Access to China key to meat export growth (commentary)Access to China key to meat export growth (commentary)
August 7, 2015
THE U.S. red meat industry has achieved outstanding export growth in recent years, enhancing profitability for all members of the supply chain.
In 2014, both beef exports and pork exports shattered previous records for export value, at $7.13 billion for beef and $6.67 billion for pork.
Beef exports have steadily increased in value in each of the 11 years since global markets began to reopen after the first U.S. case of bovine spongiform encephalopathy (BSE). For pork, export value has increased in 15 of the past 20 years.
In 2015, several headwinds have made it difficult for the U.S. industry to maintain this positive trajectory:
* Severe congestion in the West Coast ports — the result of a prolonged labor impasse — affected our first-quarter results.
* Unusually large supplies of European pork and Australian beef have poured into key Asian markets, buoyed by favorable exchange rates that make the products very attractive to price-sensitive buyers.
* Key competitors have also achieved gains due to free trade agreements that reduced import duties on their beef and pork products.
These are all important factors affecting U.S. exports, but they are issues over which we have little or no control.
The same cannot be said about one of the biggest obstacles U.S. exports currently face: lack of access to China.
China is one of only a handful of international markets that never reopened to U.S. beef following the 2003 BSE case.
At that time, and for several years thereafter, China was not a large importer of beef, but that changed dramatically in 2012, when beef import demand in China surged due to strong economic growth and a sharp decline in domestic production.
China now imports more beef in any given month than it did in an entire calendar year in 2011. In the first half of this year, imports totaled nearly $910 million — up 28% from a year ago.
While the U.S. industry remains on the sidelines, Australia, Uruguay, New Zealand, Argentina and Canada are all gaining a strong foothold in China.
Being shut out of the Chinese market also affects the prices U.S. beef cuts command in other Asian destinations, as China has begun to exert significant influence on global beef trade.
For the U.S. beef industry, the lost opportunity due to the lack of access to China is currently estimated at more than $100 per head.
Considering that the U.S. beef industry exports to about 100 countries, all of which have determined that U.S. beef is safe, it would be easy to view China's import conditions as overly strict.
However, a growing number of major beef producing and exporting countries are meeting China's requirements, aware of the market's potential global impact on beef demand.
In mid-2014, for example, China began testing beef imports from Australia for hormone residues, citing a hormone ban that had been in place for more than a decade but had been enforced only sporadically.
Australia responded quickly, implementing a certification program to meet China's requirements. In the short term, Australia's exports to China dipped by nearly 50%, but that decline was temporary, as Australian producers adjusted and exports to China quickly rebounded.
When Canada confirmed its most recent BSE case in February, the Canadian Food Inspection Agency voluntarily suspended export certificates to China and began consultations with its counterpart agencies in China to restore access. Trade resumed in early April.
A similar situation just occurred in Argentina, where trade was suspended due to a finding of vesicular stomatitis in dairy cattle. Argentina's government and industry representatives immediately traveled to China to meet with regulatory officials and reached an agreement to resume trade.
As these examples illustrate, our competitors have learned that the best way to do business with China, as with any customer, is to meet its expectations.
Costly pork limitations
With regard to U.S. pork, the Chinese market is not entirely closed; the U.S. technically has access to export a full range of pork and pork variety meat products (with the exception of processed products) and recently gained access for pork fat.
However, a significant percentage of U.S. pork production is ineligible for shipment to China due to ractopamine use and other factors that conflict with China's import requirements. This has made it very difficult to capitalize on significant growth opportunities in China that have emerged this year due to high domestic prices and that are presently being captured by European suppliers.
China produces and consumes about half of the world's pork, and while it is largely self-sufficient in production, even a small fluctuation in China's need for imported pork can shake up the global market.
The U.S. industry has benefitted from these fluctuations in the past, especially in 2011 and 2012, when exports to China were very strong. But with the enforcement of China's import requirements and only a small number of U.S. plants being eligible to serve China, U.S. pork exports saw a major slowdown in the second half of last year.
So far in 2015, exports are down nearly 50% from a year ago. In the meantime, the European Union's export volume to China is more than one-third higher year over year.
Our lost opportunities in China span a wide range of product categories. China has been an excellent destination for large volumes of ears, feet, stomachs, snouts and other pork offal items, but we are also missing a chance to market pork muscle cuts to China's rapidly growing processing, foodservice and retail sectors.
Similar to the beef complex, China has no lack of suitors that want a piece of its pork import market. In addition to the EU, Canada and Chile also compete aggressively in China, and pork from Mexico is a recent entrant into the market.
Ractopamine is not an issue for suppliers from the EU and Chile (where it is not approved for use), but other competitors are also undeterred by China's demands. Canada, in fact, has created a ractopamine-free verification program that even includes segregation at the cold storage facility level. This is another instance in which exceptional opportunities for export growth carried the day.
Limited access to China has very negative consequences for U.S. pork producers. When the flow of U.S. pork to China slowed severely late last year, industry analysts estimated that the lost value in pork offal alone was more than $7 per head — and it is now estimated to be more than $9 per head.
Combine this with lost opportunities for muscle cuts, especially as China's hog prices reach multiyear highs, as well as the impact on the price U.S. pork can command in other markets, and China's influence on producer profitability is substantial.
The case for exports is often made by stating that 95% of the world's population lives outside the U.S., but this argument is much less compelling when the market that contains nearly 20% of the world's population has little or no access to our red meat products, which I believe are the finest and safest in the world.
Yes, China's import conditions are stringent, but China is not lacking for suppliers that are willing to meet its demands. This means the U.S. industry faces some difficult decisions as it looks for ways to expand access for U.S. meat in this critically important market.
*Philip Seng is president and chief executive officer of the U.S. Meat Export Federation.
U.S. beef exports to China/Hong Kong
U.S. pork exports to China/Hong Kong
Source for Tables: U.S. Meat Export Federation.
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