LIVESTOCK AND POULTRY
World Markets and Trade
Cattle and Beef
In 1998, U.S. beef exports are expected to decline modestly due to reduced demand in Asia in the aftermath of the financial crisis there. However, continuing economic prosperity in Mexico is likely to continue to foster strong exports of U.S. beef and cattle. In 1997, global beef exports improved in the latter part of the year after recovering from the lingering effects of food safety concerns.
On January 1, 1998, projected cattle inventories in the selected countries covered in this report were 1,033 million head, down slightly from 1,038 million a year earlier ago. During 1997, herd size declined in most major cattle producing countries. The sharpest decline was in the former Soviet Union where inventories dropped 11 percent, continuing the steady decline of the 1990's. China's cattle inventory, the largest in the world, grew 5 percent in 1997 to 147 million head.
Cattle slaughter in 1998 is projected to be almost 232 million head after holding at 231 million the previous two years. Increased slaughter is forecast in China, where 3 million more head are likely to be slaughtered. Brazil is also expected to increase slaughter in 1998. But slaughter is expected to decline in the United States, the European Union, Russia, and Australia.
Beef production is projected to rise less than 1 percent to 49.4 million tons, up from 49.3 million in 1997. (Weights reported in carcass weight equivalent unless otherwise noted.) This will be the second year of almost no growth in global beef production. The largest gain is expected to be in China, with notable gains in Brazil and South Africa. Production is to decline in most other major beef producing countries.
Growth in beef consumption was sluggish in 1997 in the aftermath of the 1996 BSE crisis in Europe and lingering food safety concerns in Asia due to outbreaks of E. coli. Consumption is expected to grow 2 percent in 1998 to 48.9 million tons. Consumption is expected to increase as food safety concerns diminish and demand remains strong in North America and China, and improves in Europe.
Beef exports grew 3 percent in 1997 to 5.3 million tons. Growth among the major exporting countries was particularly strong for the United States, Canada, and Australia. Despite the modest growth expected in consumption in 1998, exports are expected to stay near 1997 levels.
The U.S. cattle industry continued its liquidation phase in 1997, as the cattle inventory continued to decline. Entering 1998, the cattle inventory stood at 99.5 million head, 2 percent lower than January 1, 1997. Calf production is estimated at 38 million in 1998, down 2 percent from 1997.
Cattle imports rose 4 percent to more than 2 million head in 1997. Lower slaughter cattle imports from Canada were offset by high shipments of feeder cattle from Mexico. U.S. cattle exports rose to 282,000 head on higher slaughter cattle shipments to Mexico.
In 1998, cattle imports are expected to total about 1.9 million head. The Canadian herd is contracting and Canada is expected to slaughter more of their cattle in expanded facilities in Alberta. Imports from Mexico are expected to remain near the same level as 1997 as it begins herd rebuilding.
U.S. cattle slaughter declined about 1 percent to 38.1 million head in 1997. Cow slaughter declined sharply while steer slaughter was down over 1 percent. However, heifer slaughter was up nearly 10 percent. In 1998, cattle slaughter is expected to decline 3 percent to 37 million head. Beef supplies are expected to tighten in this fall as more breeding animals are retained in 1998 resulting in reduced heifer slaughter.
Beef production in 1997 was roughly unchanged at 11.7 million tons. Higher average dressed-weights due in part to fewer cows in the slaughter mix resulted in production declining less than slaughter. At 11.7 million tons, production in 1998 is expected to remain strong, particularly in the first half, as record slaughter weights offset a further decline in the number of head slaughtered.
U.S. beef exports increased almost 14 percent to 969,000 tons in 1997. Exports began to pick up in the last half of the year as global concerns about food safety began to wane. Shipments to Japan increased 3 percent to 478,000 tons as strong exports in the last quarter of 1997 reversed the declining trend for the year. Exports to Mexico surged nearly 82 percent to 142,000 tons, making Mexico the second largest market for U.S. beef in 1997. Shipments to Canada slipped to 128,000 tons. At 122,000 tons, exports to Korea were 27 percent higher than in 1996.
In 1998, U.S. exports are expected to decline 2 percent to 946,000 tons. Korea's economic crisis, which unfolded in December 1997, will result in significantly lower exports there, and Japan's continued economic sluggishness is expected to keep that market from growing in 1998. Mexico is expected to continue expanding as a market for U.S. beef exports in 1998 due to growing incomes as Mexico's economy continues its solid growth.
U.S. beef imports in 1997 jumped 13 percent to almost 1.1 million tons. Canada was the leading supplier of beef imports in 1997 at about 323,000 tons, followed by Australia (290,000 tons) and New Zealand (261,000 tons). Beef imports from countries other than Canada and Mexico enter the United States under a quota system set at 697,000 tons (PWE) for fresh/chilled/ frozen product.
In 1997, only about two-thirds of the quota was filled. Australia supplied about 57 percent of its quota allocation of 378,214 tons, product weight equivalent (PWE), and New Zealand filled about 90 percent of its 213,402-ton (PWE) allocation. Argentina and Uruguay each have a 20,000-ton (PWE) quota. Uruguay filled about 97 percent of its quota, but Argentina only supplied about 25 percent of its fresh/chilled/frozen quota, which was first established in August 1997.
U.S. imports are forecast to rise 15 percent to a record 1.2 million tons in 1998. As U.S. cow slaughter declines, tightening U.S. supplies of manufacturing grade beef will attract more imports in 1998. With the onset of the Asian financial crisis, both Australia and New Zealand are likely to expand exports to the United States as their markets in Asia become difficult in 1998. Canadian imports are expected to remain at the same high levels in 1998.
