Trade

Competitor watch: Access to China key factor in US meat exports

Beef Central, 18/08/2015

For the US beef industry, the lost opportunity due to the country’s lack of access to the China export market is currently estimated at more than US$100 per head. In this recent self-authored article appearing on the US Meat Export Federation website, USMEF president Phil Seng explains why it’s important for the US meat industry to regain access to China….

 

USMEF logoTHE US red meat industry has achieved outstanding export growth in recent years, enhancing profitability for all members of the supply chain. In 2014, both beef exports (US$7.13 billion) and pork exports ($6.67 billion) shattered previous records for export value.

Beef exports have steadily increased in value in each of the 11 years since global markets began to reopen after the first US case of BSE. For pork, export value has increased in 15 of the past 20 years.

In 2015, several headwinds have made it difficult for the US industry to maintain this positive trajectory. Severe congestion in the US West Coast ports – the result of a prolonged labour impasse – impacted our first-quarter results. Unusually large supplies of European pork and Australian beef have poured into key Asian markets, buoyed by favourable exchange rates that make them very attractive to price-sensitive buyers. Key competitors have also achieved gains due to Free Trade Agreements that reduced import duties on their beef and pork products.

These are all important factors affecting US exports, but they are issues over which the US industry has little or no control. The same cannot be said about one of the biggest obstacles US exports currently face – lack of access to China.

China is one of only a handful of international markets that never reopened to US beef following the 2003 BSE case. At that time, and for several years thereafter, China was not a large importer of beef.

But that changed dramatically in 2013, when beef import demand in China surged due to strong economic growth and a sharp decline in domestic production. China now imports more beef every month than it did in an entire calendar year in 2011. In the first half of this year, imports totalled nearly $910 million – up 28 percent from a year ago.

While the US industry remains on the sidelines, Australia, Uruguay, New Zealand, Argentina and Canada are all gaining a strong foothold in China. Being shut out of the Chinese market also affects the prices US beef cuts command in other Asian destinations, as China has begun to exert significant influence on global beef trade.

For the US beef industry, the lost opportunity due to lack of access to China is currently estimated at more than US$100 per head.

 

Is there a scientific basis behind China’s demands?

Considering that the US exports to about 100 countries, all of which have determined that US beef is safe, it would be easy to view China’s import conditions as overly strict. But a growing number of major beef producing and exporting countries are meeting China’s requirements, aware of the market’s potential global impact on beef demand.

USMEF president Phil Seng

USMEF president Phil Seng

In mid-2014, for example, China began testing beef imports from Australia for hormone residues, citing a synthetic HGP ban that had been in place for more than a decade, but had only been sporadically enforced.

Australia responded quickly, implementing a certification program to meet China’s requirements. In the short term, Australia’s exports to China dipped by nearly 50pc. But that decline was temporary, as Australian producers adjusted and exports to China quickly rebounded.

When Canada confirmed its most recent BSE case in February, the Canadian Food Inspection Agency voluntarily suspended export certificates to China and began consultations with its counterpart agencies in China to restore access.

Trade resumed in early April. A similar situation just occurred in Argentina, where trade was suspended due to a finding of vesicular stomatitis (VS) in dairy cattle. Argentine government and industry representatives immediately travelled to China to meet with regulatory officials and reached an agreement to resume trade.

As these examples illustrate, the US’s competitors have learned that the best way to do business with China, as with any customer, is to meet its expectations.

 

Limited pork access also costly

With regard to US pork, the Chinese market is not entirely closed. The US technically has access for a full range of pork and pork variety meat products (with the exception of processed products), and recently gained access for pork fat.

But a significant percentage of US pork production is ineligible to ship to China due to ractopamine use in the US, and other factors that conflict with China’s import requirements. This has made it very difficult to capitalise on significant growth opportunities in China that have emerged this year due to high domestic prices, and which are presently being captured by European suppliers.

China produces and consumes about half the world’s pork. And while it is largely self-sufficient in production, even a small fluctuation in China’s need for imported pork can shake up the global market. The US industry has benefitted from these fluctuations in the past – especially in 2011 and 2012, when exports to China were very strong.

But with the enforcement of its import requirements and only a small number of US plants being eligible to serve China, there was a major slowdown in the second half of last year. So far in 2015, US exports are down nearly 50pc from a year ago. In the meantime, EU export volume to China is more than one-third higher year-over-year.

The US’s lost opportunities in China span a wide range of product categories. China has been an excellent destination for large volumes of ears, feet, stomachs, snouts and other pork offal items, but the US is also missing a chance to market pork muscle cuts to China’s rapidly growing processing, foodservice and retail sectors.

Similar to the beef complex, China has no lack of suitors who want a piece of its imported pork market. In addition to the EU, Canada and Chile compete aggressively in China and Mexican pork is a recent entrant into the market.

Ractopamine is not an issue for suppliers from the EU and Chile (where it is not approved for use), but other competitors are also undeterred by China’s demands. Canada, in fact, has created a ractopamine-free verification program that even includes segregation at the cold storage facility level. This is another instance in which exceptional opportunities for export growth carried the day.

The US’s limited access to China has very negative consequences for US pork producers (the situation is not dissimilar for beef – Ed.) When the flow of US pork to China slowed severely late last year, industry analysts estimated that the lost value in pork offal alone was more than $7 per head – and it is now estimated to be more than $9 per head.

Combine this with lost opportunities for muscle cuts, especially as China’s hog prices reach multi-year highs, as well as the impact on the price US pork can command in other markets, and China’s influence on US pork producer profitability is substantial.

The case for exports is often made by stating that 95pc of the world’s population lives outside the United States. But this argument is much less compelling when the market that contains nearly 20pc of the world’s population has little or no access to US red meat products, which I believe are the finest and safest in the world.

Yes, China’s import conditions are stringent, but China is not lacking for suppliers willing to meet its demands. This means the US industry faces some difficult decisions as it looks for ways to expand access for US meat in this critically important market.

 

Source: USMEF

 

 

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