LIVESTOCK AND POULTRY
World Markets and Trade
Cattle and Beef
U.S. beef exports are pulling out of the sluggish growth which characterized the first half of 1997. Demand for beef in our Asian markets has been slow to recover from the food safety concerns of 1996 and has also suffered from weakness in those economies. Canadian imports have slowed due to increased domestic beef production and expanded processing capacity. But U.S. beef and cattle exports to Mexico continue to show tremendous strength as their economy expands at a healthy pace. As food safety issues diminish and economies improve, the prospects for U.S. beef exports look promising for 1998.
In 1997, cattle inventories in the selected countries included in this report are expected to decline slightly to just over 1 billion head. The declines are expected to be widespread across world regions, with the greatest losses occurring in the former Soviet Union, South America, and North America. Russia's inventory alone is expected to drop by 3.3 million head while Brazil's herd is forecast to fall by 3.1 million head.
Various factors are driving the decline in cattle stocks, including adjustments to market reforms and continuing economic hardship in the former Soviet Union, the downturn in the cattle cycle in North America, and a lack of profitability in the cattle industry in Brazil following macroeconomic reforms there. The European Union (EU), which continues to grapple with the effects of the 1996 outbreak of Bovine Spongiform Encephalopathy (BSE), is also expected to undergo losses. Nonetheless, some gains in cattle inventories are expected in 1997, particularly in China, where the government continues to encourage cattle production to maximize the use of grassland resources.
Total slaughter and beef production among the selected countries are expected to show very slight declines in 1997, to 227.8 million head and 48.3 million tons, respectively. Further declines are anticipated for 1998. In 1997, beef output is forecast to decline in the Russian Federation, Ukraine, the EU, and Brazil, while increasing in China and Australia. In 1997, the United States is expected to show a modest decline in beef output as herd liquidation eases. Total beef consumption is expected to show only a marginal increase in 1997, owing in part to continuing food safety concerns in the aftermath of the BSE outbreak and sporadic outbreaks of E. coli 0157. Other factors limiting consumption growth include declining disposable incomes in places like the former Soviet Union and the price competitiveness of other meats.
Trade statistics for the selected countries indicate that following the upward trend which peaked in 1996, total beef exports are expected to decline 2 percent in 1997 to 4.8 million tons. Nonetheless, total exports are forecast to grow modestly in 1998. In 1997, exports are expected to drop by 131,000 tons in the former Soviet Union, while lesser declines are forecast for Argentina, the EU, and Brazil. Argentine exports are expected to turn around in 1998 as its new foot-and-mouth (FMD) free status helps boost exports. U.K. beef exports are virtually nil in 1997 following the 1996 outbreak of BSE, but are expected to show a modest rebound in 1998. However, the level of exports will still be low.
In 1997, beef exports for Australia and Canada are forecast to show healthy increases while the United States is expected to show a more modest increase. Australian exports are expected to benefit from attractive U.S. beef prices, a weakening Australian dollar vis-a-vis the U.S. dollar, and improvement in the Japanese market. The strength in Canadian exports reflects high beef production as the Canadian cattle cycle peaks, a weak currency against the U.S. dollar, and aggressive marketing by Canadian packers in the U.S. and Asian markets.
Image: U.S. Cattle and Beef Exports Keep Growing
In 1997, the cattle herd liquidation is winding down in the United States. After peaking in 1996, U.S. cattle numbers fell 2 percent to 101.2 million head as of January 1997. A similar decline is forecast for the beginning of 1998, followed by a stabilization of inventories as more heifers are retained for the breeding herd. The transition from stability to expansion in the cattle cycle will be gradual, perhaps not apparent until the turn of the century. Cattle prices have risen in 1997 and are expected to strengthen throughout 1998.
Cow slaughter fell 9 percent in the first three quarters of 1997, with slaughter declines especially significant for beef cows. Such reductions in cow slaughter, in addition to stronger feeder cattle prices and lower feed prices are strong indications that herd liquidation is ending and incentives for breeding operations are improving. Yet expansion of the cattle herd will be slow, as indicated by a high level of heifer slaughter in the first three quarters of the year.
Driven by large sales to Mexico, total cattle exports are expected to continue to show impressive gains in 1997, growing by 52 percent to 265,000 head. Exports to Mexico during January-August this year expanded 130 percent, reflecting an ending of Mexico's herd liquidation following the severe drought conditions of 1994-95 and higher incomes with the economic recovery. Cattle exports to Mexico have averaged over 17,000 head per month this year--the largest since 1992.
Cattle exports to Canada are expected to be down modestly in 1997. However, exports to Canada are forecast to more than double in 1998 as the Northwest Pilot Project is implemented, facilitating feeder cattle exports from Montana to special feedlots in Alberta. Due to continued strength in Mexico as well as robust growth in Canada, total cattle exports are expected to grow to an unprecedented 350,000 head in 1998.