Liquidation of the Canadian cattle herd which began in late 1996 intensified in 1997, and inventories fell to 13 million head by year's end. Inventories are expected to continue declining in 1998. Following weakness in 1996, cattle prices began to recover in 1997 with continued herd liquidation. Fed cattle and feeder cattle prices are expected to strengthen in 1998 with lower expected cattle marketings. However, abundant supplies of competing meats may temper price gains.
Cattle exports declined 7 percent from record levels in 1996 to 1.4 million head in 1997. Nearly all of these cattle were shipped to the U.S. market. In 1998, exports are expected to decline by at least 100,000 head as inventories fall and domestic slaughter remains strong. Cattle imports are forecast to grow 27 percent in 1998 to 70,000 head.
The cattle industries in Canada and the United States are hopeful that the number of feeder cattle shipped to Canada under the Northwest Pilot Project will show solid growth in the fall of 1998. However, cyclically declining feeder cattle supplies will hold down exports. Only about 800 U.S. feeder cattle have been exported to Canada under the program which began in October 1997. Efforts are underway to reduce importer costs under the project, especially those associated with tracking each animal. Canada is currently developing a national cattle identification program and traceback strategy for the beef herd in order to allow tracking of future disease outbreaks and to protect the value of the national herd and meat exports.
Total slaughter is forecast to decline slightly from the brisk pace of 1997, to 3.65 million head. A reduction in the breeding herd caused by high cow and heifer slaughter rates in 1997 is expected to lower the number of females in the slaughter mix in 1998, raising slaughter weights. Moreover, the unusually mild winter in Alberta has led to improved feed efficiencies, contributing to heavier finished cattle in 1998. Following an increase of nearly 5 percent in 1997 to slightly over 1 million tons, beef production is expected to increase only marginally in 1998.
In line with higher beef production in 1997, Canadian beef exports rose sharply to 340,000 tons, of which the vast majority entered the U.S. market. Exports to Japan, Korea, and Taiwan, which comprise around 6 percent of total exports, grew sharply in 1997. For 1998, Canadian exports are forecast to remain flat. A decline in U.S. exports to Asia will mean an increase in U.S. domestic beef supplies which compete with Canadian exports to the United States. Canada hopes to use its new Prime grade of beef to compete with U.S. beef in export markets.
Beef imports grew 5 percent in 1997 to 250,000 tons. Imports from New Zealand, Australia, and Uruguay exceeded Canada's beef trade rate quota because of additional import allocations. Imports from the United States, which comprised about 48 percent of total imports in 1997, dropped about 3 percent reflecting a strong U.S. dollar. Beef imports are forecast to remain constant in 1998, although imports from the United States are expected to decline further. This is because the U.S. dollar is expected to remain strong and competition between the aggressive Alberta-based packers and U.S. beef exporters for the eastern Canadian market is expected to increase.
Cattle inventories in Mexico continued to decline in 1997 after the long drought of 1994-96, ending at 25.6 million head. While the herd size is expected to diminish further in 1998, a larger calf crop, a higher retention of cows, and increased cattle imports point to herd rebuilding activity. The liberalization of domestic milk prices is spawning demand for dairy cattle in Mexico.
Mexican cattle exports grew to 670,000 head in 1997, virtually all feeder cattle destined for the U.S. market. Improved production conditions and strong export prices boosted feeder exports. Cattle imports doubled in 1997 to 250,000 head and are expected to advance more moderately in 1998. In 1997, the United States supplied over 90 percent of total cattle imports, primarily slaughter cattle.
New investments in cattle production have been limited by tight and expensive credit. There is hope that the new authority granted to the state-owned Banrural to open letters of credit under the GSM-103 program will lead to higher program use for cattle imports. Unlike the Mexican commercial banks, Banrural should be more willing to accept higher importer risk, a primary constraint for these program loans in the past. Banrural will use existing cattle inventories as collateral, and efforts will focus on financing beef breeder cattle.
The GSM 103 credits will be competing with credits extended by Canada's EDC, valued at around $110 million Canadian dollars. This money is intended to assist Canadian exporters of breeding cattle to sell their animals to Mexican producers.
Despite slight growth in slaughter, beef production was unchanged in 1997 at 1.8 million tons, reflecting a slightly higher proportion of cows in the slaughter mix. Production is expected to remain constant in 1998. Beef consumption in Mexico grew 4 percent in 1997, reflecting strong growth in incomes as the economy continued to grow at a healthy pace.
Given that domestic beef production is not sufficient to meet consumer demand, imports have continued to expand since the recent low of 1995, when Mexico's economy was suffering from the peso devaluation. Beef imports surged to record levels in 1997 at 150,000 tons and are expected to grow further in 1998. The United States supplied the vast majority of imports in 1997. Mexican beef exports remained low in 1997 and are not expected to grow in 1998 given tight supplies.
Compared with current dairy industry development, modernization and investment in the cattle and beef industries is occurring at a slow pace. The livestock sector is still recovering from the effects of the recent drought and learning to adjust to an economy characterized by lower inflation but high interest rates, increased competition from imports, stricter income tax policy, and lower returns. Market-oriented policies implemented by the Mexican government are expected to yield a more efficient livestock sector in the coming years.
Cattle numbers reached a thirty-year low by the end of 1997 at 50.3 million head, but a moderate herd rebuilding is underway which is expected to result in a slight growth in inventories in 1998. Following two years of poor returns, drought, and competition from crops, the situation for domestic cow-calf operators has improved substantially. Feeder cattle prices strengthened by 45 percent in 1997 reflecting firm fed cattle prices, low cattle inventories, and excellent pasture conditions due to abundant rainfall. In 1998, cattle and beef prices are expected to remain robust as herds are rebuilt.
