KAYS korner

Jan 29, 2010

Lost sales to Japan begs new approach

Money talks, but apparently not loud enough to get the Obama administration to take a fresh approach to getting Japan to relax its restrictions on U.S. beef imports. Perhaps it is because the beef industry hasn’t screamed enough about how much money the industry is losing because of the severely limited access to the Japanese market.

Recent stories might have you believe that all is well with our beef export business. But headlines extolling the export “rebound” mask the fact that shipments to Japan in 2009 were only 25 percent of the 2003 volume. That’s because since exports resumed in 2006, the U.S. has only been able to ship beef from cattle under 21 months of age.

Gaining greater access to Japan is critical because of that market’s size and importance. It became by far the U.S.’ biggest export market in the late 1990s and in 2000, took a record 546,000 metric tons of U.S. beef and beef variety meats worth $1.814 billion. U.S. and other imports in 2002 declined after Japan had several bovine spongiform encephalopathy (BSE) cases, which impacted beef sales there. But the market and U.S. exports were recovering strongly by 2003.

That year, the U.S. exported 375,500 metric tons worth $1.391 billion.

Then the U.S. had its first BSE case and Japan banned all U.S. beef until 2006. It then lifted the ban, but imposed the under-21 limit. In large part because of this, export volumes in 2009 looked like being only 25 percent of the 2003 volume. That’s despite exports the first 11 months (86,153 metric tons worth $443 million) up 23 percent on the same 11 months in 2008.

So while the U.S. has made progress in growing its exports to Japan, the age limit remains a huge barrier to significant export increases. Export protocols require certain types of age verification, which less than 30 percent of fed cattle have. Raising the age limit to under 30 months would qualify 90 percent of all fed cattle, say analysts.

The ban and restricted access mean the industry has lost $7.158 billion in sales to Japan since 2003, according to my calculations. This loss is based on the six years after 2003 having the same sales as in 2003. If one takes fed steer and heifer slaughter over those six years, that’s a loss of nearly $44 per head. If one takes total commercial slaughter (as the U.S. used to send some items to Japan from older cattle), the loss is $35.60 per head.

The losses are so enormous that it is crucial the U.S. persuade Japan this year to lift its age restriction. Improved sales will help raise wholesale beef and cattle prices. Yet there are no signs the U.S. and Japan are making any progress over the age restriction.

This is of growing frustration to beef exporters and industry officials. They want the U.S. government to take a fresh approach.

Resolution of the issue faces several barriers. But none is insurmountable. It will take a significantly different mindset, however, than seen under the current and past administrations. One hurdle is that the new Japanese government has more pressing issues to address and lifting the age limit is a low priority for it. But the Obama administration has also not made the issue a high priority. It appears to have merely followed the all-or-nothing policy adopted by the Bush administration instead of talking about lifting the age limit to under 30 months of age.

Another barrier is that an under-30 agreement with Japan might upset South Korea, which in 2008 agreed to fully open its market. Yet the U.S. later agreed to send beef only from under-30 cattle because of the turmoil the agreement caused in Korea. So why not ask Japan to lift its age limit to under-30 and, if necessary, rewrite the formal agreement with Korea to keep it happy? Another approach would be to offer Japan the same agreement as Korea’s, but also say that the age limit for an undefined period will be under-30.

The industry must take the lead on a total re-start to the issue. It needs to persuade the Obama administration to adopt a step-by-step approach and abandon the all-or-nothing approach. Trade associations such as the National Cattlemen’s Beef Association, the Texas Cattle Feeders Association, the Kansas Livestock Association, Nebraska Cattlemen, the American Meat Institute and the National Meat Association need to pen a “letter of intent” to USDA and the Office of the U.S. Trade Representative. The letter should strongly argue for the administration to ask Japan to lift its age limit to under-30.

The industry has been largely united on this approach for some time. But the Bush administration used support for the all-ornothing approach by one or two groups to justify its approach. It also pushed this approach based on the U.S.’ BSE risk status. This strategy has clearly failed. The administration needs to adopt a more pragmatic approach so the industry can recover the $1 billion plus per year it is still missing out on in Japan. — 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.)