University of Nebraska - Lincoln

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Range Beef Cow Symposium

Animal Science Department

2013

Beef Trade: A Decade of Perspective
Gregg Doud
Commodity Markets Council

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 Proceedings, The Range Beef Cow Symposium XXIII
December 3, 4 and 5, 2013 Rapid City, South Dakota

Beef Trade: A Decade of Perspective
Gregg Doud
President
Commodity Markets Council
Nearly 11 years ago when I became the Chief Economist of the National Cattlemen’s
Beef Association, one of the greatest jobs any son of a Kansas farmer/rancher could have, I
was told that unlike wheat, corn and soybeans, beef trade just didn’t matter much. Early on
during my tenure, it was the opinion of some that we needed to focus our efforts on keeping
beef imports out and that beef exports would never be anything more than a niche business of
little consequence to the bottom line of U.S. cattlemen.
I politely disagreed then and recall what I was thinking to myself at the time…you
don’t know what you’ve got until it is gone. Back in 2003 BCSC (Before the Cow that Stole
Christmas), beef exports in 2003 were $3.86 billion with Japan leading the way at $1.4
billion – statistics I can still recall off the top of my head. Actually, beef exports already
mattered a lot back in 2003. Back in the fall of that year, our export tonnage was hitting new
monthly levels and the November 2003 value of beef exports was $150/head – a historic
high. If hides and offal were added in the value of these exports came to just under
$200/head.
Currently, export markets account for almost $300/head, which means that 17 percent
of the value of a finished steer now comes from the international marketplace. Another way
to look at it is that 17 percent of the money used as payment for the product we are producing
comes in the form of Pesos, Yen, Won, Yuan, Euros, Rubles, Canadian or Taiwan dollars.
The point here is that producers should not get caught up in the notion that per capita
domestic beef consumption is declining. Think of the marketplace in terms of every
consumer on the planet who buys their food from a supermarket, “wet market” butcher or
restaurant. Also consider that one of the biggest economic changes of the past decade is the
increased buying power of consumers in all corners of the globe for U.S. beef.
Understanding the importance and opportunity of beef exports to everyone in this
industry’s bottom line has been a difficult lesson during the past 10 years. Even today, it is
difficult to fully appreciate our export potential since we still do not have 100% market
access around the world. But a decade has now passed since we lost nearly everything
making this a good time to again remind ourselves about the importance of beef exports and,

 
  

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 more importantly, to ask what the next 10 years might look like. Let’s take a quick tour of
our non-U.S. customer base – past, present and future.
Japan
It took ten years of unbelievably difficult diplomacy and interaction between two of
the world’s largest trading partners but on February 1 of this year we were finally able to
nearly normalize beef trade with Japan. We exported $1.4 billion of beef products to Japan in
2003 and it looks like we’ll finally meet or exceed this level in 2013. Could we have done
things differently and gotten there sooner? Possibly. In hindsight, we may have been able to
hold out for something a little better than the “A40” maturity level that for many years
limited the number of fed cattle that were eligible for the Japanese market. However, it could
be countered that had it not been for this criteria we wouldn’t have shipped anything to
Japan, which would have allowed our competitors to completely take over the market. The
demand for 20 month and under cattle also ushered in the “age and sourced” era that really
jumpstarted our industry’s ability to grasp the notion of traceability. It also led to market
develop efforts that exposed Japanese importers and consumers to a wider variety of cuts
from eligible carcasses, which in the future, may boost Japanese imports of U.S. beef.
Nonetheless, over these ten years, the economic loss of U.S. beef exports to Japan alone
approaches $10 billion.
This year’s strong resurgence in exports clearly demonstrates that the relationship
between Japanese consumers and U.S. beef is still very strong. In the future, the greatest
challenge facing this relationship may be that consumers from other countries have the
ability to outbid Japanese consumers for the same cut of U.S. beef. Japan’s 38.5% applied
tariff on all beef imports is now one of the highest that U.S. beef faces anywhere in the
world. Without an opportunity to lower and eventually remove this tariff within the context
of the Trans-Pacific Partnership (TPP) trade negotiations, Japanese consumers will be
required to pay more than 38.5% more in order to bid the same cut of U.S. beef away from
consumers in other countries with no import tariff.
South Korea
One of the basic tenets of negotiating tariff reductions with another country is that we
want the tariff to go to zero for any product we’re exporting. We only have one shot—
EVER—at negotiating the deal and you want to, eventually, get to a point where your
products have duty free access. The art of the negotiation is really only about how long it will
take to get to that point. In agriculture, most of the agreements we have negotiated have
maximum phase-in periods of 15 years although we were able to do a little bit better than that
in the Australian deal (18 years) when we were playing defense. Thus, it was pretty easy to
know what the final agreement with South Korea would look like – duty free access after 15
years. The difficult part was negotiating an agreement that didn’t backload the tariff