The feedlot sector in Argentina remains fairly small in terms of total output; about 8 percent of total slaughter is expected to be supplied by grain-fed cattle in 1998. Nonetheless, expansion could continue due to favorable grain prices and an important high-end domestic market which seeks specific products. Given its recent conditional FMD-free status (that is, free of foot-and-mouth disease with vaccination after nearly 4 years with no outbreaks) the industry will likely attempt to expand in the future into foreign export markets, such as Southeast Asia.
With declining slaughter due to herd rebuilding, beef production is falling and is expected to be less than 2.5 million tons in 1998. Total beef consumption has been relatively stable since 1995, but is expected to drop 2 percent in 1998 despite moderate economic growth projections. Per capita beef consumption in Argentina still remains one of the highest in the world, and one and a half times higher than the U.S. level.
The beef export industry has been suffering from strong domestic cattle prices and weak beef export prices. The European Hilton quota price has been quite depressed since the BSE crisis; in the past, this quota has been the most profitable outlet for exported Argentine beef . Despite predictions that export prices could strengthen and the BSE situation in Europe could continue to improve, beef exports are expected to decline 2 percent in 1998 to 420,000 tons, reflecting tight domestic supplies. Chile has become Argentina's most important beef export market, followed by the United States and Germany.
In August 1997, Argentina became eligible to ship fresh and frozen beef to the United States under the 20,000-ton quota due to its conditional FMD-free status. Most of the 6,000 tons shipped last year were trimmings. In the next few years, the bulk of the quota is expected to be filled with processing beef, as U.S. and Canadian slaughter continues to drop.
In 1997, Brazilian cattle inventories continued to decline, though at a slower rate than 1996. By the end of the year, cattle numbers stood at 144.5 million head; stocks are expected to decline marginally again in 1998.
A doubling of interest rates announced by the Brazilian government in November 1997 is expected to bring on a mild recession in the first half of 1998. The economic slowdown is not expected to have a large impact on beef production and consumption. Due to average rainfall, pasture conditions are reportedly good in the Center-South regions of Brazil where most of the commercial beef cattle herd is located.
The relative scarcity of cattle resulted in an increase of slaughter cattle prices of almost 17 percent in 1997. Feeder cattle prices initially strengthened as well, but declined in the later part of the year as interest rates rose.
Production in 1998 is forecast to grow less than 2 percent to 6.2 million tons, while consumption is expected to grow just 1 percent to 6 million tons. Several meat processing plants were closed in 1997 as some packers faced financial hardship, made worse by competition from clandestine slaughter. Despite strong Christmas holiday purchases of meat, high and likely growing levels of unemployment and high consumer debt in 1998 are expected to limit beef consumption growth.
Brazilian beef exports have been falling steadily since 1993. Following stagnant growth in 1997, beef exports are expected to grow moderately in 1998, to 285,000 tons. Exports to Europe are expected to increase this year, where the exporting strategy is to sell Brazilian beef as "hormone-free" since it is raised on pastures. Brazilian beef exporters reportedly have reacted positively to the EU beef labeling country-of-origin regulation, as they believe consumers will not associate Brazilian beef with BSE.
The exporting strategy is also to expand shipments to Asia. Exporters are hoping to ship product to Japan this year, and Japan is expected to send a veterinary inspection team early in 1998 to inspect Brazilian health systems in the beef export sector.
In 1997, Japanese consumers began to overcome food safety concerns that had driven beef consumption down in 1996. Although sluggish at the beginning of 1997, beef consumption accelerated in the latter part of the year and is estimated to have increased 1 percent to nearly 1.5 million tons. Consumption still has not recovered to the 1995 level, that is prior to the outbreaks of BSE in Europe and E. coli in Japan.
As a result of recovering demand in 1997, Japanese beef imports increased 3 percent to 924,000 tons. Imports during January-June 1997 were 12 percent lower compared with the same period in 1996. However, imports accelerated in the second half of the year and were 20 percent higher compared with 1996.
According to Japanese import statistics, the United States and Australia each supplied about 47 percent of total Japanese imports in 1997. Compared with 1996, the U.S. share dipped from 49 percent and Australia's increased from 45 percent.
Total chilled beef imports increased 3 percent to 473,000 tons and frozen imports rose 2 percent to 453,000 tons. Chilled beef imports from the United States increased 6 percent to 190,000 tons, accounting for a 40-percent share of the Japanese chilled market. Promotional activities and discounts for U.S. beef at the retail level in the second half of 1997 boosted imports of U.S. chilled product from the United States.
Imports of Australian frozen beef jumped 17 percent to 167,000 tons to reach a 37-percent market share. Australia's gain was at the expense of New Zealand and Canada whose exports declined in 1997.
Japan's cattle situation is little changed heading into 1998. Beginning cattle inventories are expected to remain at about 4.8 million head. Slaughter dropped in 1997 to 1.3 million head and a 2-percent decline is expected in 1998. Japanese beef production continued its downward trend in 1997, falling to 525,000 tons. This trend is forecast to continue in 1998, as the Japanese market will increasingly import more beef to meet consumption demand in the future.
However, continued weakness in the Japanese economy is expected to stem the limited gains made in consumption and imports in 1997. Income growth, as measured by gross domestic product, is expected to remain stagnant in 1998, and an expected weaker yen will make imports relatively more expensive. Consumption and imports are expected to remain unchanged from 1997. The Japanese yen has not weakened as much versus the Australian dollar compared with the U.S. dollar which could enhance the competitive position of Australian beef if the trend continues. This could result in the United States losing some market share again in 1998.
After building cattle stocks in 1996, the economic crisis has dictated a sharp downturn in Korea's cattle industry at the end of 1997 and into 1998. Beginning cattle inventories in 1998 are expected to be 3 percent lower than in 1997 because slaughter accelerated at the end of 1997 with the onset of the economic crisis. Slaughter in 1997 rose more than 30 percent to over 1.1 million head, and the increase in cow slaughter (62 percent) outstripped steer slaughter (11 percent). Because of the lack of credit, producers are expected to continue to cull breeding stock to reduce costs.
