumption periods like Christmas, might be a good thing,” one trade contact volunteered.

“The complex issues surrounding BSE, biosecurity risk and trade are complex messages to try to deliver to the general public. The simple or simplistic messages will strike a chord with the broader community, but the more complex, but perhaps correct messages will take a lot of getting through,” the contact said this morning.

“And the ability to effectively deliver those complex messages to the broader community may be lacking in the government at the moment.”

Either way it moves on a policy decision, the final decision represents a monumental headache for the federal government. As always, timing will be critically important.

Industry position

The Cattle Council of Australia has developed a detailed policy on the US-re-entry issue (Click here to access the full document).

President Howard Smith told Beef Central this morning that while CCA absolutely supported the principle of free trade, equally the US would need to demonstrate equivalency in industry systems in any US beef entering Australia, to avoid unfairly disadvantaging Australian beef producers.

“That equivalency applies right across the board, from traceability systems to hygiene standards – the whole thing,” he said.

“Equivalency is the key, but equally, we certainly do not want to be perceived as protectionist, because Australian beef relies on free trade on the global market.”

“We understand the department is getting closer to make a decision on the issue. How long that takes, we don’t know, but being the government, it might take a while. It could be a year to two years before trade actually occurs.”

Mr Smith said recent biosecurity breakdowns in the prawn industry had heightened issues around risk in imported foods.

“It’s all very well doing the assessment and deeming a product to be fit for import, but does the department then have the resources and ability to effectively test and monitor imported product, on an ongoing basis?” he asked.

Mr Smith said based on the ‘equivalency’ argument, the number of cattle in the US that would meet acceptable Australian standards on traceability, beta agonist use (banned in Australia), plant hygiene standards, and exclusion of cattle bred in Canada or Mexico on country of origin grounds would greatly limit US beef supply. “You quickly get down to a fairly small number of US animals that would be eligible,” he said.

The red meat industry was primarily represented in the animal heath biosecurity risk submission process for imported beef through a combined lodgement delivered through the Red Meat Advisory Council.

RMAC chairman Don Mackay said RMAC supported government undertaking a review.

“But trade is a two way street,” he said.

“We’re talking about Australia’s two largest customer countries for beef exports – the US and Japan – looking for reciprocal access. We clearly cannot have one set of rules for entry for us, and something else for those wishing to export to Australia.”

“But having said that, the recent prawn contamination episode brings biosecurity risk into stark relief. We simply have to get it right.”

Mr Mackay said the peak councils’ submission through RMAC had not been prescriptive through traceability and other requirements, “but clearly there needs to be some equivalency, where they can show us where the cattle came from. We need to be careful not to disadvantage the Australian industry in the process.”

Mr Mackay said clearly, at present, US product was cheaper than Australia’s, going into some markets, but he though the access process from here would still take some time to complete.

“I would not expect to see trade occurring any time this year,” he said.

“Regardless, it would be my guess that there will be individuals on the conservative side of politics who will be violently opposed to the access being granted, in any form. And the whole of industry is saying we need to be so careful that this is not badly managed.”

“As well as the US request, Japan is now again re-sending small quantities of high-end Wagyu products into Europe, and they want access to Australia for similar reasons. In Japan’s case, it has quite a good traceability system, which would be likely to meet Australia’s expectations. The US would be the biggest one, with the least traceability credentials over equivalency with Australia.”

History of US beef access to Australia

Prior to Australia’s ban imposed in 2003 after the discovery of BSE in the US, American beef did occasionally find its way into the Australian domestic market, in small quantities.

The trade never exceeded 600 tonnes in a calendar year, and was mostly ‘opportunistic’ in nature, when production surpluses in the US, combined with currency movements and relative cattle and beef prices between the two countries made it worthwhile.

Often the trade was in single cuts like rumps and tri-tips that were a little harder to shift in the US domestic market during times of abundant supply. Often the US product was evident in the Australian market for only a matter of weeks, before disappearing again.

