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Importance of Exports

Mike

Well-known member
Seemingly, during the past year a day hasn’t passed without some type of trade news relative to the Pacific Rim. Beef’s export status in Japan and Korea has been an ongoing drama. The lack of sustained progress leads to frustration.



Negotiation can seem like wasted effort because scientific benchmarks become muddled amidst politics. Disingenuous, non-tariff trade barriers are challenging to deal with. At times, the benefit derived from reestablishing normal trade relations doesn’t seem to justify the required effort. Amidst obstruction, it becomes important to remind ourselves the importance of foreign trade to the industry.



The first illustration below represents trade activity of Japan, Mexico, Korea and Canada in 2003 and 2006, respectively. Collectively these four countries accounted for nearly $3.4 billion in beef product exports in 2003; the total represents nearly 90% of the U.S. total beef export value ($3.8 billion) for the year. Revenue derived from our major trade partners equates to approximately $150 for every fed steer and heifer slaughtered in the U.S. Trade normalization across the globe has been grueling and incremental. And amidst that grind the major bright spot has been trade volume with our NAFTA partners: exports to Canada and Mexico combined have grown by nearly $400 million from 2003 levels and now provide revenue of $1.7 billion to the U.S. beef industry (the two countries now comprise nearly 80% of the U.S. beef export market). That’s approximately $75/head in the fed market and comparatively $15-20/head more than 2003 trade levels with Canada and Mexico.



Conversely, the two major players in the Pacific Rim provide a different picture. Japan and Korea, combined, accounted for only $67 million in 2006; that represents a loss of nearly $2.2 billion or $90-95/head relative to 2003 levels. Japan sales are slowed by a supply shortfall; the U.S. is challenged by finding sufficient inventory of documented 20-month old cattle which meet the trade agreement. Korea sales are currently nonexistent because of the country’s ban on U.S. products following discovery of bone fragments in an initial load of product. (Those challenges are compounded by Korea’s continued insistence upon establishing conditions to reject beef shipments and providing indications it will not recognize OIE’s upcoming classification for the U.S.)



Now let’s put the importance of exports into broader perspective. The second illustration below provides USDA’s newest domestic consumer meat expenditure projections. Total expenditures are a function of dollars per capita and growing domestic population. Clearly, ten-year projections provide lots of room for discussion. However, the actual numbers aren’t as important as the trend. Beef expenditures are forecast to grow $18 billion; the competition (pork and poultry) expenditures are expected to grow in excess of $30 billion. Per capita meat spending is forecast to increase approximately $100 during the next decade; for every dollar beef gets, the competition will be getting almost $2. Beef’s market share is projected to decline from 47% to 45% over the next ten years.



Following BSE’s discovery in December, 2003 the market managed to buffer export cessation because of exceptional domestic demand. Much of that was attributable to low-carb dieting trends. However, it wasn’t sustainable and late in 2004 interest in such diets quickly waned; the outcome was some challenging market volatility and the absence of export premiums was fully realized. The beef industry can’t let up on the domestic front; consumers are fickle. Beef must constantly promote and position itself within its own borders. However, international trade represents the greatest possibility of establishing revenue growth. Striving for expansion of international markets must be relentless – the beef complex must continually commit meaningful resources to maximize that potential. Full-court press!!!!!



Source: Nevil C. Speer, PhD, MBA, Western Kentucky University
 
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