Cattle imports are forecast to fall 6 percent to 1.8 million head in 1997, and then rebound to 1.9 million head in 1998 as U.S. feeder cattle supplies decline. Cattle imports from Canada, which grew to record levels in 1996, are expected to decline in 1997 due to Canada's relative shortage of cattle as well as increased slaughter capacity which will encourage the Canadians to ship value-added beef instead of cattle to the U.S. market. Imports from Mexico, however, are forecast to rebound in 1997 from last year's depressed levels, reflecting growth in feeder calf exports from northern Mexico as production prospects for cow-calf operations in that area improve.
U.S. total cattle and beef slaughter in 1997, while remaining relatively high at 37.6 million head, shows a modest decline from the peak liquidation level of 1996. Beef production is expected to be slightly lower in 1997 at 11.5 million tons and fall further in 1998, to 11.3 million tons. Lower production in the first half of 1997 reflected lower slaughter weights and reduced cow slaughter. However, a rebound in production is expected in the third quarter due to increased slaughter weights and higher fed cattle marketings.
As on-feed placements decline this fall and the large on-feed inventory buildup diminishes into 1998, beef production is expected to drop. Increased heifer retention and lower cow slaughter are expected to further reduce beef production in 1998. Given declining production, Choice steer prices in 1997 are expected to rise from the relatively flat level of 1996. Prices are expected to rise further in 1998; however, large supplies of competing meats will keep prices in check.
Total U.S. beef exports are forecast to grow 2 percent to 870,000 tons in 1997 and show more robust growth in 1998. As of July, exports were pulling out of the sluggish growth which characterized the first half of 1997. However, lingering concerns over food safety in the wake of outbreaks of E. coli and BSE continue to depress export growth in 1997. Sales to Mexico--our third most important export market--have shown tremendous strength this year. Continuing the trend which began in 1996, beef exports to Mexico grew by 82 percent (January to August) over the same period last year, reflecting growing incomes in Mexico as the economy grows at a healthy pace. Beef exports to Mexico in 1997 are exceeding pre-devaluation levels seen in 1994.
Beef exports to Japan and Canada--our top two markets--have begun to improve following weakness in the first half of the year. Sales to Japan have been hampered by weakness in their economy, food safety concerns, and the growing price competitiveness of Australian beef. Shipments to Canada have fallen in 1997 due primarily to increased Canadian beef production coupled with aggressive competition by Canadian packers in the population centers in eastern Canada. Sales to our fourth most important beef market, Korea, have seen unsteady growth this year through August, when exports were 27 percent above year-earlier levels. The recent announcement by the Korean government that E. coli had been detected in a shipment of U.S. beef may hamper demand for U.S. beef there for the remainder of 1997.
U.S. beef imports are expected to rise 19 percent in 1997, to 1.1 million tons, with more moderate growth forecast for 1998. Weak import demand in Japan as well as tight manufacturing U.S. beef supplies due to falling cow slaughter has made the United States an attractive market for the world's beef exporters, particularly Australia and New Zealand.
Through August this year, beef imports from Australia were up 26 percent this year, while those from New Zealand grew by 14 percent. Imports from Canada grew 14 percent through August, reflecting slaughter increases as herd liquidation continues there. Moreover, strength in the U.S. dollar vis-a-vis other currencies has made import prices competitive. In 1998, beef imports from Argentina are expected to fill their WTO quota given the recognition of Argentina as foot-and-mouth disease free.
Image: Canadian Beef Exports Climb...as Production Outpaces Consumption
The recent expansion phase of the Canadian cattle herd ended late in 1996, with cattle inventories in 1997 edging down to just over 13.3 million head. The trend of selling off beef cows which began in 1996 due to high feed costs and lower profitability has continued in 1997, indicating a continuing decline in the breeding stock.
Cow and heifer slaughter in the first half of 1997 were substantially higher than year-earlier levels; however, female slaughter is expected to fall back in the second half of 1997 and 1998. Total slaughter in 1997 and 1998 will continue to increase due to increased slaughter capacity. The rate of increase will begin to slow from the brisk pace of 1996, reflecting a slowing of the liquidation phase as cattle prices and profitability begin to improve.
Following record exports in 1996, cattle shipments are expected to decline to 1.2 million head in 1997, virtually all of which will be destined for the U.S. market. The decline reflects a tighter cattle supply and the increased slaughter and carcass chilling capacity at the Cargill and IBP plants in the province of Alberta.
While cattle imports are expected to decline in 1997, imports are forecast to double in 1998 as the Northwest Pilot Project is implemented. This project will facilitate the movement of feeder cattle from Montana and Washington to special feedlots in Alberta, with the hope of expanding the project to other states. These registered feedlots will be able to import U.S. feeders without tests for bluetongue, anaplasmosis, brucellosis, or tuberculosis, which have hampered live cattle shipments to Canada in the past.