One celebrated case involved the Sizzler steak restaurant chain, which wanted to promote US grainfed Tri-tip as a ‘point of difference’ on its menus. The move failed to attract a consumer response in Australia however, and was quickly withdrawn, after some public criticism.

Most stakeholders spoken to this week suggested if US beef was to gain access to Australia, the product would be more likely to appear in food service, rather than at retail.

Both Coles and Woolworths promote ‘Australian’ as a key brand claim in their meat departments, and that is unlikely to change in any environment where US beef appears. Smaller chains like Aldi and perhaps Costco (US-owned) could take a different approach, based on their price focus. Costco sells US beef in most of its international stores.

More likely is a presence as a ‘novelty’ menu item in the food service sector – especially a US-owned hotel chain like Hilton, for example. US product would have to carry clear country of origin identity in the Australian market, however – and is one reason why neither of the major supermarket groups would be likely to go near it.

 

* independent: (Adj.) Self-governing, autonomous, self-regulating, liberated. Not to be confused with Independent (Noun): Not aligned with a mainstream political party.



Reader's Comments


Comment
  • Brad Bellinger April 19, 2017

    The fringe producer group you refer to is the Australian Beef Association .Referring to Bill Heffernan as a rogue right wing independent Senator is also factually incorrect. He is Liberal to the back teeth and was a commendable representative for regional Australia.
    I gave evidence to stop the imports as Chair of the ABA at 3 senate inquiries in 2007 after the Cattle Council and Meat and Livestock Australia lobbied the Government to allow the beef imports in. The fight to stop the imports culminated in a rally organised by JR McDonald Chair of Bindaree Beef in Armidale attended by 1000 beef producers and Chaired by commentator Allen Jones .At least 90% of those in attendance were against the imports and aghast that the CCA and MLA would be encouraging the imports .I spoke to Allan Jones on the Monday morning following the rally on his talkback programme ,that afternoon then Ag Minister Tony Burke to his credit suspended imports.
    Howard Smiths comment to demand equivalent traceability standards in irrelevant for safeguarding against BSE. Our NLIS traces cattle with an accuracy of about 76% it does not trace beef.
    To allow imports of beef from countries that have had cases of BSE would ruin the integrity of our domestic market. Labelling laws in Australian are so abysmal that consumers would need a magnifying glass to ascertain if beef was foreign or not. Remember that 70% of processed pig meat is from overseas very small print on a packet of bacon saying “made from imported or local produce” goes unnoticed by many shoppers.
    Fears of retaliation by our trading partners is unfounded. When Mark Vaile signed the USA FTA all agricultural produced from the USA was allowed into Australia tariff free the same was not given to Aus product. Sugar was not included and beef and dairy tariffs were slowly decreased over an 18 year period with snap back provisions applied to quota .As a result since 2005 our trade deficient with the USA has increased by a factor of over 3.The ABA were able to stop beef imports contrary to the FTA because we alerted the public that USA had 3 cases of BSE and eating beef from a BSE affected animal will kill you. Labour stopped the imports will the Nationals do the same?
    Free trade of course is in Australia’s best interests, however lopsided agreements with countries that also heavily subsidise their farmers, economic safeguards must be put in place. To allow beef imports from the Netherlands ,Japan and USA that have had multiple cases of BSE is madness.

  • Paul Fry April 20, 2017

    Just for a little perspective on the above comments on BSE risk from imported beef. The current BSE incidence rate in the US is 0 per million animals. The highest annual rate the US has ever had is 0.03 animals per million (i.e. three animals in one hundred million).
    For BSE to enter the Australian herd, you would have to find an infected animal (difficult given the incidence rate above), that animal would need to be eligible for export to Australia (meet import protocols including age which further reduces risk), the meat packed for Australia would then need to include infected material (again import protocols can stipulate removal of high risk material such as spinal chord, lymph nodes etc), then once in Australia someone would need to find that imported product, buy it and then illegally feed it to an Australian animal. All in all a pretty unlikely scenario.

