KAYS korner

May 29, 2009
KAY’S kornerAll eyes are on Paris

Paris is a long way culturally and geographically from Amarillo or Omaha. But a meeting in the French capital last week could have an important bearing on the profitability of the U.S. beef industry for the next year or so. Paris played host to the annual meeting of the World Organization for Animal Health (commonly known as OIE). One decision there could materially boost U.S. beef exports to Japan.

The OIE’s 172 member countries last Tuesday voted to bestow on Japan the BSE status of “controlled risk.” This will give Japan the same status as the U.S. More important, it means Japan will acknowledge OIE as the guiding body on international animal health matters. This will provide a vital context for Japan to lift its under-21-month age restriction on U.S. beef. OIE can only set guidelines as to phytosanitary measures and trade. But Japan will now be able to use these to realign its policies on accepting beef from countries that have had BSE cases.

Japan will likely consider going to an under-30month age restriction as a first step. Some in the U.S. have been pushing for Japan to lift all restrictions.

But under-30 is a big move. It would mean the U.S., in theory, could ship 90 percent of the 376,000 metric tons (MT) of beef cuts and variety meats it sent to Japan in 2003 when there were no restrictions. Exports in 2008 were only 20 percent of that volume.

Japan’s gaining BSE controlled risk status will be immense, says Phil Seng, president and CEO of the U.S. Meat Export Federation. It will put Japan on the same plane as others and says that Japan agrees with the governance of OIE. It is his understanding that Japan is interested in being in accord with international standards.

Both the Japanese industry and government have shown a strong will to move forward, he says. Seng hopes a new accord with Japan could help relax BSE-related restrictions on U.S. beef in other countries. The U.S. industry is leaving $100 million a week on the table because of trade it is not getting to Japan and other countries, he says. New talks between the U.S. and Japan are likely to start soon. But resolution might take a while.

Japan, along with most other countries, banned U.S. beef after the U.S. reported its first BSE case in December 2003. It took until July 2006 for it to start accepting U.S. beef again.

One subject that will be heavily scrutinized will be the identification and segregation of cattle under 30 months of age from those that are older. Packers already use dentition to verify age in regard to removal of specified risk materials from older cattle. This is one of the many safeguards the U.S. has to prevent BSE entering the beef supply. But based on past experience, Japan will want multiple assurances that dentition is accurate.

Who would have thought that checking the teeth of cattle would be such a factor in the global beef trade? Speaking of trade, science is the big loser in a May 16 agreement between the U.S. and the European Union (EU) over the latter’s 23-year ban on implants.

The EU has given the U.S. a new 20,000 MT tariff-free quota for each of the next three years, with another 25,000 MTs in the fourth year. But the hormone ban remains in place.

In addition, the EU won’t allow U.S. packers to use carcass rinses on beef they ship to Europe. It will conduct a risk assessment of these rinses during the next three years to decide their safety. The U.S., in turn, says it won’t lift its threat of tariffs on EU exports to the U.S. until the EU approves the rinses.

The U.S. thus caved in on implants although most scientific studies, apart from those in the EU, say implants are safe. It also caved in on the use of rinses, which are also safe. Most are organic, natural rinses such as lactic acid. Every packer in the U.S. uses them because their customers demand their use to reduce the possibility of pathogen contamination.

How ironic that the EU would block the use of these rinses and thus expose their consumers to the risk of being infected with E.coli O157:H7 or some other deadly bug. That’s the kind of convoluted thinking that has characterized this dispute from the early 1980s.

It’s easy to say the U.S. should have stuck to its scientific guns and given up on the EU. Yet, it’s doubtful the U.S. will send much more beef under the new quota because the economic incentive is likely to be small. Packers will have to pay producers a premium for non-implanted cattle.

They will have to segregate these cattle, their carcasses and the beef throughout their plants, keeping nonimplanted, non-rinsed beef separate from the rest. Packers will then have to find outlets in Europe willing to pay a hefty premium for the beef. They will face strong competition from Brazilian, Australian and New Zealand beef. Australia exported 11,863 MT to the EU in 2008 while the U.S. exported only 6,000 MT. Incidentally, all three countries under World Trade Organization rules must be offered the same tariff-free quota given to the U.S. It’s unlikely that many Europeans will be able to afford more expensive U.S. grain-fed beef. The bottom line is: The U.S. has expended a lot of energy trying to get its beef into Europe. If only it had spent as much effort growing markets in still wealthy Arab states such as Dubai and the Emirates. — 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. Kay’s Korner appears exclusively in WLJ.)