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FAQ's Regarding U.S. Cattle and Beef Imports from Canada
There has been a great deal of interest concerning the growth in U.S. cattle and beef imports from Canada in recent years. The following questions and answers are designed to provide cattle producers, industry analysts, packers and processors, journalists, policymakers, and others interested in the topic with an objective analysis of the situation.
Question 1: How many cattle and how much beef are imported from Canada?
Question 2: What benefits to the U.S. beef and cattle industries were achieved by free trade agreements such as the Canada-U.S. Free Trade Agreement (CUSTA) and the North American Free Trade Agreement (NAFTA), and what impact have these agreements had on cattle and beef imports from Canada?
Question 3: What other factors besides the Canada-U.S. Free Trade Agreement account for large U.S. imports of Canadian cattle and beef?
Question 4: With so much livestock and meat production in the United States, why can't we simply prohibit imports?
Question 5: What impact has cattle and beef trade - including the large volume of imported Canadian cattle - had on U.S. cattle and beef prices?
Question 6: What has been done recently to improve U.S. cattle trade with Canada?
Question 7: What do we expect to see in the future in terms of cattle and beef imports from Canada?
Question 1: How many cattle and how much beef are imported from Canada?
Answer:
Canada and Mexico continue to be the United States' primary trading partners in cattle, as they have for many decades. Cattle imports from Canada averaged 368,000 head between 1978 and 1988, remaining relatively flat during that period. Subsequently, imports began to show a fluctuating, but generally strong upward trend; imports were 585,000 head in 1989 and have exceeded 1 million head every year since 1992. U.S. imports from Canada reached a peak of 1.5 million head in 1996 (valued at nearly $1 billion) but have since declined. By far the majority of the imports - some 80 percent - are cattle destined for immediate slaughter, primarily steers, heifers, and cows. Other major imports include heavy steers and heifers for further finishing.
Beef imports from Canada prior to the implementation of the U.S.-Canada Free Trade Agreement in 1989 were subject to quantitative restrictions under the U.S. Meat Import Act of 1979. Between 1978 and 1990, beef imports from Canada rose steadily and then dropped back, going from 63,000 tons in 1978 to a peak of 195,000 tons in 1985, then falling to a low of 81,000 tons in 1990. Since 1990, beef imports from Canada have grown steadily upward, reaching 306,000 tons in 1998 valued at $736 million. Over 70 percent of the imports are comprised of fresh-chilled boneless cuts, 10 percent are prepared and preserved beef, 8 percent are frozen boneless cuts, with the remainder made up of various fresh-chilled, frozen, prepared and preserved cuts.
Canada surpassed Australia as the largest beef supplier to the United States in 1996. However, total U.S. beef imports have remained fairly constant over the past 20 years; imports from Australia have declined as shipments from Canada have grown and those from New Zealand have remained fairly constant. Nonetheless, tightening U.S. beef supplies and continuing weakness in Asia are expected to result in record U.S. beef imports in 1999.
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Question 2: What benefits to the U.S. beef and cattle industries were achieved by free trade agreements such as the Canada-U.S. Free Trade Agreement (CUSTA) and the North American Free Trade Agreement (NAFTA), and what impact have these agreements had on cattle and beef imports from Canada?
Answer:
The Canada-U.S. Free Trade Agreement (CUSTA) entered into force on January 1, 1989, and liberalized trade between the two countries in many areas, including livestock and meat. This was followed on January 1, 1994, by the North American Free Trade Agreement (NAFTA) which was signed by the United States, Canada, and Mexico; cattle and beef trade agreements in the CUSTA were subsumed under the NAFTA.
Perhaps the most significant outcome of these agreements for the United States beef and cattle sector was the elimination of tariffs on cattle and beef to Mexico, a consequence of NAFTA. NAFTA also precluded Mexico from making capricious changes to its import duties on U.S. product, as it did in November 1992. Beginning November 11, 1992, U.S. exports of slaughter cattle to Mexico were assessed a 15-percent ad valorem duty (rising from zero), while U.S. fresh chilled beef and frozen beef exports similarly were assessed a 20-percent and 25-percent ad valorem duty (both rising from zero), respectively. The elimination of these tariffs was effective with the implementation of NAFTA on January 1, 1994, and applied only to the United States and Canada. The United States has been able to benefit from the tariff eliminations to a far greater extent than Canada, however, given our geographic proximity and historical trade relationship.