    If we want to talk about being protectionist and putting up trade walls, then be up front about it. Don’t hide behind a disease and run a scare campaign on BSE putting consumers off beef.

  • Brad Bellinger April 21, 2017

    Paul I was probably not articulate enough in my comments.
    The concern I was trying to explain was the risk of someone contracting the human variant of BSE that is CJD from eating meat contaminated with BSE. The application to import beef is a joint one coming from the Netherlands,.Japan and the USA.
    There have been about 178 000 cases of BSE in the EU. With 172 000 cases in Britain .In 2015 22% of all UK beef exports went to the Netherlands .In Jan-Feb 2017 the Netherlands sent 482 000 lbs of beef to the USA. Japan sent 359 000 lbs to the USA. While these volumes are not big it does give an indication that if product can be repackaged in one country and sent to another, the statistic risk of an Australian contracting CJD is heightened if beef is labelled as imported, or from Japan, USA or Netherlands.
    The BSE Prion can be found in virtually all tissues of the body including blood and is not restricted to spinal, brain or lymph nodes.
    The beef available in Australia is safe to eat lets keep it that way

  • Paul Fry April 21, 2017

    In response to Brad Bellenger’s comment, according to the OIE data, neither Japan, nor the Netherlands or the United States have had a BSE case in the last five years. I am sure the Australian industry’s expectation and the Government’s approach to the import protocols would be that product from older animals, containing specified risk materials or product reexported from other countries would be out.

    Yes, there were a lot of cases of BSE in places like Britain in the 1990’s (though I doubt its sitting in a freezer somewhere awaiting export to Australia!) Since then, the way in which the disease is amplified (feeding ruminant material to ruminants) has been identified and systems put in place to prevent it. The numbers have since dropped so incidence in even the UK is less than 1 in a million. That’s the whole point here. BSE is a disease that can be managed if the right systems and protocols are in place. If countries can demonstrate that they have all those systems in place and produce outcomes as good as ours, what right do we have to say they can’t trade with us? Imagine if the shoe was on the other foot, we had suffered some horrible disease and were trying to regain access to export markets after we had fixed the problem. How would we feel if that access was denied without sound justification?

  • Brad Bellinger April 22, 2017

    BSE was found in a Canadian cow last year. The border between Canada and the USA is very porous.eg on average over 27 years Canada has sent 1.04m cattle to USA. In 2014 1.242m were sent .Jan-Feb this year 95 700 were sent. These cattle are mostly fed and slaughtered in the USA. If Paul Fry has his way then there is nothing stopping the USA sending this beef to Australia.

    It is folly to expect that Government import protocols would prevent contaminated beef entering Australia. Protocols were meant to be in place to stop Citrus Canker(they failed it got in)Protocols were meant to be in place to stop prawn white spot disease (they failed it got in).
    Canberra has signed many one sided Trade Agreements that are far from free ..Last years 18 billion dollar food import bill stands testament to this.
    Any political party that allows the importation of beef from BSE affected countries where we export nearly 70% of the beef we produce in order to make profits for a handful of retailers and traders is guilty of deserting their constituents.

    A point of clarification, Brad. It’s our understanding that import would be restricted to beef from US domestic cattle only – not Canadian or Mexican-sourced cattle fed and slaughtered in the US. Editor

  • Brad Bellinger April 25, 2017

    Editor ,no doubt that is the intention however the reality is quit different.
    The USA Congress has repealed country of origin labelling(COOL).When it did so it did not just eliminate COOL labels on beef from the USA.Mexico and Canada The repeal also eliminated the requirement that imported beef products be labelled through to the retail sale or consumer.
    An unlabelled package of Canadian or Mexican rumps can be offered alongside an unlabelled package of USA

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