KAY'S korner

Opinion
Apr 2, 2010

Eyes are on Japan again

Agriculture Secretary Tom Vilsack Is in Japan this week to promote U.S. farm exports to that country. Beef is to be featured prominently, both in the promotions and in private discussions with Japanese government officials. Both countries realize that Japan’s age limit on U.S. beef imports needs to be addressed. But how to do so that allows both sides to “save face” is what complicates the talks.

I wrote about the lost sales to Japan two months ago, so I will merely update the issue now. What has changed since then is the U.S. government’s likely new approach.

Indications are it has abandoned the all-or-nothing approach for a step-by-step approach. Another change is a likely abandonment of the “one size fits all” approach to beef and other trade agreements. Beef agreements with South Korea and Taiwan still guide the U.S. approach to Japan. But it seems the U.S. is now more willing to find out what will make Japan comfortable in food safety terms in raising its age limit.

First talk of a change in approach came from Vilsack in a March 5 speech to industry representatives. The U.S. in the past basically approached trade with a onesize-fits-all approach, he said. By contrast, the U.S. now must begin realizing that “not every country that we discuss trade with is in the same position … we will now put in place a new strategy, a new approach. It will recognize that there are different markets, depending on where we are in the globe, who we’re talking to,” he said. “One size does not fit all, and it’s important for us to tailor our approach in trade to the individual market conditions we find, and we’re prepared to do that.”

If only he had said that a year ago, before Japan got a new government that is far less receptive to relaxing the age limit. Vilsack’s new approach is certainly positive, but Japan’s politics will make eventual resolution of the issue extremely slow. Observers say little progress is likely to occur until after a July election in Japan when the ruling Democratic Party of Japan (DPJ) attempts to maintain its hold on the Japanese upper legislative house. The DPJ wants to be seen as protective and mindful of the safety of Japanese consumers ahead of those elections.

U.S. beef exports to Japan are severely constrained by the age limit (only beef from cattle under 21 months of age). More than 90 percent of fed cattle are younger than that when processed. But the industry doesn’t have the mechanism to age verify more than 25 percent of the cattle. So exports are still small. Packers have been offering age verification premiums from $35 to $50 per head. But they have attracted relatively few producers to age verify their calves.

The big impediment has been the uncertainty about when Japan might lift its age limit. Every time a report suggested it would relax the limit, this dissuaded producers from spending money to verify. They felt that once the age limit was lifted, age verification premiums would disappear. Producers who began age verifying two or three years ago have probably covered all their fixed costs regarding verification. Based on what I have heard, Japan’s age limit might be in place for another 18 months to two years. So it still makes economic sense for producers to age verify their calves. Even if premiums for Japan-destined beef eventually stop, age verification may have a value for other reasons.

Meanwhile, JBS has discovered Asia in a beefy way.

The world’s largest beef processor and exporter was locked out of the potentially lucrative markets of Japan, South Korea and Taiwan for years because of foot and mouth disease in Brazil and Argentina. It rectified that in 2007 when it acquired Swift & Company, which included Australia’s largest beef exporter to Japan. Its progress since then in growing its exports to Asia has been startling. JBS in the U.S. has leapfrogged over slightly larger firms Cargill and Tyson to become the largest exporter of fresh and frozen beef to Japan. JBS Australia is now poised to get even bigger by acquiring Rockdale Beef in New South Wales.

Given JBS already has the capacity to process 92,000 cattle per day in five countries (including 8,700 head in Australia), Rockdale won’t add much to that (about 800 head per day or 200,000 per year). But Rockdale is a valuable addition because it has in the past focused on producing grain-fed Angusbased beef for the Asian market. It exports to 12 countries, eight of them in Asia.

It has an integrated feedlotmeat plant, feed mill and farming business on 2,000 hectares of farmland in the Riverina region. The feedlot has a 50,000-head capacity.

As for the Australian government’s flip-flop over allowing beef into the country from countries that have had BSE cases, it’s sad to see any country abandon sound science for political science. The government presumably felt comfortable about allowing in beef from BSE countries because of numerous safeguards in place in these countries to keep BSE out of the beef supply. Australia was also guided, no doubt, by recommendations laid down by the World Organization for Animal Health (known as the OIE). It would have noted OIE’s BSE “minimum risk” status conferred on countries such as the U.S.

What the government and industry didn’t reckon on was opposition bordering on hysteria, in part whipped up by a producer group. It made absurd claims about the safety of U.S. beef and created such a backlash that the Australian government was forced to declare that all such imports will be subject to an import risk analysis (IRA) that might take up to two years. Australia’s backtracking might have set a dangerous precedent for others to follow. What’s to stop Japan from using Australia’s demand for IRAs to delay removing its age limit on U.S. beef? — 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.)

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