Owing to increased slaughter, 1997 Canadian beef production is expected to exceed 1.0 million metric tons--a level not reached since 1986. Beef output will increase nearly 5 percent in 1997, and an additional 1 percent in 1998. Canada became a net exporter of beef in 1996 and the gap is expected to widen in 1997 and 1998 as the liquidation encourages higher slaughter and consumption continues its downward trend.
Beef exports are forecast to be quite robust in 1997--increasing 24 percent to 360,000 metric tons as Canadian packers take advantage of their new slaughter plants to aggressively pursue the U.S. and Asian markets. Exports are forecast to increase 5 percent in 1998, reflecting slowing slaughter increases. Over 90 percent of exported beef continues to be sold in the U.S. market, and the majority of export gains in the first half of 1997 have been made in the United States. While Asia only purchases a small share of total Canadian exports, shipments to the region are growing dramatically. Indeed, exports to Japan and Taiwan each grew over 200 percent in the first half of 1997, while exports to Korea rose over 75 percent.
Beef imports in 1997 are expected to remain near 1996 levels, and will increase modestly in 1998. Imports from the United States were down about 17 percent in the first half of the year, while combined imports from other sources were up around 15 percent. The decline in imports from the United States is attributed to rising competition for U.S. beef in the eastern Canadian markets due to aggressive marketing of larger supplies by Canadian packers and a strong U.S. dollar against the Canadian dollar.
In August 1997, the GOC passed the regulatory amendment establishing Canada's Prime grade of beef, designed to improve the competitiveness of Canadian beef with USDA Choice, both in Canada and in export markets such as Asia. Canadian packers are increasing their efforts to sell uniform beef cuts in their domestic market which meet consistent quality specifications.
Image: Mexican Cattle and Beef Imports Rebound
In 1997 and 1998, Mexican cattle inventories are expected to fall to the lows of the past two decades due to continuing effects of the recent drought which devastated pasture conditions in northern Mexico. Cattle inventories are expected to drop to 26.9 and 25.6 million head in 1997 and 1998, respectively, down from 28.1 million head in 1996. In coping with the liquidation, many cattlemen with medium and small-sized herds are opting to improve genetics rather than increase their herd size. Moreover, despite new government initiatives aimed at facilitating cattle financing, tight domestic credits have continued to curtail new investment.
Yet, despite the cattle reductions, there are signs the industry may be turning around. Calf crop production is expected to pick up slightly in 1997 and grow by nearly 5 percent in 1998 while beef cow numbers are forecast to increase by almost 2 percent in 1998 after falling off in 1997.
Cattle trade is picking up as well. Cattle imports grew dramatically in 1996, to 200,000 head, due primarily to increased demand for dairy cows by large dairy producers, as pasture conditions improved late in 1996. Cattle imports are expected to grow to 250,000 and 300,000 head in 1997 and 1998, respectively, the vast majority of which will continue to be supplied by the United States.
Following a decline of 72 percent in 1996, cattle exports are expected to recover somewhat in 1997, to 600,000 head, and remain at this level in 1998. Feeder steers produced on northern Mexican cow-calf operations are typically exported to the U.S. market; feeder exports are expected to increase slightly in 1997 due to higher production reflecting improved weather conditions and stronger export prices.
Total slaughter will be roughly unchanged in 1997, but is expected to decline in 1998 as the cattle liquidation phase--which began following the 1994 peso devaluation and continued with the 1994-95 drought--nears its end. Beef production will remain at 1.8 million tons in 1997, and then decline slightly in 1998.
Following virtually no change in 1996, beef consumption is expected to grow modestly in 1997 and 1998. The turnaround in consumption is due to an improvement in consumer purchasing power as the Mexican economy expands. Most of the increased consumer demand has occurred in regional markets in northern Mexico, where drought-induced slaughter was concentrated, as well as in Mexico City where there have been notable improvements in real incomes.
Declining domestic beef production, combined with growing consumption has left a gap in supply which is expected to be filled by beef imports. After sharp reductions in 1995, imports bounced back in 1996 to 100,000 tons, according to official Mexican estimates. Beef imports are expected to show substantial growth in 1997 and 1998, and most of the growth is expected to come from U.S. supplies. The United States, which benefits from its close proximity to Mexico as well as the elimination of import tariffs under NAFTA, provides some 98 percent of all imported beef to Mexico; Australia and Canada each supply less than 1 percent of total imports. Mexican beef exports are expected to remain at the same modest levels in 1997 and 1998. Virtually all of this exported product is sold in the U.S. market.
