JUST as meteorites often pass uncomfortably close to earth, with most humans blissfully unaware of the imminent danger, Japan’s troublesome Safeguard market protection mechanism has just streaked across the beef industry’s horizon.
The trouble is, we still don’t know if there has been an impact, let alone any collateral damage.
It could be another three or four weeks before the Japanese export beef supply chain knows for sure whether imported frozen beef entering Japan is exposed to a substantial increase in tariff under Japan’s controversial ‘Safeguard’ protection mechanism.
For some months market observers have been warily watching the traffic in imported beef trade into Japan, with mounting concern that the boom in business out of the US since the Japanese agreed to ease age limits on US beef in February could trigger the country’s Safeguard mechanism.
Japan’s Safeguard, sometimes called ‘Snap-back’, is a mechanism designed to protect the domestic Japanese beef industry during times of unusual rises in beef imports.
The mechanism was last triggered in 2003, following Japan’s BSE episode, when imported beef started flooding back into the country after a period of extreme low consumption due to consumer fears about beef ‘in general.’
The effect in the market at the time was chaotic, with heavy stockpiling going on before the Safeguard was triggered, in order to avoid the extra tariff , followed by a big vacuum in Japanese trade demand as imported beef was deemed to be ‘expensive.’
How does Safeguard work?
Safeguard measures frozen and chilled shipments into Japan separately. It measures global imports, not volumes specific to one supplier country, on a quarterly basis.
Under the legislation, a rise of 17 percent in frozen or chilled beef imports in any quarter, relative to the same quarter a year earlier, gives Japan to the option to lift tariffs on that segment (frozen, chilled or in a case where both exceed the 17pc limit, both) from 38.5pc to 50pc.
Worse still, the higher tariff applies for the remainder of the Japanese fiscal year, which in this case means nine months, through to March 31 next year.
In early June, an Australian forecast predicted that while frozen shipments could go very close to the trigger level, it looked to be within ‘controllable’ limits.
The volumes are measured from quarter to quarter, with the April-June period the first to threaten the Safeguard provision, when measured against trade for the same period last year. The sole reason was the US’s more liberal trade access was Japan’s February decision to drop its previous 20-month age limit on US beef (imposed on BSE risk grounds) for a more liberal 30-month limit.
That freed-up a whole lot more US beef that was eligible for Japan, and much bigger volumes of US frozen product started to arrive from March.
Japan’s Safeguard assessment is based on cleared product, passed through customs. However it is not unusual for some product to be held ‘in bond’ in Japan (pre customs inspection), which is not taken into account in Safeguard calculations. It is the use of the bonded storage process that appears to be the main solution used by the market to try to avoid triggering the tariff.
Alarming rises for April, May
Figures obtained by Beef Central for the April-June quarter compiled by the Japan Meat Traders Association in late May showed April frozen imports to Japan (actuals) reached 24,829 tonnes, which was 23pc above the same quarter in 2012.
Two separate forecast figures were generated for May – a conservative figure of 28,000t and an ‘upper’ figure of 31,000t, compared with a corresponding May figure of 23,226t for last year. The more pessimistic of those forecasts represented a 33pc rise on May last year.
Given these results, it was little wonder that the market was getting alarmed about where the quarter was heading. The only solution was to see a radically lower June figure delivered, in order to squeeze below the 17pc quarterly rise threshold.
Japan Meat Traders Association’s forecast for June was for frozen imports totalling 27,500t, against 28,512 imported in June last year.
While the June estimate figure was understandably lower than last year, as the trade wrestled with the need to avoid triggering Safeguard, there was another considerable factor in play. McDonald’s Japan had already secured most of its June’s production requirements in May, impacting on June figures.
The accumulated figures (using both actual and forecast data) suggest that Japan’s total frozen imports for the April-June quarter were likely to be 80,329t (low estimate) and 83,329 (high estimate).
Those figures compare with 72,210t for the corresponding quarter last year.
The critical number that would trigger Safeguard for the most recent quarter was 84,485t – barely 1000 tonnes more than the ‘high’ estimate scenario.
In astronomical terms, that’s like a meteorite the size of an ocean liner passing between earth and the moon.
“It’s extremely close, but in our opinion, it’s a manageable position,” the chairman of Meat & Livestock Australia’s Japan Taskforce, exporter Lachie Hart told Beef Central yesterday.
“We are seeking more up-to-date information via MLA as quickly as we can, however, we will not see June’s actual clearance volumes from Japanese authorities until close to the end of June,” Mr Hart said. “That makes it very hard.”
“But in our conversations with the JMTA, we remain reasonably confident that the process will be managed to ensure that the tariff rise risk is diverted,” he said.
While the Safeguard process is controlled by the Japanese government, management of the rates of clearance through customs lies with the trade itself.
The calculation of trade flows is not easy in advance, with ships from a number of beef supplier countries on the water at the same time.
“We know with some precision what’s been exported to Japan from Australia, but it’s very hard to predict what’s arriving from the US, New Zealand, Mexico and Canada,” Mr Hart said.
Even if the April-June quarter frozen import figures fall safely below the trigger level of 84,485t, the danger has not passed, however.
Current high frozen trade flows out of the US are unlikely to ease, and the same comparisons will be made with the July-September quarter last year.
- As discussed in Beef Central’s own independent analysis of 2012-13 fiscal year export performance published yesterday (click here to view), June exports to Japan out of Australia fell sharply reaching 25,341 tonnes, a 17pc decline from June last year (30,374t).