Abstract

Disease outbreaks and related trade restrictions have slowed previously expected high growth for many U.S. animal-product exports, with U.S. beef exports most affected. U.S. beef exports fell significantly as Japanese consumers avoided purchasing beef following the discovery of BSE in Japan in September 2001. Exports increased after the discovery of BSE in Canada in May 2003 led to worldwide restrictions placed on Canadian beef. They declined in response to restrictions put on U.S. beef exports after the discovery of BSE in the United States in December 2003. The BSE discoveries in the United States and Canada also disrupted North American cattle trade. Export growth for poultry products has been limited over the past several years because of restrictions and culling related to Avian Influenza and Exotic Newcastle Disease. Pork, live hogs, and lamb and mutton have not been directly affected by disease-related trade restrictions, and U.S. pork exports are expected to reach a new record in 2004.

Introduction

The higher export growth of U.S. meat products expected after the world financial crisis of the late 1990s has been slowed by disease outbreaks and related trade restrictions.1 While U.S. beef exports were a record 2.5 billion pounds in 2003, they might have been higher if not for the discovery of bovine spongiform encephalopathy (BSE) in several Japanese cows since late 2001.

Japanese consumers significantly reduced their beef consumption immediately following the discovery of BSE in Japan, unlike North American consumers, whose consumption of beef was largely unaffected by the discovery of two cows with BSE, one in Canada in May 2003, and one in Washington State in December 2003. However, the finding of BSE in that Canadian-born dairy cow in Washington State resulted in trade restrictions that have reduced forecast 2004 U.S. beef exports to only 451 million pounds.

Poultry meat exports from the United States totaled 5.5 billion pounds in 2003, 2 percent above 2002 levels. Continuing disease-related problems and Russian trade policy uncertainty prevented exports from being higher. Exports are expected to decline more than 11 percent in 2004 because outbreaks of Avian Influenza (AI) in early 2004 led to bans on U.S. poultry meat exports. The forecasts here assume there are no additional AI outbreaks and that current bans on U.S. poultry shipments will be regionalized (limited to selected geographical regions).

Only U.S. pork exports have shown steady growth over the last several years, in spite of frequent increases in minimum import prices under Japan's pork safeguard system. U.S. pork exports are expected to reach a record 2.07 billion pounds in 2004. Pork, live hogs, and lamb and mutton have not been directly affected by disease-related trade restrictions, but pork and hogs have faced other types of trade restrictions.

Source: Historical data, U.S. Department of Commerce.

Pork Exports Continue to Increase in Spite of Japan’s Pork Safeguard and Canadian Competition

Although U.S. pork exports have increased almost 16 percent annually since 1990, export growth has slowed in recent years. In 2003, the United States exported almost 1.72 billion pounds of pork products, up 7 percent from 2002. If recent trends continue, however, pork exports are expected to increase about 21 percent in 2004, to 2.07 billion pounds. U.S. pork exports depend largely upon what happens in Japan, Mexico, and Canada, markets that typically account for about 80 percent of U.S. exports.

The lower valued U.S. dollar and economic growth generally increased pork export demand last year. Both factors, along with disease-related market closures to beef and poultry, have supported an increase in pork exports in 2004.

Japan is by far the most important export market for U.S. pork, in recent years accounting for 45-50 percent of total U.S. pork exports. Last year, economic expansion and a relatively strong yen pushed Japanese pork imports from the United States higher. The same factors again favor higher Japanese imports in 2004.

The closure of Japanese markets to imports of North American beef and to uncooked poultry from AI-afflicted countries (especially China and Thailand) creates opportunities for pork-exporting countries. The relatively cheap U.S. dollar will help to make U.S. pork especially attractive to Japanese buyers compared with Canadian and Danish products, the other major pork suppliers to the Japanese market. In 2003, the United States and Denmark each accounted for roughly 30 percent of Japanese pork imports, while Canada held a 21-percent share.

Pork safeguard slows growth in Japanese pork imports

U.S. pork exports to Japan increased in 2003, despite the 25-percent increase in the minimum price of imported pork that had been in place since August of 2002 and allowed under the Japanese pork safeguard system, sanctioned by the World Trade Organization. This system allows Japan to increase the minimum import price by 25 percent following any quarter in which imports exceed 119 percent of the previous 3-year average, and to maintain that level for the remainder of the Japanese fiscal year (April-March). The stated purpose of the pork safeguard is to prevent surges of imported pork from harming domestic pork producers.

Unlike the similar beef safeguard, which has been little used, the pork safeguard has been invoked in 6 of the last 10 years, most recently in August 2003. Nevertheless, U.S. pork exports to Japan have increased in all but one of the last 10 years. Imports of frozen pork tend to surge in the period leading up to the safeguard, as stocks are increased, and in the period after it expires because stocks of frozen pork decline while the safeguard is in effect. While the safeguard is in effect, Japan imports more fresh pork products than usual. The main effect of the safeguard has been, therefore, to disrupt established seasonal import dynamics.

Canadian pork imports linked to industry integration

Canada accounted for about 11 percent, or 191 million pounds, of U.S. pork exports in 2003, an increase of almost 2 percent over 2002. In 2004, U.S. exports to Canada are expected to increase on the strength of the high degree of integration between the Canadian and U.S. pork markets. This factor, together with the lower valued U.S. dollar, creates opportunities for companies to source pork products in the United States for sale in Canada.

Strong pork sales in Canada are being helped by continuing high retail beef prices in Canada despite an increased inventory of cattle related to the ban on exports of live animals from Canada. Cattle slaughter capacity in Canada has been limited and markets are robust for Canadian beef, both domestically and for permitted beef in Mexico and the United States.

