Mexico/Japan
Mexico/Japan
Japan-Mexico FTA Gives Mexican Pork Preferential Treatment
After failing to reach an accord on a free-trade agreement (FTA) with Japan in October 2003 due to differences over Mexican pork exports to Japan, an agreement has now been reached that would exempt 38,000 metric tons, rising to 80,000 metric tons incrementally over five years, of imports of Mexican pork from a portion of the 4.3 percent ad valorem duty charged on pork imports from the U.S. and other countries as long as the Mexican pork items’ total price (including insurance and freight) was at least 524 yen per kilogram, the “gate price.” Product within the 80,000 metric ton quota would pay 2.2 percent ad valorem. Sources tell USMEF that although not all details are clear, it seems that Japan intends to exclude Mexican pork items exported under the quota to Japan from calculations made by the Japanese government to determine if pork imports had increased enough to impose the pork safeguard tariff. Imports of Mexican pork in excess of the quota would count toward the safeguard volume. If pork imports were sufficient to trigger the safeguard, it is likely that Mexican imports within the quota would not pay the additional safeguard tariff, but if the quota were exceeded then they would.
During the negotiations, USMEF expressed its concern about the volume exemption Mexico negotiated with regard to triggering the safeguard. Such exemptions exacerbate market distortion which the gate price already imposes on the pork trade and Japanese consumers.
The pork safeguard is designed to protect the Japanese pork industry from surges in imports. If cumulative imports in one quarter exceed the average quantity of imports in the same quarter of the previous three years by 19 percent, the gate price is increased 24.6 percent from 524 yen per kilogram to 653 yen per kilogram. Any product imported to Japan at a price less than the gate price must pay the difference to the Japanese government. The gate price is increased on the first day of the month following the announcement that pork imports had triggered the safeguard (two months after the actual volume was reached) and remains in effect through the end of the Japanese fiscal year, March 31.
Japan and Mexico are expected to sign the FTA in September 2004, subject to approval by Japan’s legislature, the Diet, and will reportedly implement the agreement on April 1, 2005, the start of Japan’s next fiscal year.
South Korea
U.S. Beef Stocks Dwindle as Traders Await Japan News
Next week’s national Chuseok holidays will likely see remaining U.S. beef stocks in Korea diminish by another quarter as the hourglass of depleting supplies nears its completion. Market analysts estimate that approximately 12,000 metric tons of U.S. beef remain in public and private storage and that despite the notable shortage in stores of U.S. beef short rib gift sets, 3,000 metric tons of U.S. beef products will likely be consumed, mostly in local Korean restaurants.
Acute interest was evident this past week by Korean traders attempting to dissect news of reported progress in U.S.-Japan talks. With an estimated 9,000 metric tons of U.S. product available for distribution from October onwards, USMEF-Korea reports there is a keen interest to maximize profits on U.S. short rib and chuck roll supplies, which have almost doubled in wholesale value since January of this year. U.S. wholesale short rib prices during this month have hovered in the U.S. $8/lb. range, the highest price all year. Wholesale chuck roll prices have shown similar growth since the beginning of the year. The supply situation of chuck rolls is viewed as more precarious as only an estimated 30 percent of total remaining U.S. beef supplies consist of this item.
The Korean market remains undersupplied. Total beef imports through July of this year reached only 92,171 metric tons, 51 percent lower than last year’s pace. Australian shipments, up approximately 11 percent for the first seven months of this year (46.7 thousand metric tons), have not increased as much as hoped as constraints on production related to herd rebuilding efforts, and aggressive demand by Japan have crimped availability. Although shipments by New Zealand to Korea have increased 71 percent for the first 7 months of the year to 24.7 thousand metric tons, traders have experienced difficulties in moving the product through wholesale channels, and an estimated 10,000 metric tons of New Zealand beef is awaiting customs clearance. Domestic slaughter is down 4-5 percent this year, and full-year domestic beef production will likely be several thousand metric tons lower than last year’s 134,000 metric tons. In terms of the supply-demand balance, Korea is expected to consume 330 thousand metric tons of beef in 2004, or a 15 percent drop from the 390,000 metric tons consumed in 2003. Tight domestic and imported supplies have been somewhat compensated by a draw-down on the large (100,000 metric tons) stocks of imported beef that existed at the beginning of this year.
The overall beef market remains lackluster. Weak consumption in the economy overall, coupled with high beef prices has created beef “stagflation.” In retail stores, shelf space for imported beef has dropped 60-70 percent. Although domestic prices remain high, weakened consumer interest has not produced the range of prices that producers had expected from constricted import supplies and a small domestic herd that is just one-half the size of its 1998 level. The few remaining large chains selling U.S. beef are attempting to dribble out stocks in order to avoid total U.S. product absence before the re-opening of the market. The absence of chilled beef relegates remaining frozen U.S. beef to relatively unattractive coffin freezers, but retailers continue to conduct sporadic U.S. beef promotions to help otherwise anemic overall beef sales. Despite the absence of chilled beef, retailers report that U.S. beef sales are still solid when featured, with only an (anecdotally) estimated 10 percent of customers refusing U.S. beef samples due to safety concerns. There is somewhat of a standoff developing between retailers and wholesalers, as the latter jack up beef prices in an attempt to squeeze out last minute pre-market-reopening profits. This standoff is likely to continue as uncertainty continues over the market re-opening date.
As to the date of market reopening, there is widespread belief that the Korean government will seek its cues from Japan. Although U.S. government officials have urged their Korean counterparts to act independently, all signs suggest that a resolution of U.S.-Japan talks will be the catalyst for movement in Korea. As to the possible time gap between news of a Japan-U.S. agreement and a Korea re-opening, opinions vary from one to six months, but all market watchers report that few clues of Korean government thinking on this timetable have been revealed.