Image: Argentina's Beef Exports--Rebounding with FMD-Free Status
Cattle inventories are expected to continue their downward trend in 1997 to a 30-year low, but will rebound slightly by year's end in 1998 to 50.4 million head. Stronger cattle prices and better pasture conditions are expected to initiate a moderate rebuilding of the Argentine cattle herd. Prices are projected to firm up due to the reduced herd size, the good beef export potential given Argentina's new FMD-free sanitary status, and the expansion of the domestic economy.
The expansion in the dairy sector is expected to continue, as reflected by higher numbers of dairy cows in 1997 followed by a leveling off in 1998. Beef cow stocks are expected to continue the declining trend begun in 1994, falling to 21 million head in 1997 but rebounding slightly in 1998. Calf crop numbers fell sharply in 1996, and are expected to level off in 1997 and then rebound by 7 percent in 1998.
New interest in cattle and beef production began following the recent boom in the grain and oilseed sector. Some investors believe that the cattle and beef industries will go through a similar process, although at a slower pace. In addition to increased production by traditional cattlemen who are retaining and slowly expanding their herds, cattle production is expected to attract new interest from local and foreign investors alike, particularly in the cow-calf sector which promises the greatest production potential.
While Argentina has the necessary resources to expand its small but efficient feedlot system, the vast majority of its beef cattle is currently pasture fed. In the past, about 80 percent of total beef output was sold in the domestic market where demand for grass-fed beef has been stronger. Argentina has traditionally supplied the export market with grass-fed beef. However, as new FMD-free market opportunities develop, production methods will start shifting to meet market demand, and more resources will likely be shifted into the feedlot sector.
As cattlemen retain and expand their herds, total slaughter is expected to decline, such that beef production is expected to fall to about 2.5 million tons in 1997 and decline further in 1998. The combination of tighter beef supplies and a dampening of export demand a due to high cattle prices are expected to result in slow export growth in the short term. Exports are expected to fall 8 percent in 1997 to 430,000 tons and then rebound to 450,000 tons in 1998.
Argentina's recent eligibility to export fresh and frozen beef to the United States under the 20,000 ton quota is a source of optimism for exporters. It is likely that Argentine beef will initially compete as manufacturing beef in the United States, but higher quality cuts could slowly enter niche markets.
The U.S. authorization closely followed the International Organization of Epizootics' declaration in May 1997 that Argentina was free of foot-and-mouth disease with vaccination, after three years with no outbreaks. There is optimism that in addition to the almost 50 markets now open to Argentine beef, Japan and South Korea will authorize the entry of Argentine beef within the next year or so. After a decade in which Argentine beef was prohibited from entry into Russia, Russian traders have recently been quite active in the Argentine beef market. The outbreak of BSE in the EU has forced the Russians to look for new suppliers of less expensive beef supplies.
Image: Brazilian Beef Imports Rise...as Exports Decline
Cattle numbers in Brazil declined 2 percent to 146.1 million head as of January 1997 and are expected to continue falling during 1997 and 1998. Low inflation levels due to macroeconomic stabilization under the Real Plan announced in 1994 has forced a change in investment priorities, particularly in the agricultural sector.
Beef cattle producers have witnessed significant declines in profit margins, as livestock and pasture lands which had been excellent hedges against inflation lost their liquidity. Moreover, continuing poor weather conditions that devastated pasture conditions in the northeast region of Brazil have resulted in substantial cattle reductions. As a result, the cattle herd has been in decline and the beef export market has suffered due to lack of investment and competitiveness while beef imports have continued to grow.
The liquidation phase of the cattle cycle intensified in 1996, with a sharp increase in cow slaughter resulting in record beef production. Slaughter levels in 1997 and 1998 are expected to decline from the 1996 level. Breeders are beginning to retain their cattle, contributing to a reduction in slaughter. Nonetheless, a slight reduction of both beef and dairy cows in 1997 and 1998 is expected. Declining at a slower pace, the calf crop is also expected to fall in the short term.
The intensification of crossbreeding programs over the past 10 years has resulted in increased productivity of the Brazilian herd, as noted by steadily increasing calf/cow ratios. Beef production, which remains high compared with recent historical levels, is nonetheless expected to decline modestly in 1997 and 1998, primarily due to reduced cow slaughter. After peaking in 1996, beef consumption is forecast to decline slightly in 1997 and stabilize in 1998.
About 65 percent of Brazilian beef exports are in the form of processed beef. The EU is Brazil's primary beef market, making up about 60 percent of total export sales. The United States, Brazil's second market of importance, typically purchases less than 20 percent of Brazilian beef exports; only processed beef is currently sold to the United States given Brazil's lack of FMD-free status. Total beef exports are forecast to fall 13 percent in 1997 to 240,000 tons and remain at this level in 1998. Both processed and fresh/frozen exports have been suffering.
