Asia leads resurgence in beef exports

by Erin Daley, Economist – U.S. Meat Export Federation

Introduction

After a year in which global agricultural exports were hit by a slumping economy and declining consumer spending, U.S. beef exports are making a strong rebound in 2010. The economic recovery has translated into very good news for U.S. producers and exporters. U.S. beef exports have increased in volume by double digits and significantly more in value, and this resurgence is being led by significant growth in all Asian markets where there is a growing appetite for U.S. beef.

Even as Mexico, the single-largest market for U.S. beef exports, continues to struggle to recover from last year’s economic downturn, Japan, South Korea, Taiwan, Hong Kong and the Association of Southeast Asian Nations (ASEAN) are leading a resurgence in demand for U.S. beef that not only is driving sales up, but also is helping recapture market share from competitors.

Discussion

In the years prior to bovine spongiform encephalopathy (BSE), Japan and South Korea were not only the dominant U.S. beef markets in Asia; they were two of the top three U.S. export markets in the world. In 2001, before BSE was discovered in either the United States or Japan, more than half (52%) of U.S. beef exports were purchased by Japan and Korea alone.

Nine years later, the global beef market has become more diverse and more competitive. Mexico and Canada are the two leading importers for U.S. beef. For the first five months of 2010, Japan and Korea accounted for just fewer than 25 percent of the value of all U.S. beef exports. But Asia as a whole is the global growth engine for beef consumption.

From January through May of 2010, the value of all U.S. beef exports is up 19 percent from 2009. Those numbers are even more impressive when you consider that the No. 1 market, Mexico, is down 26 percent for the year and the No. 2 market, Canada, is up just 9 percent.

Japan, the No. 3 market in value for U.S. beef, is up 27 percent this year despite continuing access restrictions requiring beef to come from cattle 20 months of age or younger. The U.S. Meat Export Federation (USMEF) has been running its “We Care” campaign in Japan for several years to build the confidence of Japanese consumers in U.S. beef, yielding significant results. Over the past three years, surveys show that the percentage of Japanese consumers who feel that U.S. beef is not safe has dropped by half to 28.8 percent while the number who believe it is safe has nearly tripled to 35.6 percent.

The story is different in South Korea. The United States regained access to the Korean beef market for 30-month and younger product in the summer of 2008, but consumer protests limited opportunities there for more than a year. It wasn’t until late 2009 that the Korean media relented its accusations regarding the safety of U.S. beef, and USMEF was able to initiate its “Trust” image campaign that included television commercials, magazine and bus ads and consumer promotions. Since that time, the reception for U.S. beef has changed dramatically – the value of beef exports there is up 94 percent year-over-year. And in May alone, Korea purchased more than $50 million worth of U.S. beef, virtually tying it with Japan for the third-largest market.

But Asia is more than Japan and Korea. The ASEAN region (led by Vietnam, Philippines and Indonesia) has seen 2009 imports rise 27 percent in value for the year, nearly doubling in May.

And while China remains closed to U.S. beef, exports to neighboring Hong Kong are up 124 percent in value versus last year. Taiwan, which introduced bone-in U.S. beef cuts late in 2009, is running 52 percent ahead of last year in the value of its U.S. beef imports. USMEF-Taiwan this year has introduced a new "Love U.S. Beef" campaign to encourage consumers to try new cuts of U.S. beef and new preparation techniques.

The cumulative effect of the growth in exports to Asia is that producers are seeing higher returns per animal. In May of 2010, the export value equated to $160.30 per steer and heifer processed, a 31 percent increase compared to the $122 value recorded in May 2009.

Driving U.S. beef growth

While the United States is enjoying strong growth in U.S. beef sales to Asia, we also are gaining market share at the expense of our primary competitor in that region: Australia.

South Korea: Strong demand from Korea, as well as competition from other active Asian markets, has had a dramatic impact on beef short rib prices. Prices have stabilized at about $3.75 per pound compared to about $2 per pound a year ago. The price increase in this one cut alone is worth about $15-to-$20 per head.

