WRITTEN TESTIMONY OFMR. PHILIP SENGPRESIDENT AND CEOU.S. MEAT EXPORT FEDERATI...
WRITTEN TESTIMONY
OF
MR. PHILIP SENG
PRESIDENT AND CEO
U.S. MEAT EXPORT FEDERATION
TO
THE SENATE SUBCOMMITTEE
ON
PRODUCTION AND PRICE COMPETITIVENESS
OF THE
AGRICULTURE, NUTRITION AND FORESTRY COMMITTEE
AUGUST 1, 2001
TESTIMONY ON BEHALF OF THE US MEAT EXPORT FEDERATION
Mr. Chairman, members of the subcommittee, thank you for inviting the U.S. Meat Export Federation (USMEF) to submit comments with regard to trade in red meat products. The U.S. Meat Export Federation is the international trade association responsible for identifying and developing international markets for U.S. beef, pork, lamb, veal and processed meats.
USMEF is unique in the agricultural world. The diversity of its members and the array of products and services offered are promoted under the umbrella of the Federation, allowing a united front to combat the challenge of international competition. USMEF's membership base has expanded from its original beef and pork producing members to include meat packers, processors, purveyors, traders, agribusiness, feedgrain and oilseed producers, farm organizations and sheep producers. Today there are over 200 members contributing to the efforts of the Federation.
Summary
U.S. red meat exports have been doing very well over the past few years. This is true despite a number of obstacles, including the European Union's continued refusal to abide by the WTO ruling and open its market to U.S. produced beef; a strong U.S. dollar; increased competition from Australia, Canada, Brazil, Argentina, and subsidized EU exports; and, the continued closure of some markets due to unwarranted health or SPS regulations.
The Federation's export efforts have led to significant increases in U.S. market share for beef and pork. In 1990 we held 14.4 percent of the world's beef market (volume basis). By 1995 this increased to 20.5 percent, and by 2000 we increased to 25.7 percent. The results are even more impressive for pork. In 1990 we held 10 percent of the world's pork market. By 1995 this increased to 17.1 percent, and by 2000 we increased to 20.3 percent.
It is important to remember that last year world red meat consumption grew 1.43 mmt, but only 10,000 mt of that came from U.S. increased demand. It is evident that the world market will only grow in importance to the hog and cattle producers of this country.
The recent outbreaks of and spread of animal diseases such as Foot and Mouth, BSE, and Classical Swine Fever have altered trade patterns and made prediction of future trade trends difficult. In 2000, BSE outbreaks were reported across the European Union, apparently the result of EU cattle consuming tainted meat and bone meal imported from the United Kingdom. While EU officials worked to contain the outbreak, major beef importing countries banned European beef imports and reviewed their own BSE control mechanisms. As of March 2001, more than 50 countries had placed bans on EU beef. For the EU, the most important markets to ban their beef include Egypt, Saudi Arabia, several Middle East countries, and the Philippines. These countries have historically accounted for 37 percent of EU beef exports. The only major market left for the EU is Russia, who generally accounts for 42 percent of EU beef exports.
In addition, the recent (July 27, 2001) triggering of the Japanese import safeguard will limit further sales of pork to Japan until at least the spring of next year. In fact, today is the first day that the safeguard will be enforced. The safeguard mechanism is triggered when the cumulative quantity of pork imports on a quarterly basis exceeds that of the average level of imports in the corresponding quarters over the past three Japan fiscal years by 19 percent. The safeguard was last triggered after imports surged in the first two months of JFY 1996. The safeguard mechanism in the form of the higher gate price was implemented on July 1 of that year and remained in effect until the end of March 1997.
The safeguard increases the pork import gate price from 524 yen/kg. ($1.93/lb.) to 653 yen/kg. ($2.41/lb.). Pork products entering Japan at less than the gate price pay a duty equal to the difference between the gate price and the CIF price, plus a 4.3% ad valorem duty. Products entering above the gate price level pay only the 4.3% duty, creating an incentive to exporters and importers to structure shipments with an average CIF value at or above the gate price. A higher minimum import price created by the safeguard will make it more difficult to structure shipments to meet the gate price, and is also likely to raise wholesale prices. The higher minimum import prices will remain in effect for the remainder of the Japan's fiscal year through March 31, 2002.
Even with the above constraints, the U.S. has shown a consistent increase in exports and in market share of red meats and variety meats. Growth in U.S. export volumes and the increase in market share certainly has been a team effort. USMEF, hog and cattle producers, and the processing and export trade could not operate as efficiently and certainly not as effectively without the assistance of the USDA. The Foreign Agricultural Service (FAS) supplies in-country expertise and helps to open new markets through trade negotiations, while the Food Safety and Inspection Service assists packers to meet foreign standards for processing faculties.
