A Few Thoughts: U.S. Beef Exports
Policy decisions are made in response to a defined benefit to everyone. Well, at least in theory. In the real world, politics, legal, and economic issues come into play and this becomes the starting point. U.S. trade policy is no exception and in this week’s article, I wanted to make a few brief comments on U.S. beef trade, COOL, TPP or the Trans Pacific Partnership Agreement, and the dollar. All of the above are in the news and will be important to the industry over the next few years as prices are pressured in the face of increased production.
U.S. beef export sales play a major role in creating value to the beef industry and ultimately, prices paid to ranchers. In 2014, the U.S. beef accounted for 12 percent of global beef exports. Does the U.S. hold the largest share of beef trade around the world? No, we are number three in terms of market share. India is first with 21 percent and Australia and Brazil are tied for second with 19 percent.
Through October of this year, beef exports are down 13 percent and this can be largely attributed to a strong U.S. dollar. Since the July 2014, the dollar has strengthened 23 percent. This, in effect, has added 23 percent to the prices of our exports. In terms of beef, this is an additional 23 percent to prices that were at already at record levels during 2014 and most of 2015. At the same time, our largest customers in Asia have been hit by weaker economies. Beef sales to Japan and South Korea are down 18 percent and 14 percent, respectively. Japan accounts for 25 percent of our total beef exports.
The Trans Pacific Partnership (TPP) that was recently signed includes 12 countries. Japan is one of those countries and from the perspective of the U.S. beef industry is probably the most important country in the agreement. The TPP would lower tariffs on U.S. beef from 38 percent to 19 percent. The agreement signed between Australia and Japan last year did the same. To maintain a competitive advantage in global beef trade and add value to sales, the U.S. beef industry needs the TPP. If and when Congress will ratify the agreement remains to be seen, particularly in the upcoming election year.
Regarding COOL, this contentious battle has finally come to an end. Two weeks ago, the WTO allowed Canada and Mexico to impose $1 billion in tariffs to all U.S. goods that they purchase. Canada accounts for 14 percent of our beef export business while our beef sales to Mexico represent 16 percent of the total. To avoid these tariffs, Congress has repealed COOL in its spending plan announced this week. While U.S. beef export growth doesn’t need COOL, it does need TPP.