 
  

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 reductions into the last five years of the agreement like we did with our poultry meat access
into Mexico as a part of NAFTA. This resulted in a fairly sizable increase in U.S. poultry
exports to Mexico at the end of the implementation period of the tariff schedule. It inflicted
enough strife on Mexico’s domestic industry to cause the U.S. and Mexico to renegotiate the
tariff schedule.
Fortunately, we were successful in negotiating a straight-line reduction in South
Korea’s 40% tariff on beef imports, which is 2.67% per year. Although it took way too long
to get this agreement ratified by Congress – nearly five years due to the influence of labor
unions on the Democratic Party – the agreement finally entered into force on March 15,
2012. This means that in 2014, we will be in the third year of implementation of the
agreement, which will put the tariff on U.S. beef at 32% or eight percent less than everyone
else exporting beef to South Korea. How big will this eight percent be?
Apparently big enough for Australia’s beef export promotion arm, my good friends at
Meat & Livestock Australia (MLA), to close their Korean office. South Korea is about the
only place on the planet where U.S. and Australian beef goes head-to-head. MLA spent a
small fortune in Korea during the period when we were locked out of that market in an effort
to carve out a permanent market share upon our return. For the past several years, Australia
has put an all-out effort into getting its own trade agreement with South Korea completed
but, to date, it has not been successful. This could mean that in 2014, it is game over for the
Australians in South Korea.
The expectation is that U.S. beef will soak up somewhere in the neighborhood of 70
percent of South Korea’s beef imports. In the future, U.S. beef exports to South Korea will
swing up and down due to domestic beef production changes and prices in competing meats
but the leverage of continued tariff reductions via the US.-Korea Free Trade Agreement gives
us the drop on the competition, plain and simple. So where are the Australians choosing to
focus?
Greater China
This is where the story gets interesting. Back in 2003, China was barely a blip on the
world beef trade radar screen with U.S. exports of only about $30 million before the market
closed. Back then, Hong Kong was a $90 million market but it will be in the neighborhood of
$700 million this year. Vietnam essentially imported no U.S. beef in the pre-BSE days of
2003 (a couple of hundred thousand dollars), but reached $160 million last year. Currently,
the beef export business into this part of the world, at least for now, appears to be shifting to
the port of Hong Kong, which is why analysts like to combine this trade data into a regional
or “Greater China” discussion in order to fully grasp the incredible phenomenon that is beef
and meat consumption in today’s China.
Now for some statistics that will blow your mind:
 
  

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 •

1.5 billion pounds more beef is going to China/Hong Kong this year versus last
year. (To put this into perspective Wal-Mart’s beef sales domestically are a little
over two billion pounds and total U.S. beef imports are about 2.2 billion pounds.)

•

During the past two years, beef prices in China have increased 83%. (Since
January 2012, U.S. beef prices are up 16 %.)

•

The retail price of beef in China is now $4.80/lb. Here in the U.S. it is currently
$4.95/lb.