Beef imports from all sources are up in Korea. According to the Global Trade Atlas, Korean beef imports in the first half of 2010 were up 23 percent in volume and 40 percent in value. For U.S. beef, the increase is 64 percent in volume (January-through-June 2010 versus year-ago levels) and 45 percent in value. In the past 18 months, U.S. market share has essentially doubled, growing from 19 percent to 33 percent in value, and from 14 percent to 29 percent in volume. Australian market share has dipped from 75 percent two years ago to 53 percent today.

Japan: The United States' share of the Japanese beef market continues to steadily rise, reaching 19 percent this year versus 16 percent last year and 12 percent in 2008. Australia remains the leader with 68 percent and New Zealand is a distant third with 7 percent.

Hong Kong: In this highly competitive market, with zero import duties, U.S. market share has nearly doubled from 10 percent to 18 percent. The United States is the second-largest supplier behind Brazil. This growth has occurred even though U.S. beef exports remain limited to boneless products from cattle fewer than 30 months of age. It is a similar situation in Vietnam, where the United States trails only India and is the dominant supplier of grain-fed beef to the region.

Taiwan: The reintroduction of bone-in beef cuts late last year has helped push the United States' already dominant market share to nearly 45 percent this year versus 37 percent last year. At the same time, Australia’s share of the market has dipped from nearly 33 percent last year to 27 percent in 2010.

Challenges for U.S. beef

Among the challenges that the United States faces in maintaining its growth and market share in key Asian markets is ensuring that we have equal access. Australia and New Zealand have enjoyed access advantages since the discovery of BSE in the United States in late 2003, and have used that opportunity to overtake the United States as the leading beef exporter to both Japan and Korea.

While BSE-related limitations continue to be an issue in certain markets, notably Japan, market access agreements – or the lack of them – will be a significant factor going forward in establishing advantages for exporters in key markets.

One competitor in the export markets, Canada, recently announced two Asian access agreements. In December 2009 it concluded negotiations with Hong Kong for the resumption of full market access for Canadian beef exports. The Canada Beef Export Federation (CBEF) estimates that full access to this important market could mean an increase in Canadian beef exports to Hong Kong by as much as $26 million per year. Already in 2010, expanded access has provided a boost for Canada's exports to Hong Kong. Through May, Hong Kong's imports of Canadian beef have nearly doubled in volume and more than doubled in value, while Canada’s market share has increased from less than 3 percent to 6 percent. Thus far, Canada is still subject to Japan's 20-month age restriction but, on the marketing side, CBEF is running traceability-related ads, touting its national animal identification system.

While the United States and Canada have identical BSE risk classification, Canada recently announced it also has reached an agreement with China to regain access to that potentially enormous market for beef boneless products from cattle less than 30 months of age and beef tallow. China had been closed to both Canadian and U.S. beef since the discovery of BSE in North America in 2003. USMEF estimates that the value of the Chinese market, which remains closed to U.S. beef, to be more than $200 million per year.

Another potentially significant development is Australia's progress on an FTA with South Korea. Korea has 40 percent tariffs on beef imports, and an Australia-Korea FTA would put the U.S. at a considerable disadvantage at a time when we are rebuilding market share. The proposed U.S.-Korea FTA would phase out those tariffs over the course of 15 years.

Conclusions

U.S. beef exports to Asia are growing at a healthy pace this year, with export values jumping anywhere from 27 percent in the ASEAN (with 520 percent growth in Indonesia) to 94 percent in Korea and 124 percent in Hong Kong.

The biggest challenges to maintaining the growth rates seen over the first five months of 2010 – an 11 percent increase in volume and 19 percent in value versus 2009, with muscle cuts up nearly 30 percent in value – are expanding market access (opening the China market and expanding access to Japan) and ensuring that the United States’ ability to sell at competitive prices is not undercut by FTAs that give other beef-producing nations a significant financial advantage.