With the accelerated duty elimination agreement negotiated under the CUSTA, U.S. cattle trade with Canada has been duty free since January 1, 1993, that is, a year before the implementation of NAFTA. Prior to the Agreement, the base rate of duty for U.S. cattle exports to Canada was zero for purebred breeding animals and dairy cattle; all other bovine animals faced a duty of 2.2 cents/kg, a relatively low rate. The U.S. rate of duty on imports of Canadian cattle prior to the CUSTA had already been zero for purebred breeding animals and dairy cows; all other U.S. bovine imports had a duty of 2.2 cents/kg, which was not viewed as a significant impediment to trade.
By July 1993, most U.S. fresh, chilled, or frozen beef trade with Canada was duty free due to accelerated duty elimination agreements under the CUSTA. Prior to the CUSTA, rates on all fresh chilled and frozen beef imports into Canada had been set at 4.41cents/kg. Similarly, rates on fresh and frozen beef imports into the United States had ranged from an ad valorem duty rate of 4 to 10 percent on some cuts, while others were set at 4.4cents/kg. However, these rates were not considered to be significant barriers to beef trade.
Quantitative restrictions on beef imports into the United States under the Meat Import Act (MIA) of 1979 had been, however, a more significant deterrent to trade for Canadian beef exporters. Following the implementation of the CUSTA in 1989, Canadian beef became exempt from the formula-based quantity restrictions of the MIA. At the same time, U.S. beef exporters gained market access to Canada, since the CUSTA exempted the United States from Canada's quantitative import restrictions on beef.
Following the removal of quantitative Canadian beef export restrictions to the United States under the CUSTA, U.S. multinationals made large investments in Alberta, Canada, to expand existing slaughter facilities. Alberta feedlot operators began expanding their herds in anticipation of the increased demand for finished cattle. Due to delays in the start-up of operations at the expanded slaughter facilities, however, large numbers of market-ready cattle in Alberta were exported to the United States. This partially accounts for the peak in U.S. cattle imports from Canada in 1996. Other factors are also playing a role in the large imports recently, including the cattle cycle, short-term margins between Canadian and U.S. cattle prices, and soft beef import demand in Asia.
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Question 3: What other factors besides the Canada-U.S. Free Trade Agreement account for large U.S. imports of Canadian cattle and beef?
Answer:
Several factors are playing a role in the increased cattle and beef imports from Canada. First, U.S. and Canadian cattle cycles, which generally move together, are an important factor. According to International Trade Commission (ITC) Publication 3048 (July 1997), U.S. cattle imports tend to rise during long-term periods of Canadian herd expansion. In 1996, the Canadian cattle cycle reached its peak and entered a period of contraction as profits fell with high grain prices; that was the year of record U.S. cattle imports from Canada. U.S. beef imports from Canada also rose sharply with the initial liquidation of the Canadian herd. U.S. cattle imports are now falling with tightening Canadian cattle supplies and greater slaughter capacity in Canada, while U.S. beef imports from Canada continue to rise, though at a slower pace.
The cattle import strength is also related to short-term differences between U.S. and Canadian fed cattle prices which favor sales to U.S. packers. Reflecting the high degree of integration in the North American cattle market and market domination by the United States (where cattle inventories are almost 10 times those in Canada), U.S. and Canadian fed steer prices generally run closely together. According to ITC Publication 3048, long-term cattle prices are determined in the U.S. market, while the Canadian price is the U.S. price times the exchange rate, adjusted for transportation costs. Short-term price differences (i.e., daily or weekly margins) arise frequently, however, due to changes in demand/supply conditions on either side of the border.
Moreover, Canadian cattlemen in the western provinces, particularly Alberta, began expanding their herds during 1994-95, in part due to anticipation of expanding slaughter facilities in Alberta, scheduled to begin operations in 1996-97. Insufficient Canadian slaughter capacity due to delays in the expanded slaughter plants led to Canadian ranchers selling large numbers of livestock to U.S. processors and packers in 1996 and 1997.
The elimination of Canada's Western Grain Transportation Act (WGTA) on August 1, 1995, with the Uruguay Round Agreements may also be a factor in explaining increased imports from Canada recently. Under the WGTA, the Canadian government paid from one-half to three-quarters of the rail transportation costs for eligible grains and other agricultural commodities to export ports and eastern Canadian markets. Elimination of this de facto export subsidy was expected to lower grain prices in Manitoba, Saskatchewan, and Alberta, possibly leading to a shift towards higher cattle production in the region and increased beef and cattle exports to the United States. But the effects of eliminating the WGTA on Canadian grain prices - and therefore on cattle production and exports - have been difficult to gauge given the high world grain prices of 1995-1997.