Lower beef exports are largely attributed to continued depressed demand in Europe due to BSE, as well as the overvaluation of the Brazilian currency and higher domestic prices of beef for processing. As beef production falls, imports are expected to increase substantially in 1997 and 1998. Higher imports are expected to be supplied by Argentina, where prices are very competitive and which benefits from duty-free status as a member of MERCOSUL.
Image: U.S. Share of Hong Kong's Beef Imports...Rising Despite Falling Total Imports
On July 1, 1997, Hong Kong was transformed from a British colony to a Special Administrative Region of China. The 1984 Sino-British Joint Declaration and the Basic Law established that Hong Kong would remain autonomous, such that the existing economic, legal, and social systems will be maintained for at least 50 years. Hong Kong is expected to remain an important market for U.S. agricultural products; nonetheless, beef consumption and imports have been down since early 1996 due to consumer concerns over BSE as well as a shift in diet to eating less meat.
Although the market recovered late in 1996, an outbreak of E.coli 0157 in Hong Kong's beef supply in March 1997 again discouraged consumers from buying beef. Although the E.coli bacteria were detected in ground beef sourced from locally produced cattle, demand fell for other types of beef products as well. Despite no outbreak of E.coli since May, beef sales have remained weak. While demand could rebound by winter, total beef consumption in 1997 is expected to fall 7 percent and remain flat in 1998.
Total beef imports are forecast to drop 5 percent in 1997 to 54,000 tons and then rebound to 56,000 tons in 1998. Yet, as in 1996, the United States is the only major supplier expected to show positive growth in 1997, at 18 percent. Imports from all other main suppliers, including China, New Zealand, Brazil, Argentina, and Australia, are forecast to drop. High quality U.S. beef which is generally sold to high-end restaurants, hotels and supermarkets has generally been spared the impact of the E.coli scare while low-priced beef imports, such as beef supplied by China, have been severely affected.
Roughly 7 percent of Hong Kong's beef imports are re-exported to China; re-exports are expected to increase gradually. Imported beef is considered very expensive in China, having potential only in high-end hotels. Continued fluctuations in trade with China are expected to result in swings in Hong Kong's imports and exports of meat.
Image: Japanese Beef Imports to Rebound in 1998
Total beef consumption in 1997 is expected to remain about unchanged from 1996, when consumption fell sharply in the second half of the year due to concerns over the safety of the world beef supply. Consumption growth in 1997 has been limited by economic factors such as higher prices, a consumption tax hike from 3 to 5 percent, and a decline in domestic beef production.
Lingering concerns about the safety of imported beef hampered import demand in the first half of 1997, but a turnaround in imports is expected in the second part of the year, kicked off by the increased demand of the summer barbeque season. Total beef imports are expected to drop 3 percent in 1997 to 872,000 tons, and then rebound 5 percent in 1998 to 914,000 tons.
Retailers, encouraged by low import prices vis-a-vis domestic prices and diminishing food safety concerns, are gradually going back to buying imported beef which they are featuring in weekly specials. Major food service chains, particularly yakiniku restaurants and takeout lunch box chains, began to see a rebound in beef demand in the spring, with demand for sliced beef cuts especially strong. Restaurant chains which offer more expensive cuts could experience a recovery later in the year.
In 1997, beef imports from the United States are expected to fall by almost 10 percent to 280,000 tons, while imports from Australia are projected to grow modestly to 290,000 tons, making Australia Japan's top supplier. The United States and Australia supply about 93 percent of Japan's total beef imports. New Zealand's share of imports is expected to decline slightly, while Canada's share, although relatively small, is forecast to double in 1997.
Falling imports of U.S. beef are due to the growing price competitiveness of Australian beef as well as growing demand in Japan for less expensive cuts as the yen has weakened. Frozen U.S. beef has been particularly hard hit, with frozen imports from the
United States expected to tumble almost 20 percent while frozen imports from Australia are forecast to rise 15 percent in 1997.
Higher U.S. prices for chilled beef vis-a-vis Australian prices have also slowed a recovery in chilled U.S. imports. However, imports of high quality grain-fed cuts supplied by the United States are expected to pick up later in the year with the sukiyaki and shabu-shabu season, driven by falling domestic supplies of medium grade beef.
Beef production in Japan is expected to fall slightly in 1997 and 1998, with substantial reductions forecast in dairy beef production. Supplies of Japanese Holstein beef, comprising over 50 percent of total beef output, are expected to fall 5 percent in 1997, tightening supplies of medium grade beef which compete in the retail market with imported chilled cuts. Japan's cattle inventories are continuing the downward trend begun in 1994, falling nearly 2 percent to 4.7 million head in 1997.
