US beef quota close to trigger volume

25 August 2015

Very high cattle slaughter across Australia, and strong demand for imported beef in the United States (US) throughout 2015, has resulted in Australian beef exports to the US increasing at an unprecedented pace this year.

As a consequence, the Australian Department of Agriculture (DA), which administers Australia’s export quota access arrangements, will start allocating the final 15% of Australia’s country specific annual US beef quota to exporters, possibly as early as next week (commencing 31 August).

Australia has access to a tariff free calendar year beef quota of 418,214 tonnes shipped weight (swt) in 2015, made up of 378,214 tonnes swt allocated under the 1995 multilateral Uruguay Round Agreement on Agriculture, and a further 40,000 tonnes swt under the Australia/US Free Trade Agreement (AUSFTA).

The quota is generally administered on a first come, first served basis, but when export volumes reach 85% of the  quota, DA will allocate the remaining 15% to eligible Australian exporters based on their beef shipments to the US over the previous two years (in this case from 1 November 2012 and until 31 October 2014).

This will be the first time the quota allocation system has been triggered since the AUSFTA was signed in 2005 - as noted by the Minister for Agriculture in June this year).

As at Friday 21 August, Australia’s US beef quota usage had reached 82% (or 342,956 tonnes swt).

The last 15% of allocated quota will be tradeable (and can be transferred in the 10 business days after the quota is triggered), meaning that exporters without quota can purchase volumes from those with quota. Other options open to exporters looking to ship to the US are to apply for quota that may be available in the uncommitted pool at the end of the allocation process; apply for 2016 US beef quota (with the knowledge that the product will not be allowed to clear US customs until 2016, and must be held in bond storage until then); or exporters can ship beef to the US out of quota, but this will attract a tariff of 21.12%.

If beef is shipped out of quota, importers will face the additional cost of the tariff, which will add pressure to price negotiations with Australian exporters.

This tariff could be shared between importers and exporters, as US end-user demand for imported beef is still relatively high, and imported beef is currently trading at a discount to US-produced beef in-market.

The allocation of quota may also have a further impact - with those exporters with small (or no) allocations finding it difficult to export beef to the US for the remainder of the year.

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