Of critical importance to USMEF is the assistance provided through the Market Access Program (MAP) and the Foreign Market Development (FMD) and Emerging Market programs of FAS. Without this assistance, we would be significantly impaired in our ability to open and develop markets overseas.
U.S. Exports of Pork and Pork Variety Meats
USMEF anticipates strong export demand and increased exports for pork through 2007. For 2001, USMEF expects pork and pork variety meat exports to increase 17 percent with most of the growth occurring in Japan, Mexico, Russia, and China. USMEF estimates that these same four markets will account for 75 percent of the expected growth through 2007. Overall, USMEF expects pork and pork variety meat demand driven exports to average 10 percent annual growth from 2001 to 2007.
In 2000, U.S. pork and pork variety meat exports reached a new record 568,643 mt, at a value of $1.3 billion. Pork exports accounted for 8.1 percent of domestic production in 2000 compared to 5.5 percent in 1995 and 2.9 percent in 1990. In 1990 the U.S. was a net importer of pork, and today we are a net exporter.
It is important to differentiate between a mature market and market segments. For example, some would consider Japan a mature market for U.S. pork and beef exports. However, we continue to see growth in Japan imports due to the servicing of new market segments. For example, U.S. pork has made significant inroads into the Japanese tonkatsu (pork cutlet) market. Although the Japanese have enjoyed tonkatsu for many years, USMEF promotions and the quality of U.S. pork have allowed us to recently enter this segment of the restaurant industry.
The competitive strengths of the U.S. pork industry in world markets continue to be:
· the ability of the U.S. to supply large volumes of chilled pork by cut and product;
· recognition by the international trade that the U.S. has the strictest food safety system in the world; and,
· the ability of the red meat industry to deliver a range of products (fresh and processed pork, beef and variety meats) to international buyers.
Pork Competition
The main competitors in the global pork market remain the U.S., Canada and the European Union (EU). In 2000, these three exporters accounted for nearly 88 percent of world exports. Canada, with exports of 591,322 mt, became the largest exporter of pork in the world in 2000. Of the year-on-year Canadian export growth of 107,583 mt, 85,000 mt went to the U.S., Japan and Mexico. Canada also increased exports of variety meats to the U.S., Mexico, and China. Denmark, the largest exporter in the EU, exported 545,263 mt.
Two exporters, Brazil and Australia, substantially increased their exports in 2000. According to the Brazilian, Secretariat of Foreign Trade, Brazil increased its pork exports by 47 percent to 129,271 mt. Most of these exports went to Russia, Argentina, Hong Kong, and China. The USDA attributes these increases to aggressive export promotion, competitive export prices, and improvements in the health and sanitary status of the country. In 2000, Brazil declared a major pork producing region free of Classic Swine Fever. Australia also made great strides in exporting pork in 2000.
In 1999, the Nipah virus outbreak decimated the Malaysia swine herd. In response, the Singapore government banned the import of live pigs from Malaysia and banned the sale of freshly slaughtered pork. Singapore authorities required that all retail outlets, including the wet markets, keep all meat in chillers. Before the virus outbreak, Malaysia met 80 percent of Singaporean demand for fresh pork. Given this strong demand in Singapore for fresh pork, Australia stepped up shipments of chilled pork. While Australia was a net pork importer before these events, their exports have increased 121 and 30 percent in 1999 and 2000 respectively. Singapore now accounts for 60 percent of their exports. While the opening of the Singapore market to chilled imports made Australia a major player in Southeast Asia, continued growth in Australian pork exports depends on their ability to make inroads into Japan and other Asian markets.
The attached charts and tables indicate current U.S. pork trade and future export projects by the USMEF.
U.S. Exports of Beef and Beef Variety Meats
The major story in the U.S. beef industry for 2000 was strong demand and the expectation of a major herd contraction in 2001. In 2000, U.S. beef exports reached a new record of 1.244 mmt at a value of $3.6 billion. Beef exports accounted for 13.1 percent of domestic production in 2000 compared to 10.5 percent in 1995 and 6.3 percent in 1990.
The total affect of the BSE outbreak in Europe on global beef demand is uncertain. Anecdotal evidence suggests that beef consumption could dip in some of the major export destinations for U.S. beef. That said, USMEF anticipates strong export demand for beef and beef variety meats and increased exports through 2007. For 2001, USMEF expects beef and beef variety meat exports to increase 3 percent with increased exports to Japan, Mexico, and Russia offsetting decreased exports to South Korea. By 2007, USMEF estimates that 70 percent of U.S. beef and beef variety meat exports will go to Japan, Mexico, and South Korea. Overall, USMEF expects U.S. exports to increase by an average of 7 percent a year.
The live trade in cattle between the U.S. and Canada is following a pattern similar to the U.S./Canadian live hog trade. The import of Canadian cattle for immediate slaughter has decreased 30 percent in recent years as Canada has increased its slaughter capacity. Conversely, imports of Canadian feeder cattle have increased 28 percent in both 1999 and 2000 as the Canada lacks the feeding capacity to raise its entire calf crop. Like pork, most analysts expect the U.S. and Canadian beef industries to become more intertwined.