Total beef consumption has grown steadily over the past decade in Korea. An improving economy is helping boost beef demand. Official estimates indicate that beef consumption dropped sharply early in 1997 due to food safety concerns, including BSE and E. coli 0157. Nonetheless, total beef consumption is expected to grow to 450,000 tons in 1997. The recent announcements by the Korean government that E. coli bacteria and lysteria bacteria had been detected in separate shipments of U.S. beef add another element of uncertainty to levels of Korean beef consumption and imports of U.S. beef.
Almost half of Korea's beef demand is met by imports, which have seen dramatic growth in the last decade. As in 1996, 1997 imports are forecast to stay at the minimum annual quota of 225,000 tons (carcass weight basis) due to reduced demand and high domestic beef production in the first part of the year. Over 60 percent of beef consumed in Korea is in the hotel and restaurant industry, where higher quality beef is generally served. Imported beef has benefited from the growth in popularity of western-style restaurants.
In the first part of 1997, the United States increased its share of Korean beef imports to 54 percent, compared to 32 percent for Australia and 11 percent for New Zealand. From January to May, the United States gained market share under the Simultaneous Buy Sell program (SBS), while Australia's share declined. In the SBS market, the supergroups which had traditionally purchased grass-fed beef from Australia and New Zealand are increasingly buying U.S. grainfed beef. With the exception of one Supergroup, the United States now enjoys a majority share of sales among the Supergroups.
With the growing liberalization of beef imports, domestic industry and government officials continue to look for ways to make the Korean cattle and beef industries more competitive. Toward this end, government efforts have included measures to improve animal genetics, provide low-interest loans, offer free forage seed, improve the rural infrastructure, and construct livestock pollution facilities. In an effort to compensate cattle producers for rising compound feed prices, the government abolished the value added tax on all compound feed effective July 1, 1997. This is expected to reduce total production costs about 4 percent, increasing domestic cattle producers' competitiveness.
With cattle prices continuing to fall since March 1996, the Korean government intervened with a cattle procurement program designed to support prices of domestic Hanwoo cattle. Cattle inventories are expected to grow 8 percent in 1997, to 3.4 million head and remain stable in 1998. Following a sharp gain in total slaughter in 1996, cow slaughter has dropped below normal rates as a result of the procurement plan; slaughter in 1998 is expected to remain unchanged.
Image: Trade Liberalization Boosts Korean Beef Imports...Government Support Encourages Local Production
Image: Taiwan's Beef Consumption and Imports...Recouping After 1997 FMD Outbreak
After a substantial decline in 1996 due to the BSE scare, consumption and imports of beef are expected to rebound significantly in 1997, as many consumers substituted beef for pork following the March 1997 outbreak of foot-and-mouth disease (FMD) which devastated Taiwan's pig herd. Pork, seafood, and poultry have traditionally been the main animal protein sources in the Taiwanese diet; prior to the FMD outbreak, the Taiwanese consumed about 13 times as much pork and seafood on a per capita basis as beef.
It was not until the 1970s as beef imports were liberalized that beef, primarily in the form of shin, shank, or intercostal (S/S/I), began to penetrate the Taiwanese market in any significant way. The S/S/I segment of the beef market was particularly hard hit by the BSE outbreak in 1996, as S/S/I consumers tend to be retail shoppers lacking a strong preference for beef. However, this same group of consumers is expected to switch back to S/S/I purchases in 1997 after the FMD outbreak in the pork market.
Demand for S/S/I is reportedly strong in 1997, but supply shortages in Australia and New Zealand--Taiwan's top S/S/I suppliers--have made it difficult for importers to fill demand. Chilled beef imports grew to about 8 percent of total beef imports in 1996 and traders are targeting chilled beef in 1997 and 1998 as demand for chilled beef continues to grow.
Over 90 percent of Taiwan's beef demand is met by imports. In 1997, beef imports are expected to grow 12 percent to reach 66,000 tons; in 1998, total imports are forecast to rise modestly to 68,000 tons. The United States has been gaining market share quickly in the past few years, and is expected to supply 23 percent of beef imports in 1997, compared with a 50 percent and 25 percent share captured by Australia and New Zealand, respectively. In terms of import value, the United States surpassed Australia as Taiwan's most important supplier in 1996.
The United States dominates the market of Special Quality Beef (SQB), primarily consumed in hotels and upper-scale restaurants. While imports of U.S. beef are forecast to grow in the next few years, growth in SQB imports may not be as strong as for other cuts, such as cow meat ribeye cuts. Although U.S. cow meat is not competitive in the Taiwanese market in 1997, S/S/I imports from the United States are expected to do well.