The calf crop is expected to decline 25 percent in 1998 with the large cull in 1997. Slaughter is expected to remain strong during the early part of 1998 but then slow later in the year. Slaughter is expected to decline 12 percent in 1998. Korea's cattle inventories will be further reduced by the end of 1998 to 3 million head.
The increase in slaughter to record levels in 1997 resulted in beef production rising sharply to 308,000 tons, a 31-percent increase over 1996. Consumption rose 4 percent to 448,000 tons, as abundant supplies and relatively lower prices supported increased purchases. In December, the economic crisis worsened and the Korean won rapidly lost its purchasing power and consumption dropped.
The farmgate price for Korean Hanwoo cattle in December 1997 dropped to under 2.3 million won ($1,530 at December's average exchange rate) per head (500 kilogram, male), 14 percent lower than a year earlier, and the lowest price since January 1990. However, a comparable drop in retail prices has not yet occurred. Korean consumers are expected to buy less meat and substitute for cheaper cuts when they do buy meat. As a result, beef consumption is expected to drop to 441,000 tons in 1998.
Beef imports rose 2 percent to 195,000 tons in 1997. As part of its WTO commitments, Korea agreed to import 167,000 tons, on a product weight equivalent (PWE), in 1997. The United States supplied 52 percent of the beef market in 1997 with imports from the United States rising to nearly 122,000 tons. Australia provided 35 percent of Korea's imports. In 1998, Korea is obligated to import 187,000 tons (PWE) of beef under its WTO commitments. However, the U.S. share could decline if Korea limits its purchases of quality U.S. beef and tenders for cheaper grass-fed beef from Australia.
Currently, USDA has allocated $100 million of GSM-102 credit guarantees for meat and horticultural products in fiscal year 1998. As of mid-March, Korea has fully utilized the $100-million allocation to purchase red meat, of which $87 million was used for beef. The availability of credit has stimulated buying of U.S. beef and should facilitate the movement of beef as the economy stabilizes.
Although beef consumption is a relatively small portion of Taiwan's total meat consumption--about 3 kilogram per capita in 1996 or 4 percent of all meat--it has been rising. In 1997, beef consumption jumped 20 percent to 78,000 tons as consumers substituted beef for pork because of concerns about the safety of pork after the outbreak of foot-and-mouth disease (FMD) in March 1997.
Because most of Taiwan's beef needs are supplied through imports, higher consumption in 1997 prompted a 22-percent rise in imports to an estimated 72,000 tons. But during the last quarter of 1997, beef imports began to slow as reports of E. coli and listeria contamination in other Asian markets raised concerns about food safety in the beef supply.
In 1998, beef consumption is expected to drop 5 percent as consumers return to eating more pork. With the loss of pork export markets due to FMD, adequate pork supplies and high stocks have reduced domestic pork prices which will draw consumers back to pork in 1998. As a result, beef imports are expected to fall to 68,000 tons in 1998.
Australia was the leading supplier of beef to Taiwan in 1997 with a 53-percent market share. The U.S. market share was about 22 percent in 1997, the same as in 1996. New Zealand's share was about 23 percent. In 1997, Canada doubled its exports to nearly 1,200 tons, a 2-percent share of the market. However, the United States dominates the Special Quality Beef (SQB) market in Taiwan (beef graded USDA Prime or USDA Choice) and enjoys a preferential tariff rate of New Taiwan Dollar (NT$) 22.1/kilogram.
Special Quality Beef accounted for about 12 percent of Taiwan's total beef imports in 1997 and the U.S. share exceeded 90 percent. SQB is sold in the hotel and restaurant industry and the U.S. product is recognized for its high quality. However, the strengthening of the U.S. dollar vis-a-vis the Taiwan dollar could also have a dampening effect on imports. Australia and New Zealand are the first and second leading suppliers of shin/shank/intercostal cuts.
Taiwan and Argentina signed a protocol on beef imports in September 1997 after a risk assessment and field clearance for FMD-free status were completed. Currently, Argentine beef is more expensive than imports from established competitors but as Argentina focuses on developing Asian markets, its beef could become a more competitive product in the Taiwan market in the future.
On February 20, 1998, the United States and Taiwan signed a bilateral market access agreement under the Taiwan WTO accession negotiations. Under terms of the memorandum of understanding, Taiwan will immediately open its market for 5,000 tons of beef variety meats at the current tariff rate of 50 percent. Any unused portion of the access amount can be carried over to the next year. Upon accession to the WTO, Taiwan will open its market to beef variety meats at a tariff rate of 25 percent. Taiwan also agreed to lower its tariff on beef to NT$ 10/kilogram by 2005.
In 1997, the U.S. exported 348 tons of beef variety meats valued at nearly $1.2 million to Taiwan. The new access agreement significantly expands the potential for increasing beef product exports to Taiwan.
The beef market in Hong Kong did not develop in 1997 as earlier anticipated as consumption and imports declined more than previously forecast. Beef consumption fell 14 percent to 64,000 tons in 1997 and imports also dropped 12 percent to 50,000 tons. Continued concerns about food safety and the deepening financial crisis in Asia resulted in weaker demand for beef.
In March 1997, E. coli was found in beef from a local slaughterhouse. Then in October, reports of E. coli in U.S. beef exported to Korea slowed beef sales in Hong Kong. Reports of hamburger recalls in the United States further unsettled consumer confidence in beef. Some supermarkets reacted by pulling all U.S. beef products. The Hong Kong Health Department sampled U.S. beef and all tests proved negative for E. coli.