U.S. exports to Mexico vary with Mexican economic growth

Mexico is the second most important market for U.S. pork, accounting for 20 percent of U.S. pork exports in 2003. In 2003, U.S. pork exports to Mexico totaled nearly 349 million pounds, up 11 percent from a year earlier. The recovering Mexican economy, closely linked to the U.S. economy, largely explains the double-digit increase in pork shipments to Mexico in 2003. Continued strong economic growth bodes well for a further increase in Mexican imports of U.S. pork products in 2004.

Pork imports continue to increase

Although the United States has been a net exporter of pork since 1995, it remains an important importer of pork products as well. In 2003, the United States imported 1.2 billion pounds of pork products, almost 11 percent more than in 2002. Nearly all U.S. pork imports were from Canada (82 percent) and Denmark (12 percent). Imports may decline slightly this year due to increased domestic pork supplies and a lower valued U.S. dollar.

Denmark supplies U.S. consumers with products not readily provided by the domestic pork industry. Baby back ribs constitute a significant share of U.S. pork imports from Denmark. American consumers’ appetite for baby back ribs outstrips the U.S. pork industry’s ability to supply them because of the U.S. industry’s preference for larger, heavier hogs, rather than the smaller animal favored in Europe, which is better suited for baby back rib production. In 2003, Canada accounted for more than 80 percent of U.S. pork imports, compared with only 50 percent in 1990. Most of the increase in Canada’s U.S. market share has come at Denmark’s expense, as Canadian production and exports increased 64 percent and 175 percent, respectively, between 1990 and 2002.

In contrast, imports from Denmark fell 55 percent over the same period. Proximity to the American market has provided Canada a competitive edge over Denmark, especially in fresh product. Furthermore, firms on both sides of the U.S.-Canadian border have taken advantage of the relatively free-trade environment that exists between Canada and the United States to integrate American and Canadian pork supply chains.

Live hog imports up in 2003 and 2004 as a result of market integration and BSE in Canada

Imports of live hogs totaled 7.44 million head in 2003 and are expected to increase to around 7.8 million head in 2004. Virtually all of these hogs are from Canada. About 70 percent are typically feeder pigs and 30 percent are slaughter-ready animals. The recent dramatic growth in the number of hogs imported from Canada is a reflection of the increasing integration of complementary systems of North American hog production. Canada’s hog industry remains deficit in slaughter capacity and feed grains, while the U.S. sector typically faces a surplus of both feed grains and slaughter capacity. Consequently, larger numbers of both feeder pigs and slaughter-ready animals have been sent to the United States in recent years.

Source: Historical data, U.S. Department of Commerce.

In addition to the longer term issues of slaughter capacity and feed supplies, hog imports from Canada increased in 2003 because a stronger Canadian dollar made it difficult for Canada to sell pork in other foreign markets. The strong Canadian dollar made Canadian pork prices on international markets relatively more expensive than pork prices from countries with weaker currencies, including the United States. While the strong Canadian dollar also made feeder pigs exported to the United States more expensive than they otherwise would have been, the lower valued U.S. dollar made it economical to feed and market large numbers of them in the United States.

Weak slaughter margins also existed in Canada in 2003, and may have been exacerbated from late May 2003, when nearly all Canadian beef exports were banned, until beef began flowing again to the United States and Mexico in the fourth quarter. Imports of live hogs from Canada in the last half of 2003 increased 50 percent over the previous year, with nearly the same rate of growth continuing into the first quarter of 2004. With imported feeder pigs and slaughter animals from Canada expected to represent almost 8 percent of projected U.S. hog slaughter in 2004, the outcome of a petition filed by the National Pork Producers Council and others in March 2004 with the U.S. Commerce Department and the U.S. International Trade Commission (USITC) could have significant implications for U.S. pork production. In early May, a preliminary USITC ruling on the petition found reasonable indication of injury to U.S. pork producers from Canadian live hog imports. Final resolution of the issues raised in the petition could take as long as a year after the initial filing of the petition.

Live hog exports increase as Mexico eliminates compensatory duties

The United States exported nearly 170,000 hogs in 2003 and is expected to export around 272,000 in 2004. Mexico has accounted for about 60 percent of the U.S. live hogs exported over the last 10 years, with the balance sold to Asian countries as breeding animals. Forecasts for 2004 have been increased to reflect Mexico’s elimination of compensatory duties on live slaughter hog imports from the United States.

Since October 1999, U.S. live hog exports to Mexico have been subject to duties of $0.17 per pound, in addition to an in-quota import tariff applied to live hog imports from countries of the North American Free Trade Agreement (the United States, Mexico, and Canada). U.S. hog exports to Mexico had declined significantly after the imposition of the duty, falling to about 50,000 head in 2000 and 2001 from 208,000 head in 1998.

Live hog exports have averaged less than 1 percent of total U.S. hog slaughter over the past 10 years. Typically, breeding stock account for about a third of exports; slaughter hogs account for about 60 percent; and feeder pigs account for the remainder.

Acknowledgments

The authors wish to acknowledge the helpful comments of reviewers Sean Fox and James Mintert of the Department of Agricultural Economics, Kansas State University; Ann Seitzinger of the Animal and Plant Health Inspection Service, USDA; Shayle Shagam of the World Agricultural Outlook Board, USDA; Wendell Dennis of the Foreign Agricultural Service, USDA; and Janet Perry and Joy Harwood of the Economic Research Service, USDA. Priscilla Smith and Cynthia Ray of ERS provided excellent editorial and design assistance.

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