In order to meet part of the agreement with Australia in Taiwan's WTO accession consultations with its trading partners, Taiwan lowered the tariff rate for non-SQB from NTD 30/kg to NTD 27/kg effective July 1, 1997. The tariff reduction applies to all non-SQB suppliers, not to Australia alone. The measure effectively cuts the advantage previously enjoyed by U.S. beef, as it narrows the tariff difference between U.S. SQB and beef from other sources.
Image: Sluggish Recovery of EU Beef Consumption Following the 1996 BSE Outbreak
The EU beef market continues to be shaped by the Bovine Spongiform Encephalopathy (BSE) situation. Beef consumption rose slightly across the EU as consumers regained confidence in at least locally produced beef. Beef consumption in 1997 and 1998, however, is expected to remain 5-6 percent below 1995 levels.
EU beef production is forecast to decline 3 percent in 1997, with Germany, France and the United Kingdom accounting for most of the decline. German beef production rose in 1996 in response to the EU intervention program to draw beef off the market and strengthen prices. Stricter intervention criteria favoring lighter cattle is reducing production in 1997. The removal of cull cattle from the food chain under the "Over Thirty Months Scheme" has lowered U.K. slaughter nearly 3 percent this year.
The marginal increase in consumption coupled with reduced production eased the pace of EU stock accumulation in 1997. Beginning stocks for 1998, including intervention and privately held stocks, are projected at 1 million tons, up 29 percent from last year. The re-emergence of large beef stocks in the last two years has made beef a centerpiece of the EU Commission's informal proposals for reform of the Common Agricultural Policy. Formal proposals are expected early in 1998.
The ban on U.K. beef exports remains in effect. Although the U.K. has made progress towards meeting the conditions of the Florence Summit, such as introducing a selective slaughter scheme and tightened rules on the introduction of specified risk materials (SRM), the ban is expected to remain in place for the foreseeable future. After sharp declines in 1996 over the fear of BSE, intra-EU beef trade remained down in 1997. Irish exports to Germany and France declined 42 percent and 49 percent respectively.
Consumers throughout the EU have expressed strong preferences for domestic beef. These preferences have in turn prompted a range of beef labeling initiatives to satisfy consumer demands. EU beef exports to third countries are down so far in 1997. The largest decline is in France where consumer demand for domestic beef is limiting the quantity available for export. Irish exports improved in 1997 due to strong sales to Egypt and Saudi Arabia. However, exports to Ireland's largest market, Russia, have slowed. In early 1997, Russia banned beef from 8 Irish counties because of the incidence of BSE. The ban effectively excludes 40 percent of Irish beef production.
Concerns over BSE in the EU are being reflected in EU policy towards imports from third countries. EU requirements to separate SRM's from edible and inedible tallow threatens U.S. exports valued at more than $1 million. In addition, EU attempts to harmonize beef labeling and cattle trace-back schemes could impact how U.S. beef is sold in the EU.
On the positive side, a panel of dispute experts from the World Trade Organization found in favor of the United States in its complaint against the EU over its ban on the use of growth promotants in beef. The EU has subsequently requested an appeal of the decision. If the ruling is upheld, it would be a major step towards returning U.S. beef to the EU market after being banned for more than 8 years.
Image: Russian Cattle Stocks--Downward Bound
Cattle inventories are likely to continue their long-term decline, falling sharply in 1997 to 36.4 million head in 1997 and dropping further in 1998 to 34 million head. A good grain harvest in 1997 and gradual adaptation to a market-oriented economy is expected to help slow the rate of herd reduction. The decline continues to reflect reduced state support, feed of insufficient quantity and of poor quality, and a limited domestic market for milk and meat products due to low disposable incomes.
Cattle imports, which were nonexistent prior to 1994, have grown steadily and are expected to reach 30,000 head in 1997. Productivity in the cattle sector has been declining gradually as exemplified by declining calf/cow ratios over the past decade.
As the herd continues to contract, total slaughter is expected to drop sharply in 1997 and sharper still in 1998. In addition to herd reduction, falling beef production is attributable to lower slaughter weights. Producers have attempted to cut costs by changing rations and reducing veterinary care which has led to a greater prevalence of cattle diseases than in the past. As a result, beef production is expected to fall to 2.3 million tons in 1997 and drop further in 1998.
Domestic beef consumption in 1997 and 1998, while falling substantially due to low incomes, is expected to drop at a slower rate than declines in production, with imports filling the supply gap. Imports are expected to increase 4 percent in 1997 to 500,000 tons, and grow more modestly in 1998, to 510,000 tons. The Ukraine is Russia's most important frozen beef supplier, providing some 40 percent of all imports. Germany is second, at roughly 14 percent, followed by Ireland, Argentina, and Australia. The United States provides only 1 percent of Russia's frozen beef imports, and has shipped roughly the same quantity since 1995. BSE in the EU cattle herd has prompted Russia to seek out alternative suppliers of less expensive beef, with Argentina a leading contender.
