Brazilian beef access to the US – what it means for Australia
05 August 2016
MLA’s North America International Business Manager, David Pietsch, explains this week’s decision by the United States Department of Agriculture (USDA) to allow Brazil to export fresh and frozen beef to the US.
What’s the current situation?
The USDA this week announced that it had granted access for fresh and frozen Brazilian beef, following the determination that their animal health and food safety protocols meet equivalence with US standards.
Brazil has sought access to the US market for many years, but until now has been blocked due to Foot and Mouth Disease (FMD) and Bovine Spongiform Encephalopathy (BSE) concerns.
Following the announcement, Brazilian plants will still need to demonstrate a commercially-acceptable lotting system for maintaining the independence and traceability of lots tested for E. coli.
How much Brazilian beef are we likely to see entering the US?
Unlike Australia, Canada, NZ, Mexico, Uruguay, Japan and Argentina (the latter is currently excluded from the market due to FMD), Brazil does not have its own country-specific quota for beef exports to the US. It will compete for access under the ‘Other Countries’ quota, currently totalling 64,805 tonnes. This quota is also accessed by countries such as Nicaragua, Honduras, Costa Rica and Ireland, and has not been fully subscribed in previous years.
With subdued demand for imported beef in the US this year, and the quota restrictions, these elements suggest volumes of Brazilian beef shipped to the US over the remainder of 2016 will be modest. Brazilian authorities estimate 2017 will see up to US$400 million worth of Brazilian beef exported to the market.
What is the current situation for Australian beef in the US?
Other than Canada and Mexico, which have free access under the North American Free Trade Agreement, Australia maintains preferential access over all import competitors with an allocation totalling 418,214 tonnes in 2016. This comprises the WTO tariff rate quota of 378,214 tonnes and an additional 40,000 tonnes under the Australia-United States Free Trade Agreement which commenced in 2005. Under this agreement, Australia will effectively have free access to the US market from 2023 under the FTA when out-of-quota tariffs go to 0%.
Following two strong years of exports to the US in 2014 and 2015, Australian exports are down 36% for the first six months of 2016, in line with reduced Australian beef production and increased US domestic beef production and lower prices.
However, Australia has increased its exports of chilled grassfed beef (as a proportion of total beef exports to the US) in 2016 to 20%, up from 17% in 2014 and 2015. This comes as a result of the dominant position we’ve carved out in the premium grassfed beef market in the US, boosted by collaborative and generic marketing of Australian grassfed beef by exporters, importers and MLA.
What are the likely implications for Australian beef?
While in the short-term exports are expected to be minimal, it is too early to speculate on the market impact of fresh and frozen Brazilian beef exports to the US market given the multitude of factors, including Brazilian beef prices, US beef prices, currency movements, market demand and quota access.
However, from 2017 onwards Brazil expects to be a low-cost competitor to those countries, such as Australia, supplying lean manufacturing beef for further processing, including hamburgers, into the US.
The countries most significantly and immediately challenged in terms of quota access will be those currently supplying under the ‘Other Countries’ quota, including Nicaragua and Ireland, although the former does have the potential to access additional amounts under Central American Free Trade Agreement, should the ‘Other Countries’ allocation be filled.
Brazil is unlikely to be a meaningful competitor to Australia in the growing premium grassfed beef segment in the short-term, due to our existing trade and end user relationships, quality and the high perception of Australian red meat.
What is MLA doing to strengthen Australian beef in the US market?
MLA’s trade communication, business development and brand building activities over many years continue to keep Australia’s strong import position in good stead. Our focus on differentiating Australian product on the basis of provenance, food safety and quality assurance systems, traceability, meat quality and sustainability will continue.
MLA works closely with exporters and importers to promote Australian beef’s credentials through investments in digital communication, trade advertising, education programs (including culinary immersions and partnerships with chef collaborations and associations) and consumer point-of-sale promotions. As directed by Australian industry stakeholders, much of this work has been focused on highlighting Australia’s competitive advantage in the US market’s growing chilled and premium grassfed beef sector.
MLA will continue to invest in market intelligence and analysis to model and communicate the potential impact on Australian industry from Brazil’s entry to the US market over the medium term. We will also be tracking trade awareness and perceptions towards imported meat from different countries.
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