The competitive strengths of the U.S. beef industry in world markets include:
· the high-quality and safe image of U.S. beef;
· increasing global demand for high-quality, grain-fed beef;
· the ability of the U.S. to supply large volumes of chilled beef by cut and product;
· the ability of the red meat industry to deliver a range of products (fresh and processed pork, beef and variety meats) to international buyers; and,
· the ability of the U.S. to supply large volumes of variety meat items.
Beef Competition
The main competitors in the world beef and beef variety meat markets include the U.S., Australia, Canada, the EU, Argentina, Brazil, and New Zealand. The following table shows the relative production and trade estimates for major beef exporters and expectations for 2001.
Beef Production and Exports from Leading CountriesCountry
2000 Production
(‘000 mt)
2000 Exports
(‘000 mt)
2001 Production Estimate
(‘000 mt)
2001 Exports Estimate
(‘000 mt)
U.S.
9,500
1,225
9,280
1,266
Australia
1,420
1,020
1,390
1,080
European Union
5,470
507
5,500
400
Brazil
4,700
339
4,850
372
Canada
920
447
910
470
New Zealand
432
346
460
372
Argentina
2,140
302
2,170
329
Note: Production estimates for 2001 from USDA/FAS, exports from USDA/FAS, reporting country data, and USMEF estimates.
Overall beef trade, consumption, and production will be essentially the same as in 2000. The USDA expects that reductions in production from the U.S. and Australia will offset gains in production in Brazil, Argentina, and China. USDA expects Europe to have a slight increase in their production in 2001. At this stage, USMEF expects that the Purchase for Destruction and testing regimes will account for 500,000 mt, or nine percent, of European beef production. The USDA also expects increased exports from Canada, Brazil, Argentina, and New Zealand. The largest exporter of beef muscle cuts in the world, Australia, is expected to have stable exports in 2001.
Within Europe, the BSE outbreak has caused a decrease in beef consumption of 10 to 30 percent across the continent. Analysts expect a further drop in consumption of 12 to 15 percent in 2001. While the BSE outbreak has so far been contained to Europe, it has affected overall beef consumption in several important U.S. export markets. Notably, Korean beef consumption has dipped in early 2001 and trade contacts suggest that beef consumption also dropped in Hong Kong and Japan. That said, it is difficult to gauge the long-term affect of the BSE outbreak on Asian consumption and separate recent slumps in demand from seasonal demand contraction that normally occurs at this time of the year and the slowing world economies.
In addition to the BSE outbreak, EU officials are also trying to contain an FMD outbreak that started in the United Kingdom then spread to Northern Ireland and Continental Europe. This outbreak not only threatened EU beef exports to Russia, the only major export destination that has not placed a full ban on EU beef, it also affected their global pork exports. Sporadic FMD outbreaks also occurred in Japan, South Korea, Brazil, and Argentina. While FMD outbreaks create short-term opportunities to replace Brazilian and Argentine beef, grass-fed beef from Australia gains the most from these situations. In general, U.S. grain-fed beef competes in a different market segment than grass-fed beef. While countries in South America have the natural resources to challenge the U.S. and Australia for the top spot in beef exports, frequent outbreaks of foot-and-mouth disease have resulted in an inconsistent presence in the world market.
U.S. Exports of Lamb and Lamb Variety Meats
Although the U.S. lamb export market is small in volume, it has shown significant growth this past year. U.S. lamb and mutton meat exports have increased 23 percent so far this year (January - May), and lamb variety meats have increased 87 percent (see attached charts).
What Can Congress Do To Further Assist Red Meat Exports
There are several steps that Congress can take to assist in the continued growth of red meat exports. First, it is imperative that USDA be provided the necessary funds to assure that FMD and other animal diseases do not enter the United States. In order to protect our export markets, we must assure our domestic animals remain healthy.
Second, FAS must be provided the resources necessary to continue to promote trade, engage in bilateral and multilateral negotiations, and represent our interests abroad. This includes adequate funding for programs such as MAP, Foreign Market Development, Emerging Market, and other promotional programs of FAS.
Third, the launch of a new WTO round is critical to further reductions in trade distorting subsidies offered by the EU and in the opening of new markets. In addition, we must work to assure implementation of the provisions agreed to in the Uruguay Round.
Conclusion
In summary, USMEF expects growth in U.S. exports of beef and pork for 2001. While the beef herd is contracting, there will be adequate supplies of beef, especially underutilized cuts and variety meats. For pork, the breeding herd expansion that started in late 2000 guarantees adequate supplies. Across the world there is a growing demand for red meat, and this demand will expand as economies recover and per capita incomes increase. The U.S. red meat industry is well positioned to meet this demand and achieve our goals for export growth.