The Russian government continues to announce that it is taking measures to tighten the borders. Concerning meat trade, there are no outright protectionist policies in effect. There is currently a ban on beef imports from the United Kingdom, Switzerland, and eight counties of Ireland. Restrictions on beef imports currently exist for Portugal and France as well. It is not yet known what impact the new labeling requirements, likely to be implemented in January 1998, will have on beef imports.
Image: Australian Cattle Exports Soaring as Beef Exports Stabilize
Australian cattle inventories declined slightly during 1996 and are expected to stabilize in 1997 and 1998. Female slaughter was up sharply in the first part of 1997, indicating that the herd could be in decline; years of drought and low prices have forced some cattlemen to reduce their herds. Falling cattle prices during 1996-97 have been associated with continuing high U.S. beef production, stagnant demand in the Asian markets, and increased slaughter in the first half of 1997. Total slaughter is expected to rise moderately in 1997.
There has been a shift of resources from beef to dairy production in Australia given the favorable returns to the dairy industry in recent years. Dairy cow numbers have been increasing since 1993 while beef cow numbers probably have dropped in 1997. Feedlot production, although still quite small in Australia, is growing due to lower grain prices, a modest recovery in the Japanese beef market, cheaper feeder cattle, and a weakening Australian dollar. Nonetheless, in the absence of a change in grain import policies, the current deterioration in seasonal conditions and sluggish export markets are expected to curtail plans for more serious expansion in the feedlot sector.
Cattle exports are expected to continue the upward trend which began in 1990, growing 20 percent in 1997. Cattle exports are expected to reach a record 1 million head in 1998. Indonesia purchases about 50 percent of all Australian cattle exports, while the Philippines, Malaysia and Egypt are also top export markets. The recent cutback in EU live cattle export subsidies and the Egyptian ban on imported Irish cattle due to possible BSE infection has created new opportunities for Australian cattle exporters in markets traditionally captured by the EU, particularly in the Middle East.
Following two consecutive years of falling beef production as herds were rebuilt, beef output is expected to rise 5 percent in 1997 to 1.7 million tons, reflecting increased slaughter levels. Production is expected to resume the decline in 1998. Beef consumption, which has been moving steadily downward, is expected to fall slightly in 1997 to a new low of 621,000 tons and remain near this level in 1998. Between 1994 and 1997, per capita beef consumption has fallen 5 percent. This change reflects a substitution on the part of consumers away from beef to the competing pork and poultry meats.
Given increased production and low domestic consumption, beef exports are expected to increase nearly 8 percent in 1997. Despite continuing soft demand, Japan still purchases the largest share of Australian beef exports, about 43 percent in 1996. Exports to Japan are expected to increase 3 percent in 1997, to 300,000 tons, as food safety issues in Japan dissipate and Australian product prices are competitive with U.S. prices. Exports to the United States, the second largest market for Australian beef, will increase as well. The increase reflects improving beef prices in the United States as U.S. cow slaughter declines as well as a weakening of the Australian dollar vis-a-vis the U.S. dollar.
Image: New Zealand's Beef Production--Sensitive to Changes in the Export Market
After steadily increasing since 1990, cattle inventories peaked in 1996 at 9.3 million head and are expected to decline nearly 3 percent in 1997. While dairy cow numbers continue to increase, beef cow inventories peaked in 1996 and are expected to trend down, reflecting greater interest in dairy production. Increases in dairy cow inventories are expected to push up calf crop figures slightly in 1997.
Total slaughter reached 3.9 million head in 1996, an increase of 24 percent over the 1995 level. Yet the increased slaughter did not result in higher beef production in 1996, as increased calf slaughter dropped average slaughter weights. In 1997, producers are expected to take advantage of increased prices and slaughter their animals at reduced weights, thereby reducing production 3 percent in 1997. A further dip is expected in 1998. Domestic beef consumption peaked in 1996 at 128,000 tons, and is expected to decline by 5 percent in 1997.
Some 80 percent of all beef produced in New Zealand is exported, with about half of all exports going to the U.S. market. As a result, New Zealand producers and exporters are particularly vulnerable to changes in world beef markets. Exports to Japan, Korea, Hong Kong, and Taiwan were down in 1996 due to increased competition from Australia and the United States as well as a downturn in the Japanese and Korean economies. Exporters have not been able to fully enjoy the benefits of improving international prices for beef in recent months since the strong currency has hurt exports.
Coinciding with peak cattle inventories in 1996, beef exports reached 515,000 in that year and are expected to fall about 3 percent in 1997. Canada is New Zealand's second largest export market, followed by Japan, Korea, and Taiwan. While these primary export markets are expected to remain sluggish, exports to smaller markets including Singapore, Australia, Malaysia, and French Polynesia are doing well.