Kay’s Cuts: What will new EU and Japan trade deals mean for US beef?

Steve Kay, 19/09/2019

A monthly column written for Beef Central by US market commentator, Steve Kay, publisher of US Cattle Buyers Weekly

COMPETITION amongst the world’s top beef-producing countries has fluctuated in recent years due to a myriad of factors, notably on the supply side.

But trade barriers, including tariffs and quotas, have also played a big part in certain markets, notably Japan, South Korea and the European Union.

Now the competitive landscape between Australian and US beef is set to change again.

The Office of the United States Trade Representative (USTR) in early August signed an agreement with the EU to establish a duty-free quota for high quality US beef from non-hormone treated cattle.

The deal will guarantee the US a greater share of the 45,000 tonne quota that restricts HGP-free beef imports into the EU.

The quota was agreed upon in 2009 to settle a dispute between the two countries over the EU ban on the use of hormonal growth promotants in US beef.

The US will gain an initial 18,500t of the quota, rising to 35,000t after seven years. The remaining amount will be left available for all other exporters, including Australia, Uruguay and Argentina.

These countries have steadily increased their exports, which previously pushed down the US’s share of the quota. USTR estimates the new quota will increase annual US beef sales in Europe from US$150 million to US$420 million in year seven.

Breakthrough heralded

US meat leaders heralded the expanded quota as a breakthrough.

But in reality, the new agreement is unlikely to lead to much of a surge of US beef shipped to the EU, and it is hard to envision how they could reach US$420 million. Shipments will remain tiny compared to the total global beef trade. Moreover, the EU’s implant ban remains firmly in place 33 years after it began.

The agreement applies only to so-called hormone-free beef imports and the US has a very limited supply of cattle whose beef qualifies for export to the EU. These cattle must be enrolled in USDA’s Non-Hormone Treated Cattle (NHTC) program for the EU and China or cattle enrolled in private, verified programs. The number of cattle enrolled in the NHTC program is only 150,000 to 175,000 head per year. Beef from the vast majority of these cattle would need to be exported to the EU to come anywhere near to the initial new quota.

A grainfed cattle carcase (steer and heifer) might average 850 pounds (386kg) dressed weight. The EU will want only a fraction of that carcase, probably less than 20pc. US producers under the NHTC program and other programs are also unlikely to divert product from their US customers to those in the EU unless they are already well-established in the EU and see a substantial premium for their product over what the US market offers.

The agreement does provide more reliable and consistent access to the EU market, and will be a tremendous boost for the US beef industry, noted Dan Halstrom, president and CEO of the US Meat Federation. Tyson Foods also said it was pleased the EU had agreed to new beef quota arrangements with the US. It is an opportunity for Tyson’s beef business to continue serving customers in Europe and potentially grow its business there, said president and CEO Noel White.

Japan tariff changes benefit the US

Far more important to the competition between US and Australian beef is that Japan and the US later in August signed a trade agreement that will reduce tariffs on US beef going to Japan.

Japan remains the largest volume and value destination for US beef, despite Japan’s 38.5pc tariff on all US beef items. Beef from Australia and other countries currently faces a 26.6pc tariff, which will be further lowered to 25.8pc in April 2020. Through the first seven months of this year, US exports to Japan were 1pc below last year’s pace in both volume (189,052t) and value (US$1.2 billion).

US beef groups applauded the agreement. The announcement is tremendous news for US farmers and ranchers because it will level the playing field for US beef in the world’s most competitive red meat import market, said Halstrom.

The US will be better able to compete with the Comprehensive and Progressive Trans-Pacific Partnership nations and the EU for valuable market share, said Julie Anna Potts, president and CEO of the North American Meat Institute. Removing the 38.5pc tariff on US beef will level the playing field in Japan, added National Cattlemen’s Beef Association president Jennifer Houston.

However, when the reduced tariffs on US beef start to take effect is unclear. The trade deal seemed to come together overnight, so much so that Japan was taken off guard by the speed of President Donald Trump’s declaration at a press briefing with Japanese Prime Minister Shinzo Abe at the Group of Seven meeting in late August.

The leaders agreed to the broad strokes of a limited trade deal covering agriculture, industrial tariffs and digital trade. But they left plenty of loose ends that need to be tied-up to achieve Trump’s goal of signing the final deal later in September at the United Nations General Assembly.

One report said that under the proposal, Japan would reduce tariffs on US beef immediately to 25.8pc (the same as Australia) if a bilateral trade deal took effect next April.






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