•

The U.S. is no longer the world’s largest beef importer. During the past five
months, “Greater China” has been the world’s largest beef importer with 80
percent of these imports coming from the southern hemisphere (Australia, Brazil,
Argentina, Uruguay)

•

“Greater China” bought 100,000 metric tons of beef per month this summer. A
year ago it was 40,000 mt per month. In comparison, total U.S. beef exports to all
countries are currently running about 70,000 mt per month.

When I first saw these statistics it immediately reminded me of the raging debate
among market analysts back in 2002 about whether China would be an importer of 15, 18 or
20 million metric tons of soybeans that year and whether that country would be a consistent
and reliable customer that we could rely on in the years to come. USDA currently projects
 
  

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 that China will import 69 mmt of soybeans this year compared to a trite 59.5 mmt last year.
USDA currently has U.S. soybean production pegged at 86 mmt.
Of course the soybean meal from these beans is going mostly to feed hogs – lots and
lots of hogs. The entire U.S. pork industry is only about 9-10% the size of China’s. China
eats a LOT of pork – of course 1.35 billion people can do that. In just the first nine months of
this year China has imported 1.5 mmt tons of pork from around the world worth $3 billion.
But here’s the kicker: that amounts to only 1.2% of their pork consumption!
Ten years ago, per-capita incomes in China relegated Chinese consumers to importing
products like tendons, backstrap (ligaments), omasum, rectum, aorta and whatever else they
could import at a price point of about $2.00 per pound. U.S. short ribs and chuck rolls, the
staple in South Korea and Japan, were mostly out of reach for middle-class Chinese
consumers who were dining out. The fact that this appears to no longer be the case has to be
one of the biggest things to happen – possibly ever – to ranchers all around the world.
Now consider that we may be witnessing just the tip of the iceberg. There are
currently about 300 million “middle class” consumers in China in terms of global per capita
income. (Note: the U.S. population is currently 317 million.) By 2020 it is projected that
China will be home to 600 million middle class consumers. That’s the equivalent to another
U.S. population with the ability to afford beef in a hot pot at the neighborhood restaurant.
Even today, beef on the menu is the rule rather than the exception in Chinese restaurants.
Typically it is brought to the table raw and is cooked in full view of the customer. This is
important as it allows the customer to see whether the beef has yellow fat (grass fed) or white
fat (U.S. grain fed) and it certainly comes as no surprise which color fat Chinese consumers
prefer. Let’s see… a million restaurants consuming just 20 pounds of beef per day multiplied
by 365 days would be…the equivalent of about three times Wal-Mart’s annual beef sales.
With Chinese incomes at roughly 1/6 of our income, $4.80/lb. roughly translates to
$28-29/lb. in terms of a U.S. consumers’ pocketbook. Yet even at this price, Greater China
demand has pushed the wholesale price of U.S. short ribs $2/lb. or $20/head higher than it
would be otherwise. This market is now thought to be worth $60/head for U.S. fed cattle
prices. But the key take away here is that its value to U.S. beef producers may only be in its
infancy.
One of the clear advantages of the port of Hong Kong is that Hong Kong’s tariff on
beef is zero compared to a 12% duty for beef imported into mainland China. In the future, the
difference in tariff rates between Hong Kong (0%), South Korea (32% and falling for U.S.
beef) and Japan (38.5%) gives Chinese consumers a considerable advantage in their ability to
bid away a limited supply of chuck rolls and short ribs, even with their lower per-capita
incomes. Imagine a future where domestic consumers of U.S. beef are outbid for the product

 
  

