Production and Trade of All Meats to Expand in 2016

Beef and Veal:

  • Global production is forecast to rebound 1 percent higher to 59.2 million tons. Continuing herd expansion will drive production higher for major traders – particularly the United States, India, and Brazil. India continues to expand on growing foreign demand; exports account for 48 percent of production compared to only 18 percent for Brazil. Reduced slaughter will drive Australian production lower as inventories have been depleted and the return of favorable pasture conditions will spur herd rebuilding.
  • Exports by major traders are forecast 3 percent higher to 9.9 million tons on stronger demand. Gains are expected for most major traders including India, Brazil, and the United States. India will remain the top exporter as demand improves in Southeast Asia, the Middle East, and North Africa. Brazilian exports will rebound as a weaker real increases competitiveness and the reopening of the Chinese market creates new opportunities.
  • U.S. production is expected to rise for the first time since 2010 as cattle inventories recover on improved pasture conditions and lower feed costs. Exports are forecast 6 percent higher as growing domestic supplies put downward pressure on prices. A reduction in Australian exports will enable the United States to regain market share in Asia which will offset stagnant shipments to Canada and Mexico.

Pork:

  • Global production is forecast virtually unchanged at 112.0 million tons on marginal expansion by most countries. After three consecutive years of contraction, Chinese swine inventories are forecast stable in 2016 as lower feed costs and higher pork prices spur a slight increase in sows and improved efficiency (pigs per sow and industry consolidation). However, Chinese pork production will remain flat as a decline in slaughter offsets heavier weights. Russian production is higher on significant capacity investments, industry consolidation, stable feed prices and robust domestic demand.
  • Exports by major traders are forecast 2 percent higher to nearly 7.3 million tons as robust supplies drive prices lower, stimulating consumption. Marginal increases in purchases by most major importers will more than offset a further decline in imports by Russia. Among key suppliers, only the United States will undergo significant export expansion.
  • U.S. production is forecast up 1 percent to a record 11.3 million tons on continued strong recovery from PEDv. Exports are forecast over 4 percent higher to 2.4 million tons as competitive prices will bolster shipments to most markets, particularly Mexico.

Broiler Meat:

  • Global production is forecast to increase 2 percent to a record 89.3 million tons on expansion by all major traders. After surpassing China to become the second largest producer in 2015, Brazil is expected to continue expanding more rapidly due to stable feed costs and increased exports. India, the fastest growing producer, is expected to increase 8 percent on rising demand by a growing middle class.
  • Exports by major traders are forecast to rebound 4 percent to a record 10.7 million tons. Shipments will increase by the top three suppliers, Brazil, the United States, and the EU, which account for more than three quarters of world trade. Exports will be driven by robust supplies placing downward pressure on prices, lower prices compared to other animal proteins, and a weak euro and Brazilian real. Although constrained by lower oil prices and weak economic growth, many smaller markets will have marginal improvements in demand.
  • U.S. production is forecast to increase 2 percent to a record 18.4 million tons on heavier weights and lower feed costs. Exports are expected to rebound 8 percent to 3.2 million tons as lower prices and greater exportable supplies bolster shipments.

Review of U.S. Tariff Rate Quotas for Beef Imports

Background on U.S. Beef Trade

The United States is the world's largest producer of beef, but also imports more than any other country. U.S. producers specialize in raising high-valued grain-fed cattle, while imports largely consist of lower-value grass-fed lean product that is processed into ground beef. Overall, imports accounted for slightly more than 10 percent of beef supplies in 2014.

From 2010-2013, the United States was a net exporter of beef on a volume-basis. However, imports surpassed exports in 2014 as domestic production declined nearly 6 percent. Falling production was triggered by severe drought in the Southern plains and high feed prices which caused farmers to reduce their herds between 2009 and 2014. Reductions in the cow inventory led to lower production of lean (non-fed) beef increasing demand for lean processing meat.

Lower supplies have led beef prices to accelerate, but demand has been resilient. Rising imports of both processing beef and table cuts have offset some, but not all, of the lower production.

Elevated cattle prices and improved pasture conditions have spurred expansion in the cattle sector beginning in 2015 with beef production forecast to increase next year. However, in the short-term, cow slaughter will be lower as producers retain beef cows for herd rebuilding and this continues to support demand for imported lean beef.

Beef imports totaled $5.3 billion (957,000 tons product weight) in 2014 and exports totaled $6.3 billion (859,000 tons). While imports exceeded exports on volume-basis, the value of exports was greater due to higher average unit values of exports (grain-fed beef) than imports (lean processing beef).

Top Suppliers of Imported Beef

Australia was the leading supplier of U.S. beef imports in 2014, while Canada and New Zealand were a distant second and third. The bulk of shipments from Australia and New Zealand are frozen boneless beef for processing. Shipments from Canada and Mexico are typically highervalued fresh/chilled product and include beef sold as cuts.

