Kays Korner

Cattle Market & Farm Reports, Editorials
Dec 20, 2007
by WLJ

June 6, 2005

It was just a coincidence that news of the Supreme Court’s decision in favor of the beef checkoff came as Japan and South Korea move closer to a resumption of beef trade with the U.S. It will probably be several months before that trade begins. But when it does, the industry will need every promotion dollar it can muster to buy its way back into its two most important export markets.
Important they certainly are. The two in 2003 took 623,000 metric tons of beef worth $2.2 billion. That’s more than $62 for each animal commercially slaughtered in the U.S. in 2003. With this and other export trade halted throughout 2004, the total value of U.S. beef exports fell to $809 million, compared with $3.86 billion in 2003. The math says that Japan and Korea in 2003 accounted for 57 percent of all exports in value terms, $43 million per week.
Once trade resumes, there will be hurdles at home in terms of the number of cattle that will qualify. Much was made of using carcass maturity scores to determine age. But packers won’t be able to track by-products for export purposes if they use this method. So it’s doubtful that 15-20 percent of all fed cattle will qualify. Packers will also have to evaluate how to make it economically feasible to segregate cattle for export. The number of product SKUs (stock-keeping units) they produce could double in the process.
Then comes the even tougher part. Packers and the industry will have to convince Japanese and Korean consumers that U.S. beef is safe and not “tainted”. It will be even tougher to do this if Japan continues to test all its cattle for BSE. Consumers will see “BSE-tested” beef alongside non-tested U.S. beef in retail stores. Given their skittishness over food safety, it’s not hard to imagine what they will choose initially.
Then there’s the “shutout factor.” The longer the U.S. is out of these markets, the tougher it will be to regain market share. In Japan, Australia’s market penetration is deeper than ever before. Its 2004 exports to Japan rose 41 percent to 393,500 metric tons (higher than the U.S.’ 376,000 metric tons in 2003). Its 2005 exports will be an estimated 430,000 metric tons. Significantly, Australia’s grain-fed beef exports to Japan in 2004 were up 55 percent to 172,000 metric tons. So it will remain a formidable competitor in Japan for some time.
As for the Supreme Court’s ruling on the beef checkoff, I suspect we haven’t heard the last from those who challenged the checkoff’s constitutionality. That’s because the Court, notably Justice Clarence Thomas, seemed to suggest the checkoff could still be open to challenge for potentially infringing First Amendment rights.
At this point, I have a couple of observations. First, the entire legal marathon, and the bitterness that accompanied it, would have been avoided had greater efforts been made to assuage the Livestock Marketing Association’s early complaints. LMA for a long time said it just wanted a vote on the checkoff so it began its petition drive. But what I believe LMA was really saying is this—livestock markets are required to collect the majority of the checkoff dollars and send them on, yet they get no recognition for this role that was imposed on them by Congress. In fact, all they get is complaints from producers about the dollar per head taken off their check from the market.
Markets are still collecting dollars so the issue remains central to the future of the checkoff. I don’t know what will make livestock markets feel more “valued”. But the industry and USDA needs to consider what will, whether it’s giving LMA formal representation on the Beef Board, paying markets a fee for collecting the checkoff dollars or supporting livestock markets in some other way.
My second observation is that the industry (by which I mean the Beef Board and NCBA) needs to act quickly to offer something real to LMA and its members. The four-year legal battle clearly does not want to be repeated. Only when LMA feels less aggrieved can the healing of old wounds begin. Then, the industry might be able to start talking about how to increase checkoff dollars. The $1 per head is clearly a pittance in a $40 billion industry. I’ve long believed that the most important issue about the checkoff is whether it should be $2 or $3 per head. It may be wishful thinking but wouldn’t it be great if, in a couple of years, that was the only debate about the checkoff. — Steve Kay
(Steve Kay is editor/publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533; Petaluma, CA 94953; 707/765-1725. His monthly column appears exclusively in WLJ.)