March 6, 2013

Russia, China retain ban on meat imports from US

Russia and China still do not allow the production, sale or use of the two beta agonists that are registered for use in the US-ractopamine, and in the past few months, both have taken steps to enforce their bans on beta agonist residues in imported pork and beef.

The first to move was Russia, which notified the US and other countries in December that they were required to certify that their pork and beef exports were free of ractopamine residues. When the US government did not implement a programme for certifying exports, Russia closed its market to imports of beef and pork from the US. In the past week, China also has notified USDA of its intention to implement new enforcement measures for its zero tolerance policy for ractopamine residues in pork imported from the US.

Since beta agonists are widely used by US producers, the only practical way to meet Russia's or China's zero tolerance requirement would be to segregate meat from animals that have been fed beta agonists from those that have not. This kind of product segregation programme would add costs to the packer in addition to those incurred by producers who forego the use of these compounds. Nonetheless, before the Russian market closed, several large pork packing companies were giving serious consideration to implementing ractopamine-free programmes and dedicating some part of their production to a product that is free of ractopamine residues.

This raises several important questions which have implications for the US meat industry's participation in the global marketplace and therefore, deserve the careful consideration of every member of this industry.

To understand why these packers are interested in meeting Russia's zero-residue standard requires a closer look at the economics of the meat export business. Although Russia only accounts for roughly 7% of US beef exports and 4% of pork exports, this understates its importance to the US red meat industry that, in 2012, found willing buyers for American pork in 116 different countries and beef in 132.

Last year, Russia imported US$566 million of US beef and pork, but most of this trade was in a few items (inside and gooseneck rounds, beef livers and hams). As Russian buyers pay a premium for these items over customers in other foreign markets or here at home, where excess supplies of round and ham cuts as well as livers often put downward pressure on prices, the closure of the Russian market will have a larger negative impact on live hog and cattle prices here in the US than the value of the lost trade alone. This is because these items will be sold at lower prices and the added supply will depress prices on the US market. Taking into consideration the lower prices that will be paid for these items, the impact of losing the Russian market is closer to US$800 million for the US industry as a whole. This converts to roughly US$15 per head for cattle and US$4 per head for hogs.

China adds another dimension to the discussion. Although it remains closed to US beef, in 2012,China purchased nearly 16% of all US pork exports by volume, accounting for more than US$704 million of US product. That translates to about US$4.75 per head for variety meat alone and closer to US$7 per head when muscle cuts are included. Like Russia, China pays a premium for items that are undervalued by other markets. From feet to snouts to stomachs, the offal items purchased by China have a minimal alternative value, and up to 50% of the entire US production of certain offals and by-products is exported to China. While these are attention-getting numbers for an industry that operates with very low margins, Russia's decision to enforce its ban on beta agonist residues and the recent action by China are not isolated events. Taiwan and the EU also have ractopamine-related import restrictions in place, and there are other markets where the lack of domestic regulations regarding beta agonist usage and residues make the trade environment uncertain. Over the past few months, as packers have contemplated how they would respond to Russia's enforcement of its ban on beta agonist residues, they have also had in mind opportunities for supplying customers in these other markets.

The US red meat industry has accomplished remarkable increases in efficiency and productivity by adopting new production technologies as they have been approved and brought to market. The use of those technologies has been a significant factor in the US industries' efficiency, with beta agonists alone adding up to US$5 per head to producer profitability.