There was some respite for beef in December with the outbreak of avian flu. As Hong Kong destroyed its chicken inventory and banned live chicken imports from China, red meat consumption reportedly jumped 30-40 percent, as consumers substituted beef or pork for chicken. The rise in consumption was probably bigger for pork given the local preference for pork. But there is likely to be some improvement in beef consumption that will carry into 1998 because the winter season is the peak period for meat consumption, and live chicken imports were cut off until February 1998.
Besides food safety concerns, two critical factors contributing to reduced beef consumption have been the battering the Hong Kong stock market and economy have taken since August, and the slowdown in tourism in the second half of 1997. The Hong Kong dollar is pegged to the U.S. dollar, so beef imports have not become relatively more expensive as in other Asian countries. However, financial uncertainties in Hong Kong and other countries in the region and the substantial slowdown in tourism have likely slowed demand for beef served in the hotel and restaurant industry.
China was the leading supplier of beef imports in 1997 with a 33-percent market share, followed by the United States with a 23-percent share. The U.S. share dropped on reduced shipments of frozen beef. New Zealand and Australia--the next major suppliers with market shares of 16 percent and 9 percent--offered lower prices in 1997 which helped them expand market share. In 1998, beef consumption and imports are expected to increase moderately, benefitting from concern about the safety of chicken.
Hong Kong imports more beef offal than beef cuts. Offal imports rose 18 percent in 1997 to nearly 51,000 tons. A large portion of beef offal is re-exported to China--an estimated 24,000 tons in 1997. However, demand for offal is softening in China and offal prices have dropped. The offal trade with China is expected to remain weak in 1998 which will reduce demand for offal exports to Hong Kong.
China does not publish consumption data but Chinese consumer surveys conducted by Gallup China in 1997 point towards increased beef consumption by Chinese consumers. In 1997, a much higher percentage of households reported they had frozen meat and vegetables in their households than in 1994--38 percent compared with 13 percent. Compared with the 1994 survey, the 1997 survey indicated that more people in China are eating out, when more meat is usually eaten. Respondents also indicated they would eat out more if incomes permitted.
These survey results tend to support the contention that beef consumption is increasing in China, but of total meat consumption, beef accounts for less than 10 percent while pork is over 70 percent. In 1997, consumption is estimated to have risen 10 percent to more than 5.3 million tons.
Beef production rose 9 percent to 5.4 million tons in 1997. Most of production went towards meeting domestic consumption demands, and a small portion--60,000 tons--was exported. A 13-percent decline in retail beef prices in 1997 indicates that there might be excess beef supplies. Also, trade sources in Hong Kong say that offal trade with China has softened, indicating ample supplies. Prior to 1996, Hong Kong was the major destination for Chinese beef exports, but during the last two years, Russia has become the leading market for Chinese beef.
China imports very little beef, about 3,000 tons in 1997. China's Animal and Plant Quarantine (CAPQ) initiated a one year pilot project that would allow imports of meat for the retail market from selected plants in Australia, Canada, and the United States. But so far no meat has come in under the project because of a high 45-percent tariff and an additional 13-percent value-added tax. Although beef imports are very small, China has been an expanding market for beef offal during the last two years. When beef offal are included with beef muscle cuts, China's imports rise to over 23,000 tons in 1997.
China has made an effort to improve its cattle industry with the goal of raising rural incomes. In 1996, China imported 477 head of breeding cattle, most from Canada. During the first three quarters of 1997, 241 head were imported , and 212 were from the United States. According the U.S. export statistics, the United States sent 243 head of breeding cattle to China in 1997. The last year U.S. cattle exports were significant was 1985 when U.S. exports reached 339 head.
The EU beef market continues its slow recovery from the Bovine Spongiform Encephalopathy (BSE) situation. The crisis broke in March 1996, when the British government announced a link between BSE and the human disease, Creutzfeldt Jakob Disease. Despite marginal growth expected in 1998, consumption will still remain lower than the pre-BSE crisis level of 1995, at 7.1 million tons. Total EU beef production is expected to decline 2 percent in 1998 to 7.6 million tons reflecting lower inventories.
EU beef trade remains weakened from the crisis. Although exports are gradually improving, they are expected to remain 9 percent below the 1995 level, at 2.4 million tons in 1998. Due to a growing number of export license requests, the EU Commission decided to cut export refunds for fresh and frozen boneless beef by 50 percent in February; this is the sixth time since August 1997 that refunds have been reduced. In 1998, total imports are forecast to be 13 percent lower than the pre-BSE crisis level, at 1.8 million tons.
This scenario has led to a serious imbalance in the EU beef market, with intervention buying by the EU commission having become necessary once again to relieve the market of large quantities of beef supplies. The artificial incentives of the EU beef regime and resulting market distortions--made worse by the BSE crisis--have led to new proposals for a reform of the Common Agricultural Policy as it relates to the beef sector. (For a general overview of the EU beef situation since the BSE crisis, please refer to the article, "The Continuing Effects of BSE on the EU Beef Market, Trade, and Policy" in this publication.)
European Union Intra and Extra Beef Trade, 1996-1998(f)
Intra EU Imports
Extra EU Imports
Intra EU Exports
Extra EU Exports
1,000 Metric Tons
Source: USDA counselor and attache reports.
U.S.-EU Policy Issues Concerning Beef Trade
Many trade policy issues persist which make meat trade with the EU problematic. Outlined below are some of the outstanding issues which pertain to U.S.-EU beef trade.
Hormone Ban. On January 16, the WTO Appellate Body (AB) released its findings of the August 1997 Panel decision regarding the EU's decade-long ban on the use of growth-promoting hormones in animals. The AB strongly upheld the panel finding that the ban is inconsistent with the SPS Agreement, and calls for the EU to bring its policy in line with its WTO commitments. The AB review apparently weakened some of the panel findings, however, and the EU may attempt to delay or forego lifting the ban altogether by conducting a new risk assessment.