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Question 4: With so much livestock and meat production in the United States, why can't we simply prohibit imports?
Answer:
We must look at the overall gains to the U.S. beef and cattle industry resulting from trade and trade reforms. The United States has generated a trade surplus in beef and beef variety meats every year since 1992 when examined on a dollar basis. The surplus measured over $900 million in 1998. U.S. beef exports continue to grow, and have provided a valuable outlet for an industry facing large domestic supplies and stagnating U.S. consumption. While U.S. net cattle imports in 1998 were valued at $981 million, the net trade surplus in cattle and related products (that is, cattle, beef, beef variety meats, tallow, cattle genetics, and hides and skins) was $1.4 billion.
Even when examining net trade in cattle and beef on a volume basis, we find that net imports have been declining. U.S. trade in beef and live cattle with all countries was recently examined by the Livestock Marketing Information Center using a conversion of meat to a live animal equivalent basis. The approach is useful in looking at total beef and cattle trade together. Despite the fact that the U.S. continues to be a net beef importer (on a volume basis), total beef and cattle imports have declined from about 4 million animal equivalents in 1991 to about 2.1 million animal equivalents in 1997.
Trade agreements provide a context and forum for settling disputes; they also prevent capricious changes in trade policies. Multilateral trade reforms negotiated in the Uruguay Round and regional trade reforms negotiated in the NAFTA have affected trade patterns and led to further integration of the North American beef and cattle markets. The United States supplies breeding animals to both Canada and Mexico; the United States also supplies cattle for slaughter to Mexico and cull cows to Canada. Mexico in turn supplies primarily feeder cattle to the United States for finishing, while Canada ships primarily slaughter-ready animals (steers, heifers, and cows) to the United States.
The United States exports primarily high quality beef cuts for the hotel, restaurant, and institutional markets. After Japan, Mexico and Canada are the largest markets for U.S. beef, valued at $683 million jointly in 1998. The elimination of tariffs on beef exports to Mexico, negotiated under the NAFTA, has resulted in strong growth in that market for the United States. Despite the Mexican peso crisis which sharply reduced beef imports in 1995, U.S. beef export volume to Mexico rose 72 percent on average per year between 1996 and 1998, to 142,000 tons in 1998.
We import primarily manufacturing grade beef from Australia and New Zealand, which together supplied 54 percent of total U.S. beef imports in 1998. Imports from these countries are limited by a tariff rate quota negotiated under the Uruguay Round.
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Question 5: What impact has cattle and beef trade - including the large volume of imported Canadian cattle - had on U.S. cattle and beef prices?
Answer:
Trade is just one factor affecting the beef and cattle market. Other important factors affecting U.S. cattle and beef prices are the changes in domestic supply, changes in disposable income, changes in market conditions for competing meats, and changes in consumer tastes and preferences. U.S. beef prices are determined at the retail level and work their way back along the supply chain to the wholesale and producer levels. Short-term fluctuations in margins along the supply chain may exist due to changing supply and demand conditions.
Despite lower U.S. slaughter in 1998 compared to 1997, beef production was actually higher in 1998 due to record slaughter weights; this put downward pressure on cattle and beef prices. Morever, large supplies of pork and poultry meat and stagnating domestic beef consumption in the mature U.S. market were also factors in lower prices. At the same time, sharply lower U.S. hide and offal prices in 1998 (reflecting the Asian economic crisis and Korea's weakened demand for U.S. hides) may partly explain why cattle prices experienced a greater decline than beef prices.
Looking at the effect of trade on prices, it is important to put import volume into perspective. Live cattle imports from Canada exceeded 1 million head every year from 1992 to 1998, yet they averaged only 1.2 percent of U.S. cattle inventories during that period. Even in 1996 when imports peaked at 1.5 million head, they equaled only 1.5 percent of U.S. cattle numbers. That year, slaughter cattle imports from Canada represented 3.5 percent of U.S. adult cattle slaughter.