Sanitary Requirements for U.S. Beef Imports

Obtaining U.S. beef market access is a multi-step process. Countries must first be approved by the Animal and Plant Health Inspection Service (APHIS) based on animal disease status. APHIS assesses the risks of introducing animal diseases as a result of trade. In addition, the Food Safety Inspection Service (FSIS) certify that foreign food regulatory systems employ equivalent sanitary measures to U.S. standards. Currently, 11 countries are eligible to ship fresh or frozen beef to the United States: Australia, Canada, Chile, Costa Rica, Honduras, Iceland, Ireland, Mexico, New Zealand, Nicaragua, and Uruguay.

U.S. World Trade Organization (WTO) Tariff Rate Quotas (TRQs)

As a result of the 1995 WTO Uruguay Round Agreement, the United States adopted a system of TRQs for imports of beef. The two-tiered system allows a specified volume of imports per calendar year at a lower (or zero) rate of duty and assigns a higher tariff rate to volumes abovequota.

Two types of U.S. TRQs were established through WTO negotiations:

  • Country-Specific TRQs: Created for Australia, Japan, New Zealand, Uruguay, and Argentina.
  • Other Countries TRQ: Provides preferential-duty access for other countries that are eligible to ship beef to the United States.

Free Trade Agreement (FTA) TRQs

TRQs are also created via FTAs, which are typically established as a transitional step towards duty-free access. The following agreements expanded beef market access into the United States:

North American Free Trade Agreement (NAFTA): As of January 2008, NAFTA was fully implemented, resulting in duty-free and unlimited access for beef among the United States, Canada and Mexico. Canada and Mexico are among the top suppliers of U.S. beef imports, accounting for over a third of shipments in 2014.

Australia: Australia received additional quota access in its 2005 FTA with the United States adding to its WTO quota of 378,214 tons. The agreement allowed supplemental duty-free access of 15,000 tons in the second year after enactment with a further 5,000 tons added annually or biannually. An additional quota with a reduced duty rate of 21 percent allows 3,500 tons in the first year and rising to 7,000 tons in 2022. In 2015 and 2016, total duty-free quota access is 418,214 tons with a further 4,000 tons at reduced duty.

Unlimited duty-free access begins in 2023.

CAFTA-DR: The 2004 Dominican Republic-Central America FTA (CAFTA-DR) established preferential quotas for each of the 6 parties: Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. FTA TRQs are contingent on first filling of the WTO Other Countries quota – currently available to Costa Rica, Honduras, and Nicaragua – which has yet to happen. Currently, these three members are eligible to ship beef to the United States and imports totaled $287 million in 2014. Since the agreement was signed, beef imports from CAFTA-DR countries have risen to nearly 60,000 tons in 2014. In 2020, CAFTA-DR countries will have duty-free unlimited access.

Other FTAs: Access has also been extended to the following countries through their respective U.S. FTAs: Bahrain, Chile, Colombia, Jordan, Morocco, Oman, Panama, and Singapore. TRQs are granted during the initial period of implementation and become unlimited at full implementation. At this time, only Chile is currently eligible to ship beef to the United States.

WTO Other Countries TRQ

Eligible countries without a country-specific quota can access the “other countries" TRQ of 64,805 tons. Currently, 5 countries (Costa Rica, Honduras, Iceland, Ireland, and Nicaragua) use the quota, which provides a preferential duty rate of 4.4 cents per kilogram. Imports above 64,508 must pay the full tariff of 26.4 percent ad valorem.

In 2014, the “other countries quota" reached a fill-rate of 86 percent for the six eligible countries, reflecting strong U.S. import demand. The fill-rate has climbed steadily over the past 10 years from a low of 45 percent in 2005. Once the WTO quota fills, country-specific TRQs from enacted FTAs will take effect, allowing an additional 33,000 tons for CAFTA-DR countries. As agreements are fully implemented, FTA partners will receive unlimited access, reducing pressure on the other countries TRQ.

Quota Allocation

The United States does not intervene in quota allocation; rather this is at the discretion of the exporting countries. For example, some countries distribute licenses to exporters. Australia maintains a system by which the quota is filled first-come first-served until reaching a fill-rate of 85 percent. The remaining 15 percent is allocated based on historical quota use. The “other countries" quota is first-come first-serve among the eligible countries.

Future U.S. Market Access

If additional countries receive APHIS and FSIS approval to ship fresh/frozen beef, competition for the other countries quota is likely to accelerate, at least in the short-term. Under the current scenario, if a new country becomes eligible, such as Brazil, imports could either displace shipments from other countries or be imported at the above-quota tariff rate. After 2020, competition by existing countries for the other countries TRQ will lessen as CAFTA-DR is fully implemented. Nicaragua, which accounted for over 70 percent of quota use in 2014, will have unlimited access, creating opportunities for other shippers. Further quota expansion could be obtained through future WTO negotiations (such as further Doha Round discussions) or future FTAs.