Veterinary Equivalence Agreement. The delay in the implementation of the U.S.-EU Veterinary Equivalence Agreement has been a source of dismay for U.S. meat exporters. The agreement establishes mutual recognition of meat hygiene standards, and is expected to facilitate meat and meat product trade between the two partners, worth an estimated $3.0 billion a year. After a number of delays, on March 16, EU farm ministers agreed in principle to implement the agreement. However, the EU has expressed concern about the latest U.S. MEGAREG proposals, and has suggested it will take certain steps if these proposals should be inconsistent with WTO rules.
Residues Testing. In December 1997, the EU gave the United States a 6-month deadline to bring its residue testing program of meat and meat products in line with the requirements of European Community legislation or face a ban on exports. The action was taken after the EU Commission reviewed a report prepared by an EU veterinary inspection team that found current U.S. residue testing practices are not equivalent to those in the EU. The team recommended that at least fresh meat and poultry imports from the United States be suspended if improvements in the residue testing program are not made by May 30, 1998. The U.S. has raised objections to the content and conclusions of the report. Further discussions are foreseen between now and June 1998.
U.S. Temporary Ban on EU Ruminants and Products. Also in December 1997, the USDA stopped issuing import permits for live ruminants, including cattle and sheep, and certain ruminant products, such as meat and bone meal, from an additional 21 countries in Europe until the risk of BSE can be evaluated. Recent developments in Europe indicate that BSE surveillance and risk assessment standards for animal health have been lacking. The action was taken to protect human and animal health, to protect the security of our export markets, and to protect the safety of our food supply. USDA will lift the import restrictions for any country that shows it has a BSE surveillance program that conforms to international standards.
Specified Risk Material Ban. The EU Commission announced in early December that it would postpone the implementation of a specified risk material (SRM) ban until at least April 1, 1998. SRMs, which are believed to pose a risk of BSE transmission, are defined as the skull, including the brain and eyes, tonsils and spinal cord of cattle, sheep, and goats aged over 12 months, and the spleens of sheep and goats. The ban also prohibits the use of the vertebral column of cattle, sheep, and goats for the production of mechanically recovered meat. The entire bodies of Transmissible Spongiform Encephalopathy (TSE) diagnosed animals are also included. The ban would prohibit the use of SRMs in food and feed products and possibly also cosmetics and pharmaceuticals containing SRMs. Following the EU's announced postponement of the measure, the UK government implemented a unilateral ban on imports of and products made from SRMs on January 1, 1998.
The United States has raised objections to the proposed SRM ban, as it raises a number of concerns with respect to WTO requirements. It fails to recognize differences in animal disease status and it disregards available scientific information and advice relating to the control of BSE and other TSEs in products of animal origin. BSE has never been identified in the United States; moreover, since 1990 the United States has maintained an aggressive surveillance program for BSE which exceeds international guidelines.
EU Beef Labeling Regulation. In April 1997, the EU Commission issued a regulation on beef labeling whose purpose is to provide EU consumers with reliable information about beef purchased at the retail level. The measure aims to regain consumer confidence in beef supplies following the BSE crisis. On January 1, 2000, all beef sold in the EU will be required to be labeled by country (or countries) of origin, that is, it must provide information on the source of the beef: where the animal was born, raised, and slaughtered.
The labeling regulation is viewed as a non-tariff barrier to trade by the United States and other third country beef exporters to the EU who will be forced to comply with the measure. In the short term, certain voluntary labeling claims on beef sold in the EU will also need to be approved; the United States is currently seeking approval for voluntary grading claims, such as USDA Choice, which can be verified by an export certificate.
The BSE crisis continues to affect the UK beef market. Beef consumption is recovering slowly, and is expected to reach 905,000 tons in 1998; this is still down 7 percent from the pre-crisis level of 1995. For those consumers who are buying British beef, confidence in the beef supply is reportedly strong. This was exemplified by the strong demand for T-bone steaks and beef ribs after the British government announced in December 1997 it would soon ban the sale of bone-in beef due to a slight risk of CJD.
UK cattle inventories, which ended at 11.3 million head in 1997, continue to fall as large numbers of animals are disposed of under BSE-control measures such as the Over Thirty Months Scheme (OTMS) and Calf Processing Aid Scheme (CPAS). After falling precipitously in 1996, beef production continues to drop off steadily, although higher carcass weights and throughput have tempered the decline. Beef production is forecast to decline to 664,000 tons in 1998.
Medium steer prices dropped 8 percent on average in 1997 from 1996 levels, pressured by the export ban; finished cattle prices hit 16-year lows in 1997. While beef prices also remain weak due to the export ban, they may improve later in 1998 if EU member states allow Northern Ireland to export some beef under the certified herd scheme. Given that a complete lifting of the export ban on UK beef is not likely until early next century, UK beef prices are expected to remain at low levels.
UK beef imports greatly benefitted from the continued strength of the pound sterling in 1997. This was especially true for Irish, German, and Dutch imports. Third country imports from Brazil, Argentina, and Uruguay were also quite strong. It is believed that beef stocks peaked in 1997, but remain high in the absence of intervention reforms.
Cattle inventories, which peaked in 1996, have been dropping steadily, and are expected to decline to 19.8 million head by the end of 1998. While French cattle exports have fallen marginally since the crisis, cattle imports were still down 30 percent in 1997 from the 1995 level, reflecting concerns over importing animals from potential BSE areas. Nonetheless, cattle imports began growing in 1997, primarily due to increased shipments of 8 day-old calves from the Netherlands. The French premium for calves slaughtered under the CPAS is apparently more attractive than the Dutch premium. Cattle exports to Italy and Spain, the top markets were somewhat flat in 1997, while exports to Lebanon picked up.