Mexico/Japan
Japan-Mexico FTA Gives Mexican Pork Preferential Treatment
After failing to reach an accord on a free-trade agreement (FTA) with Japan in October 2003 due to differences over Mexican pork exports to Japan, an agreement has now been reached that would exempt 38,000 metric tons, rising to 80,000 metric tons incrementally over five years, of imports of Mexican pork from a portion of the 4.3 percent ad valorem duty charged on pork imports from the U.S. and other countries as long as the Mexican pork items’ total price (including insurance and freight) was at least 524 yen per kilogram, the “gate price.” Product within the 80,000 metric ton quota would pay 2.2 percent ad valorem. Sources tell USMEF that although not all details are clear, it seems that Japan intends to exclude Mexican pork items exported under the quota to Japan from calculations made by the Japanese government to determine if pork imports had increased enough to impose the pork safeguard tariff. Imports of Mexican pork in excess of the quota would count toward the safeguard volume. If pork imports were sufficient to trigger the safeguard, it is likely that Mexican imports within the quota would not pay the additional safeguard tariff, but if the quota were exceeded then they would.
During the negotiations, USMEF expressed its concern about the volume exemption Mexico negotiated with regard to triggering the safeguard. Such exemptions exacerbate market distortion which the gate price already imposes on the pork trade and Japanese consumers.
The pork safeguard is designed to protect the Japanese pork industry from surges in imports. If cumulative imports in one quarter exceed the average quantity of imports in the same quarter of the previous three years by 19 percent, the gate price is increased 24.6 percent from 524 yen per kilogram to 653 yen per kilogram. Any product imported to Japan at a price less than the gate price must pay the difference to the Japanese government. The gate price is increased on the first day of the month following the announcement that pork imports had triggered the safeguard (two months after the actual volume was reached) and remains in effect through the end of the Japanese fiscal year, March 31.
Japan and Mexico are expected to sign the FTA in September 2004, subject to approval by Japan’s legislature, the Diet, and will reportedly implement the agreement on April 1, 2005, the start of Japan’s next fiscal year.
South Korea
U.S. Beef Stocks Dwindle as Traders Await Japan News
Next week’s national Chuseok holidays will likely see remaining U.S. beef stocks in Korea diminish by another quarter as the hourglass of depleting supplies nears its completion. Market analysts estimate that approximately 12,000 metric tons of U.S. beef remain in public and private storage and that despite the notable shortage in stores of U.S. beef short rib gift sets, 3,000 metric tons of U.S. beef products will likely be consumed, mostly in local Korean restaurants.
Acute interest was evident this past week by Korean traders attempting to dissect news of reported progress in U.S.-Japan talks. With an estimated 9,000 metric tons of U.S. product available for distribution from October onwards, USMEF-Korea reports there is a keen interest to maximize profits on U.S. short rib and chuck roll supplies, which have almost doubled in wholesale value since January of this year. U.S. wholesale short rib prices during this month have hovered in the U.S. $8/lb. range, the highest price all year. Wholesale chuck roll prices have shown similar growth since the beginning of the year. The supply situation of chuck rolls is viewed as more precarious as only an estimated 30 percent of total remaining U.S. beef supplies consist of this item.
The Korean market remains undersupplied. Total beef imports through July of this year reached only 92,171 metric tons, 51 percent lower than last year’s pace. Australian shipments, up approximately 11 percent for the first seven months of this year (46.7 thousand metric tons), have not increased as much as hoped as constraints on production related to herd rebuilding efforts, and aggressive demand by Japan have crimped availability. Although shipments by New Zealand to Korea have increased 71 percent for the first 7 months of the year to 24.7 thousand metric tons, traders have experienced difficulties in moving the product through wholesale channels, and an estimated 10,000 metric tons of New Zealand beef is awaiting customs clearance. Domestic slaughter is down 4-5 percent this year, and full-year domestic beef production will likely be several thousand metric tons lower than last year’s 134,000 metric tons. In terms of the supply-demand balance, Korea is expected to consume 330 thousand metric tons of beef in 2004, or a 15 percent drop from the 390,000 metric tons consumed in 2003. Tight domestic and imported supplies have been somewhat compensated by a draw-down on the large (100,000 metric tons) stocks of imported beef that existed at the beginning of this year.
The overall beef market remains lackluster. Weak consumption in the economy overall, coupled with high beef prices has created beef “stagflation.” In retail stores, shelf space for imported beef has dropped 60-70 percent. Although domestic prices remain high, weakened consumer interest has not produced the range of prices that producers had expected from constricted import supplies and a small domestic herd that is just one-half the size of its 1998 level. The few remaining large chains selling U.S. beef are attempting to dribble out stocks in order to avoid total U.S. product absence before the re-opening of the market. The absence of chilled beef relegates remaining frozen U.S. beef to relatively unattractive coffin freezers, but retailers continue to conduct sporadic U.S. beef promotions to help otherwise anemic overall beef sales. Despite the absence of chilled beef, retailers report that U.S. beef sales are still solid when featured, with only an (anecdotally) estimated 10 percent of customers refusing U.S. beef samples due to safety concerns. There is somewhat of a standoff developing between retailers and wholesalers, as the latter jack up beef prices in an attempt to squeeze out last minute pre-market-reopening profits. This standoff is likely to continue as uncertainty continues over the market re-opening date.
As to the date of market reopening, there is widespread belief that the Korean government will seek its cues from Japan. Although U.S. government officials have urged their Korean counterparts to act independently, all signs suggest that a resolution of U.S.-Japan talks will be the catalyst for movement in Korea. As to the possible time gap between news of a Japan-U.S. agreement and a Korea re-opening, opinions vary from one to six months, but all market watchers report that few clues of Korean government thinking on this timetable have been revealed.