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 we produce by non-U.S. consumers. It isn’t so hard to imagine and, in fact, it already
happens with several cuts today.
Taiwan
Next door in Taiwan, it appears that tastes and preferences are also changing in favor
of U.S. beef. Back in 2003, U.S. beef exports to Taiwan were barely on the radar at $75
million. This year it certainly looks like we’re going to set a new record with sales in the
neighborhood of $250 million. Taiwan is still a place that likes America and its culture and a
tariff of 15 cents per pound isn’t much of a tax on consumption. In the past year we’ve made
considerable progress on the ractopamine issue and it now seems like we’ve turned a corner
in terms of consumer acceptance. In the future, this is but one of several markets where we
must continue to work very hard to improve the dialogue regarding the use of science and
technology in food production.
Mexico
During the past decade Mexico has been our most reliable trading partner. U.S. beef
exports to Mexico have been a consistent $800 million to $1.2 billion and U.S. imports of
Mexican feeder cattle during that period have averaged around one million head per year. I
have spent a lot of time with our ranching friends south of the border during the past decade.
During that time I’ve watched as the relationship between U.S. and Mexican ranchers has
matured and grown stronger despite many ups and downs. It has also been a time of dramatic
change and improvement in Mexico’s processing industry leading to a not-insignificant level
of Mexican beef exports around the world. The genetics of the Mexican herd, particularly
along the Mexican states that border the U.S., have also made enormous strides. Red Angus
cross cattle from these states are now quite desirable and Mexican feeder cattle now account
for roughly 40 percent of the cattle on feed in Texas. This is now a mature market and a
mature relationship and not even country-of-origin labeling (COOL) can mess it up.
Russia
In 2008 prior to the global financial meltdown, there was a period when Russian beef
imports exceeded those of the United States. At major food shows like one I attended in
Germany, the meat exhibit hall was consistently packed wall-to-wall with Russian importing
interests. In those days Russia was a major importer of poultry, beef and pork with U.S. beef
imports reaching a high point of about $300 million. But even since Putin’s early days,
Russia has been determined to build its own domestic meat production sector no matter how
many non-tariff trade barriers they had to erect to get there.
Historically these shenanigans have kept the U.S. government up at night, such as to
how to keep about $1 billion in poultry exports to Russia from backing up into the U.S.
market. Next was pork, locked out via the ractopamine angle, but only in the past year or so

 
  

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 has Russia started causing trouble on the beef side. U.S. beef access to Russia is now also
hung up over the ractopamine issue but in reality it has a lot more (maybe everything) to do
with supporting domestic interests than it does anything else.
In July 2012, and after 10 years of effort, the U.S. government was finally able to
complete the process to obtain a CODEX or international maximum residue level for
ractopamine (Optiflex). It was a major accomplishment and a major political blow to the
European Union’s long-standing ability to block the acceptance of the use of technology via
the CODEX process. With Russia now a member of the WTO, this issue should have gone
away. Russia’s simple, but not so clever, explanation for its behavior was that although it is
now a member of the WTO, it didn’t vote for the ractopamine MRL in the CODEX so
therefore it does not have to adhere to the new MRL. Perhaps Russia still has a little work to
do when it comes to understanding how democracy works.
European Union
Of course we all know who wrote the book when it comes to using non-tariff trade
barriers to block imports and protect domestic markets, but now the U.S. is actually selling in
excess of a quarter of a billion dollars worth of beef to the EU. How did this happen? Well, it
just so happens that 2003 was a watershed year for the EU and beef as this was the year it
went from net beef exporter to importer. Isn’t it interesting how attitudes change once you go
from being a seller to a buyer of a product?
We also traded away our retaliation over the hormone case for something that we
could actually use and that was duty free access for – hormone free – U.S. beef into the
European market. Does this mean we’ve “settled” the hormone dispute? I honestly don’t
know. The answer to this is now tied to something the trade policy wonks call T-TIP or the
Transatlantic Trade and Investment Partnership. What we’re really talking about here is a
U.S.-EU Free Trade Agreement. Well maybe.
The truth of the matter is that everyone outside of agriculture is chomping at the bit to
cut a financial services or some other sort of sectoral trade deal with the Europeans and these
domestic interests are worried sick that the whole process could easily get wrapped around
the axle for years over agriculture. From the onset comments like, “the aggies are going to
have to move off of traditional negotiating tactics for this one,” were being whispered in the
hallways up on Capitol Hill and around town.
There is no question that these issues have been seemingly intractable for decades. It
should also be strongly emphasized that there is absolutely no guarantee that some or all of
these issues will even be brought to the negotiating table unless agriculture interests slam
their collective fists on the table with this Administration and force it to happen. What are the
issues?