French beef consumption, the highest in the EU, recovered somewhat in 1997 as consumers regained some confidence in the beef supply; consumption is expected to reach 1.5 million tons in 1998. French beef stocks, which surged following the BSE crisis, are believed to have peaked in 1997 at 102,000 tons; over half of these stocks are forecast to be released on the domestic market, boosting consumption as prices fall.
The vast majority of the beef now consumed in France is domestically produced. The French government implemented a mandatory country-of-origin beef labeling scheme in October 1997, with the aim of further reassuring French consumers as to the origin of the beef.
Following an upsurge in output in 1996, beef production fell in 1997 and is expected to drop off further in 1998, to 1.6 million tons. French cattle farmers have received generous support both from the EU Commission and the French government following the BSE crisis. Early support for French producers include aid for fattening male cattle, beef cattle breeding operations, cow-calf operations, and cost reduction and income support. In May 1997, the French government announced a new program to assist the calf sector, including low-interest loans and assistance for producers who eliminate their calves.
Beef exports, which remain well below pre-BSE crisis levels, nonetheless grew 2 percent in 1997 to 431,000 tons. Export growth was particularly strong to Greece, Russia, and Iran. Exports are expected to fall to 400,000 tons in 1998 as production declines. Beef imports have been falling steadily since the BSE crisis at 275,000 tons in 1997; French retailers have taken a risk averse approach to selling beef, preferring to sell French beef to consumers. Imports are expected to rebound somewhat in 1998.
Cattle inventories have been declining marginally in Germany, and are expected to stand at 15.4 million head by the end of 1998. This reflects a decline in bull feeding where profits have fallen sharply with low demand in the aftermath of the BSE crisis. Beef production grew after the crisis, but is expected to fall 5 percent in 1998 to 1.4 million tons. This drop reflects declining cattle stocks and continuing incentives to slaughter young calves under the CPAS.
Prices for young bulls are expected to be stable in 1998, as tighter supplies in bull feeding offset the pressures of low demand. Cow meat prices, however, are expected to undergo downward pressure as inexpensive intervention stocks are released domestically and competition with cheap pork sausage grows. Cattle trade is expected to remain near 1997 levels in 1998.
German beef consumption was down 7 percent in 1997 from 1995, at 1.2 million tons but is expected to pick up moderately in 1998 as consumer confidence in the beef supply improves. German consumption has recovered more slowly than overall EU consumption from pre-BSE levels.
Beef exports grew 11 percent in 1997 to 480,000 tons. The growth was due to a weakening of the German mark which improved demand from Italy, a rise in exports to Russia and Uzbekistan (which substituted banned exports from Ireland), and greater use of export subsidies (nearly 130,000 tons of subsidized beef). Exports are expected to remain flat in 1998.
German intervention stocks, which surged in 1996, grew further in 1997 to 178,000 tons. This represented about 28 percent of total EU intervention stocks. However, with consumption growing, exports remaining firm, and production dropping off, it is anticipated that beef supply needs will be met by selling significant quantities of intervention stocks on the domestic market.
Cattle inventories have been falling since 1996, but are expected to stabilize in 1998 at 7.3 million head. The Italian calf crop for 1997, which dropped 11 percent, is forecast to rebound somewhat this year. A recovery of domestic cattle production is now expected in 1998; many feedlots have been holding off on expanding their operations until the market improves following the BSE crisis.
Cattle trade picked up in 1997, but is expected to be somewhat flat in 1998. Primarily due to the low calf crop in 1997, imports of live cattle rose substantially, to 2 million head. With an expected growth in calf production this year, imports are expected to decline slightly, resulting in stable cattle stocks. Cattle exports rose substantially in 1997 and will show more moderate growth this year.
Slaughter has been growing marginally and is expected to reach 4.7 million head in 1998. Production is also showing slight gains, expected to reach 1.2 million tons. Beef stocks declined slightly in 1997, and are expected to drop more substantially this year to bridge the growing gap between consumption needs and production levels.
Italian beef consumption recovered slightly in 1997, and is expected to show marginal growth again in 1998 to 1.5 million tons. On January 1, 1998, the Italian government implemented a voluntary country-of-origin beef labeling scheme in the hopes that consumers will regain confidence in the beef supply.
Beef exports grew 43 percent in 1997 to 150,000 tons but are forecast to remain flat in 1998. Moreover, as consumption needs far exceeded output, beef imports rose by 11 percent in 1997 to 400,000 tons. Imports were strong from Germany, whose exports have benefitted from a weakening currency.
Dutch cattle inventories continue to decline, reaching their lowest level in 25 years. Stocks are expected to fall to 4.1 million head by the end of 1998. The dairy herd has declined by 37 percent since the EU milk quota system was implemented in 1984. Continuing trade liberalization and growing efficiencies in milk production suggest this trend will continue.
Cattle imports grew sharply in 1997, to 705,000 head. These were mostly very young calves from Germany, Belgium, and Denmark which supplied the Dutch veal fattening market, making up for lost supplies from the UK. Dutch producers have benefitted most from the EU early slaughter scheme for veal calves. About one-third of the total EU budget allocated for this program is collected by Dutch farmers, while the French and the Italians each take about 20 percent. While cattle imports are expected to increase further in 1998, exports have declined significantly.
Unlike other EU countries, beef consumption in the Netherlands has remained relatively firm following the BSE crisis. Although consumption dropped immediately following the March 1996 announcement, consumption rebounded quickly and actually rose slightly in 1996, owing to relatively low beef prices. Higher prices drove consumption down in 1997, and a further drop is expected in 1998, to 300,000 tons.
Despite higher slaughter in 1997, beef production fell 2 percent to 568,000 tons, reflecting a higher proportion of calves in the slaughter mix. Dutch exports of beef have been slightly lower following the BSE crisis but remain firm; exports are expected to decline to 420,000 tons in 1998.
