Beef Exports Down 11 Percent
During First Half Of 2001

DENVER – USDA numbers for the first half of 2001 show that beef exports are down 11 percent. A drop in funding and the soft worldwide economy are listed as the primary causes for the decline.

That was part of the message delivered by Phil Seng, president of the U.S. Meat Export Federation in a recent teleconference with trade media.

"Business is best accomplished in calm waters," Seng said, "and it’s obvious that there is tremendous concern about the future."

Economic growth last year was 5.5 percent worldwide. This year, however, experts predict there will be zero growth and possibly a worldwide recession triggered by the recent terrorist attacks in New York City and Washington DC.

"We are looking at a radically different picture economically than what we’ve had for the 'Roaring 90s' or the 'Gay 90s'," he noted.

The recent terrorist attacks, Seng said, did not cause any immediate disruptions in the U.S. meat export business, but he expects that might change six months from now.

"At this point in time there hasn’t been any interruption to the trade," Seng continued. "The product is flowing and it is flowing in all the countries that we have destinations for that product. However, there is obviously major concern about the future.

"I think it’s too soon to tell how much of an impact we’ll see because we don’t know what the U.S. response is going to be and how far that’s going to reach."

Specifically on the beef side, exports to Japan were down 11 percent while Korea was down roughly 29 percent. China, Taiwan and Hong Kong — all major export areas — were also down. However, the Russian Federation reported a strong showing, up 76 percent. Mexico was also up 13 percent.

This will be the first time in six years that the U.S. has lost market share in Japan. Moreover, this year the Australians will exceed the U.S. market share in the Japanese markets. Part of the reason is because Australia is making a strong push to move from a commodity supplier to more of a brand-driven supplier who is much more customer specific.

"We’re starting to see Australian branded, grain-fed, source-verified, process-verified beef enter the Japanese market and other parts of Asia," Seng told listeners. "We’re also seeing some of this from Canada but on a smaller scale.

The reason the U.S. is losing market share in Japan, Seng reiterated, is because of high beef prices, a strong dollar relative to other currencies, and a decline in funding for beef promotion in the Japanese market.

"Because of the weak economy, we’re seeing some of the food service buyers shy away from some of the high prices, especially for our middle meats," said Joel Haggard, MEF vice president for Asia-Pacific markets. And now even sales of the cheaper outside cuts are being stressed.

Add to that the fact that beef promotion funding for Japan has dropped almost 50 percent from 1995 levels. In Japan the largest source of funding for operations is USDA, through its Market Access and Foreign Market Development programs.

"In 1992 in Japan alone we had more than $8.7 million to promote beef," Seng pointed out. "In 2001 we have only $4.6 million."

One of the reasons funding has dropped, he said, is because there has been a dramatic effort in recent years to work more in the domestic beef market. That in turn has impacted funding that goes to the international market because the amount of private dollars that come into MEF generate allocation of USDA dollars.

"We’re seeing more of the MAP funds applied to pork than we have in the past," Seng noted.

The proposed total MAP funding for this fiscal year is $180 million, double what it’s been in the recent past, and FMD funds stand at $40 million.

"We really need a lot of support from rural America and all Americans to keep this funding because it is critical to the initiatives internationally on behalf of the industry."

Challenges to the beef and pork checkoffs are also having an impact on the red meat industry.

"Our industry has benefited immensely from these checkoff programs, and it would be catastrophic if those programs were to be threatened or lost in any form or fashion," Seng said.

The same macro factors affecting the Japanese market are also impacting the Korean market. The liberalization of Korean import rules in January 2001 was definitely good news for the red meat industry — the U.S. now has access to 10,000 more butcher shops — but that good news was not really factored in last year, Seng said.

"The first half of this year has been characterized by what we call hangover stocks and also consumer fear about BSE and FMD."

Food safety concerns continue to have a major impact on the export market. The recent announcement of the suspected BSE case in Japan only heightened that awareness. The source of the feed, Seng said, is the big question.

"In countries like Japan, where they import over 50 percent of their caloric intake, they have an acute awareness of food safety, where it’s produced, how it’s produced, how it’s processed and handled, etc.," he pointed out. "In the U.S. our consumers see that USDA stamp on the chop and assume that this product is safe and rightly so. In the overseas market, it's not that way and that’s why we need more dollars to extol the virtues of our product — why it is safe and wholesome for them to eat."

For the last 20 years, MEF has been working to reassure the Japanese of the safety and quality attributes of U.S. product. One way they've done this is through the development of a food safety bureau which works heavily with not only the trade but also their consumers to allay their concerns. In Korea they've developed the Meat Export Research Center. The Korean meat school, Haggard said, is being seen as the education center for the butcher shops now opened to U.S. beef, as a place for them to learn how to sell imported beef. They also have a similar kind of school in Shanghai to target new importers that are expected to enter into the meat buying field after the WTO talks.

Concern about BSE or E. coli and other food safety issues is one reason source-verified products are on the rise in these markets. In Japan where 70 percent of the beef consumed is imported product, source-verified products are becoming increasingly popular. The Australians, in fact, are using source verification as a selling point.

"The more you can explain about your product, how it is produced, and the more you can uphold the integrity of your product to the consumer and to the trade, the more opportunity you have to sell that product," Seng reiterated.

Offering source-verified product, he added, is easier for countries like Australia because theirs is much smaller than the U.S. market, they don't have nearly as many cattle on feed, and consequently it's easier to develop these kinds of programs with their packers.

Another challenge the U.S. faces in terms of the export market is the outcome of trade talks with the World Trade Organization.

"We have no way of knowing what will happen between now and November when the next round is supposed to commence," Seng said. "This is the round that was supposed to have commenced in Seattle.

"What it means to worldwide trade – possibly $600 billion being added to world trade if this next round is kicked off. Everyone can recognize what that would mean not only to the U.S. economy and the world economy but also to agriculture trade in general."

There was much more positive news on the pork side. Exports for the pork complex were up 32 percent overall for the first half of the year. Fifty percent of all the pork that the U.S. exports goes to Japan. Overall, Japan was up 29 percent; Mexico up 22 percent; Canada up 49 percent; Hong Kong/China up 37 percent; the Russian Federation is up almost 500 percent; and the Oscine area is up almost 40 percent.

"It's a very good story on the pork side," Haggard said. "It's a story that started to get good in the mid-1990s. This year is up from a record year last year, so it looks like this year will be another record year. The fact that the U.S. industry has doubled its export market to Japan in the last five years is a tremendous accomplishment."

A question was posed as to why pork exports were up while beef exports were down.

"Beef prices are much higher relative to pork prices in the U.S.," Seng explained, "and I think that's one of the reasons why in the export market, even though we have the same strong dollar, the pork part is up and beef is down."

Pork promotion funding is also up rather than down. In 1991 funding stood at $1.3 million; today it's almost $3 million, just the reverse of what's happened in the beef market.

Haggard also pointed out that the pork industry got a bounce specifically in Japan and China from the bad FMD news in Europe. Beef, however, wasn’t necessarily able to take advantage of that because Europe doesn’t export much beef to Asia.

Furthermore, Seng noted, beef has simply had more food safety concerns with E. coli and BSE, and the pork complex has benefited at beef’s expense.