U.S. Beef In China

Politics and commerce often collide, leaving the business community mulling uncertainty while preparing for fallout. With the election of pro-business candidate Donald J. Trump to the U.S. presidency, foreign trade policy was slated to undergo intense scrutiny. A focal point of the new administration was to be a swift reduction of the U.S.–China trade imbalance.

The April 2017 Mar-a-Lago Summit between President Trump and Chinese President Xi Jinping aimed to address many issues surrounding U.S.–China relations. A public release of a 100-day action plan promoting mutual economic cooperation served as the primary accomplishment of the meeting. Highlights of the proposal included a compromise involving U.S. beef, liquefied natural gas, and processed Chinese poultry.

U.S. Beef: Reintroduction

Since 2003, China has banned U.S. beef imports from domestic markets citing concerns over mad cow disease and the use of hormones in production. Instead of importing beef from the U.S., China has sourced production from New Zealand, Uruguay, Australia and Brazil.

However, growing beef consumption in China has rapidly outpaced their ability to replenish supply. According to Bloomberg, Chinese per capita beef consumption is up 33 percent since 2012. With a population of 1.4 billion, and a growing median household income, the increasing appetite for beef products has resulted in precipitously higher prices.

As a primary tenet of the Trump/Jinping 100-day action plan, China is to allow U.S. beef into its domestic markets no later than July 16, 2017. Estimates from U.S. Commerce Secretary Wilbur Ross have approximated China’s beef import market to be worth over $2 billion annually, a potentially lucrative venue for U.S. producers.

Moving Forward: American Supply And Chinese Demand

In the wake of the 2003 mad cow episode, 17 countries imposed trade bans on U.S. beef, with China being one of the largest markets. According to industry publication Food Safety News, U.S. beef exports fell from $3 billion in 2003 to $1.1 billion in 2004 amid the scare. Since that time, the U.S. beef industry has recovered, annually ranking among the top five exporters in the world. For year-end 2016, the USDA reports U.S. beef accounted for 11.87 percent of all global exports.

The sheer size of China’s consumer base has injected excitement throughout the industry. Access to this vast market may prove advantageous to U.S. producers for several reasons:

• China is expected to import  950,000 metric tons of beef for 2017, up 138,000 metric tons year over year.
  
  
• China is projected to lead the world in beef consumption for 2017, with a measure of 8 million metric tons, up 251,000 metric tons year over year.
  
  
• Reduced supply from Australia and New Zealand due to drought and herd building can create an immediate lag in imports.
  
  
• As of January 1, 2017, U.S. cattle inventory was up 2 percent, with a robust calf crop up 3 percent year over year, a direct indication of improving herd strength.
  
  
• U.S. beef production is projected to be at a 9 year high, up 5 percent to 12 million tons for 2017.
  
  
• Due to regional diet preferences in eastern Asia, secondary beef products — such as chuck roast, tongue, stomach, short ribs and heart — may see rising value.

With a strong U.S. supply, and growing Chinese consumption, a positive U.S.–China beef relationship may be in the offing. Add in lagging supply from global competitors, U.S. beef is likely the ideal vehicle that fills the potential void.

However, what looks good on paper is not necessarily a slam dunk. The fledgling China–U.S. beef trade will face several challenges that may limit its utility to U.S. producers:

• Definitive industrial standards and regulations are not yet outlined by the agreements put forward in the 100-day plan. Forthcoming disruptions to the trade remain a possibility.
  
  
• Importing beef will be globally competitive in the future, led by industry leaders Australia, Brazil and New Zealand. In addition, China has recently lifted restrictions on direct bovine imports from India and opened to beef from Belarus.
  
  
• Currently, U.S. beef enters China indirectly through Bangkok and Hong Kong. While direct trade will certainly be conducted on a much larger scale, the degree of which remains unclear.
  
  
• Currency valuations between the U.S. dollar and Chinese Yuan will have a considerable impact upon the ultimate value of U.S. exports to China.

Although the reintroduction of U.S. beef into China is certainly a step in the right direction, the future value of the relationship is dependent upon many external factors. At least for the short-term, U.S. beef looks to be a great fit for the vast Chinese market. U.S. producers may be in position to see an immediate and positive impact from the ban’s lift.