The two cases of BSE in 1996 and the fraud cases involving imported British beef have had a slightly negative impact on exports. Dutch exports to Germany, Russia, and most of the Middle East have been closed off due to the BSE situation. Dutch beef stocks have not increased with the BSE crisis, as surplus production over consumption has been balanced by exports.
Cattle inventories are continuing their long-term decline, falling by nearly 4 million head in 1997 and expected to drop sharply again in 1998, to 29.1 million head. Herd reduction continues to reflect reduced state support and low demand for milk and meat products due to low disposable incomes. Despite the liquidation, calving rates improved slightly and losses lessened among Russia's collective and state farms in 1997, because of better management practices and higher feed supplies in the second half of the year.
Slaughter rates, while slipping slightly from the frenetic pace of 1994-95, have remained fairly high. Yet, cow slaughter has fallen substantially from the 1994 peak, suggesting that herd numbers may begin stabilizing. Beef production dropped 14 percent in 1997, and will fall more moderately in 1998, to 2.1 million tons. Consumption continued its long-term decline, falling 7 percent in 1997; consumption is expected to drop more moderately in 1998, to 2.8 million tons.
The growing gap between production and consumption continues to be filled by imports which climbed to 650,000 tons in 1997. Frozen beef continues to comprise the bulk of imports. While shipments from the top supplier, the Ukraine, dropped in 1997, the next most important suppliers, Germany and Ireland, increased their shipments of frozen product substantially in 1997, 68 and 21 percent respectively. Imports from the United States fell to less than 3,000 tons. In 1998, total beef imports are expected to grow 15 percent to 750,000 tons.
In December 1997, the Russian government issued a resolution which adds the minimum duty for each group of selected imported products. The resolution does not change the rates of customs duties. In the case of fresh and frozen beef, the new duty rate is still 15 percent, but not less than 0.2 ECU/kg. The resolution is intended to help prevent the under-invoicing of imported goods and products. The new combined rates became effective on February 1, 1998.
Cattle inventories dropped more than earlier expected, falling nearly 900,000 head to 25.5 million on January 1, 1998. The calf crop in 1997 declined 3 percent to 9.6 million head, and drier than average weather conditions moved greater numbers of cattle to slaughter than expected. Slaughter in 1997 totaled 8.8 million head. Cow slaughter increased 17 percent in 1997 to 3.5 million head indicating a liquidation of the breeding herd.
In response to lower cow numbers in 1998, the calf crop is forecast to decline further to about 9.2 million head. However, as pasture conditions improve, slaughter will ease in 1998 and ending inventories will remain steady.
Live cattle exports were strong during the first half of 1997 and likely reached a record 880,000 head during 1997. However, exports dropped sharply in the last quarter of 1997 because of the financial crisis in Southeast Asia. The effect of the financial crisis is expected to carry through 1998 and substantially reduce expectations for Australian cattle exports. Exports are now forecast at 500,000 head in 1998, half the level earlier forecast.
Beef production in 1997 rose 9 percent to 1.9 million tons because of the strong rise in slaughter. But production is expected to fall to 1.8 million tons in 1998 as slaughter rates decline. Total exports rose 12 percent in 1997 to more than 1.1 million tons. Exports rose 7 percent to Japan and 17 percent to the United States.
Exports in 1998 are expected to increase 2 percent. Much of the growth is likely to occur in exports to the United States as U.S. manufacturing beef supplies tighten in 1998. In 1997, Australia only exported 56.5 percent of its 378,214-ton (PWE) quota to the United States. The economic conditions in Japan and Korea add a lot of uncertainty to growth prospects in these markets. However, the Australian dollar's depreciation vis-a-vis the U.S. dollar may provide Australian product a price advantage in 1998 in the Asian markets.
New Zealand cattle inventory entering 1998 is estimated at 9.1 million head. The dairy cow herd has continued to expand, while the beef cow herd has declined. The calf crop rose 7 percent in 1997 to 3.9 million head but is expected to fall to 3.7 million in 1998.
Beef production in 1997 was about the same as the previous year but is expected to decline 5 percent to 603,000 tons in 1998. Part of the decline in production is due to lower expected slaughter weights in 1998 because of dry weather conditions and the continuing high proportion of cull cows in the slaughter mix.
Lower world prices for beef moved through the domestic market as consumption in New Zealand continued to rise in 1997 to 140,000 tons. This is expected to slip in 1998. Beef exports are crucial for the New Zealand livestock industry as nearly 80 percent of production in exported. In 1997, beef exports declined 2 percent to an estimated 507,000 tons as beef shipments to Indonesia and Korea began to slow at the end of 1997. Exports to Korea dropped about 7 percent to 32,000 tons and shipments to Japan dropped 15 percent to 33,500 tons. Indonesia, a rapidly expanding market for New Zealand in recent years, rose on strong sales early in the year, but exports halted by the end of the year.
In 1998, exports are expected to fall from the 1996 peak to 470,000, a 7-percent decline. With the economic troubles of Asia carrying through 1998, New Zealand will be looking to expand exports to the United States. In 1997, New Zealand exported about 277,000 tons of beef to the United States, about 89 percent of its quota allocation. In 1998 exports are likely to reach the tariff rate quota level of 213,402 tons (PWE) or about 312,000 (CWE). The New Zealand dollar has depreciated about 20 percent against the U.S. dollar in 1997 which should help move beef to the United States.
New Zealand is also looking to expand its exports to the Philippines. But the financial situation may limit growth in the near term. In April 1998, the Philippines will remove its beef quotas and reduce its tariff on fresh, frozen, and chilled beef to 30 percent, with further reductions to 20 percent in 1999, and 10 percent in 2000.