About 80 percent of the cattle imported from Canada are slaughter cattle. According to ITC Publication 3048 (July 1997), Canadian beef and slaughter cattle exports to the U.S. in 1993 and 1994 resulted in a decline in U.S. steer prices of about $2 per hundred weight - a less than 3-percent decline. Other factors, however had a bigger impact on prices. For example, tight supplies of beef due to low slaughter weights, as well as reduced pork supplies, boosted the choice steer price in 1993. In 1994, large supplies of red meats and broilers combined with high grain prices to sharply lower the steer price.
Overall, global trade reforms have strengthened U.S. beef exports and helped support prices. The high per unit value of U.S. beef exports ($3,257 per metric ton in 1998) reflects the success of U.S. exporters to market our high quality beef to the restaurant, hotel, and institution industries in foreign markets.
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Question 6: What has been done recently to improve U.S. cattle trade with Canada?
Answer:
The United States and Canada announced on October 22, 1997, the start of the Northwest Pilot Project aimed at expediting shipments of live cattle from the states of Montana and Washington to Canada. Under this project, Canada revised its animal health import requirements for live cattle entering from participating U.S. states. The protocol permits the importation of cattle into Canada from October 15 through March 31 each year. According to the Canadian Food Inspection Agency, 86 western Canadian feedlots (mostly in Alberta) have been approved to import U.S. feeders under the Project. On January 7, 1999, Hawaii received approval to ship feeders to Canada under the Project due to the state's low incidence of anaplasmosis.
A total of 51,009 head of U.S. feeder cattle were exported to western Canada between October 15 and March 31of the 1998/99 program; this is a sharp increase over last year when just 1,000 head were exported during the entire season. The higher exports this year reflect Canadian regulatory amendments approved in August 1998. According to some sources, U.S. local feeder cattle prices have strengthened in certain regions owing to the increased demand from Canadian feedlots.
The United States and Canada continue to make progress on animal health issues affecting cattle trade. For example, in the December 4, 1998, trade agreement between the two countries, Canada agreed to completely revise its regulations governing imports of U.S. animals and their products, with a focus on the principles of zoning and regionalization. Further, Canada will speed up the revision process so that the new regulations are in place five years ahead of the original schedule. Also, both countries have committed to working together to harmonize animal drug residue limits.
The United States continues to pursue greater market access for U.S. cattle to the Canadian market. Under the December 4 agreement, Canada opened the Northwest Cattle Project to enrollment by 26 additional states. The United States will also gain greater access to Canadian data as a result of the agreement, including statistics on inventory and slaughter; this should enable U.S. producers to make better informed marketing decisions.
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Question 7: What do we expect to see in the future in terms of cattle and beef imports from Canada?
Answer:
The current trend is showing declining cattle imports from Canada but rising beef imports. This is expected to continue in the near future as the expanded Alberta slaughter plants attempt to optimize operations. Moreover, weakened export opportunities to Asia (where imports are normally supplied by Australia, New Zealand, the United States, and to a much lesser extent Canada) and tightening U.S. beef supplies are expected to result in higher total U.S. beef imports, including those from Canada.
The downturn in the Canadian cattle cycle since 1996 has led to fewer cattle available for export. Inventories are expected to fall to 12.9 million head by year's end in 1999 - the lowest level since 1995. Total Canadian cattle exports are expected to drop 8 percent to 1.15 million head in 1999.
Moreover, plant slaughtering capacity and utilization in Canada are major factors in future cattle and beef exports to the United States. U.S. multinationals have made large investments to expand slaughter and chilling capacity in Alberta; expansions of the Excel plant at High River and the IBP plant expansion at Lakeside were completed in 1996 and 1997, respectively. According to International Trade Commission Publication 3048 (July 1997), the modernization and increased capacity of these plants are expected to make them more competitive in bidding Canadian fed cattle away from U.S. packers.
Due to high expected slaughter levels in Canada in 1999, beef production is expected to stay high in the near future. With domestic Canadian consumption showing little change and continuing weakness in Asian beef imports, Canadian packers are expected to continue targeting the U.S. market as a growth export market. Due to tightening U.S. beef supplies and rising prices as the cattle cycle contracts, U.S. buyers are expected to increasingly use imported beef. But total Canadian beef export growth is expected to slow from its previous brisk pace (due to declining, though still large, beef production), and shipments to all destinations are expected to increase 3 percent in 1999 to 375,000 tons.
For further information, contact Monica Castillo, (202) 720-7285.
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