 
  

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 •
•
•
•

“GMOs” – To label or not to label? (Keep in mind domestically we’re now
labeling bags of Halloween candy with labels like “free of major allergens”)
Beta-agonists
Antibiotics
Animal Welfare

The tariff discussion should be pretty easy. Are we prepared to walk away from the
negotiating table if access is restricted via these other issues? We better be.
Sanitary and Phytosanitary (SPS)
Of course no legitimate discussion about agriculture trade is complete this day and
age without a considerable amount of time spent describing the litany of sanitary and
phytosanitary issues our products face around the globe. These issues are the new tariffs and
the whack-a-mole process of dealing with them makes for good job security for agricultural
trade policy wonks in our nation’s Capitol. Here are a couple of points regarding this topic:
1. We are usually our own worst enemy.
In Mexico I was once told by one of their government officials that every tactic they
use to keep our agricultural products out of Mexico they learned from us. Ironically, this U.S.
trained lawyer is now on retainer by Mexican ranchers to sort out this COOL mess. I also
recall when high level Chinese government officials lectured a previous USDA
Undersecretary saying in so many words that every time you Americans come over here you
lecture us about sound science and yet you turn around and do something completely to the
contrary – as in Congresswoman Rosa DeLauro’s infamous USDA appropriations rider that
blocked USDA from working on the cooked poultry issue. It took USDA nearly 10 years to
finally get this mess sorted out. This one continues to cost us dearly. I would also add COOL
and the Brazil WTO Cotton case to this list for good measure. And don’t even get me started
about HSUS and eggs or these western state GMO referendums.
2. When it comes to science and technology these days, scaring people makes for
good fundraising within the activist community. The same might also be said for
animal welfare.
At present, we’re dealing with beta-agonists and GMOs, but do not let your guard
down about antibiotics and animal welfare. Our detractors are extremely well-funded,
politically connected, media savvy and communicate with each other globally. U.S. beef
producers must match them stride for stride now and into the future.
A critical step forward would be to develop a model amongst key trading partners to
deal with these issues at the speed of commerce; before the activists can get to the politicians

 
  

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 (here and elsewhere) and before the politicians say something stupid that they can’t take
back, which ends up stopping commerce.
SUMMARY
In the past ten years we’ve rebuilt the beef export engine nearly from scratch. The
headline for the ten years ahead certainly appears to be China, where it is all starting to
happen for beef. There are now several key U.S. beef export markets. Our non-U.S. customer
base is now pretty well diversified and that is a good thing. These exports are not only
important in terms of sources of new revenue to drive prices higher, they are also serving to
provide a solid foundation for these current price levels. And I would note, we’re talking
about price levels that are almost double what they were 10-12 years ago.
Despite starting from nearly scratch in 2004, we’ll have taken beef exports from $5.5
billion last year to $6 billion in 2013. Our ability to move to $8 or even $10 billion in the
coming decade has much more to do with our ability to produce the beef than it does finding
a plate to put it on.
One of my favorite things to do each year is the annual selection of our replacement
heifers. When the day comes to do this on each of your operations, take a minute to think
about all the places the beef from the offspring of those heifers you’re retaining may go in
the coming years. It is a pretty amazing list. My advice to each of you is simply: go forth and
multiply…and retain those heifers.
Footnote: a huge thank you goes to Brett Stuart of Global AgriTrends (& Cattle-Fax) for
help with these statistics. He’s one of the best in the business.

 
  

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