May 25, 2007

 

US beef exports to South Korea will crank up gradually
 

 

Despite fears in Australia that US beef will flood into South Korea, displacing big amounts of Australian meat now that a key trade restriction has been lifted, others believe the return of US product will be more gradual.

 

However, Australia, which in 2006 supplied almost 80 percent of South Korea's US$800 million a year imported beef market, faces a determined competitor that has been deeply wounded by its exclusion and is keen to make up lost ground.

 

That said, even a US industry spokesman, while encouraged by early signs, does not believe the US will quickly recapture the position of dominant supplier it once held.

 

Philip Seng, chief executive of the US Meat Export Federation, said it would take years for the trade to return to the level in 2003, before South Korea banned US beef imports after the discovery of bovine spongiform encephalopathy, or BSE.

 

"We're projecting from the USMEF standpoint that we'll be completely back by the end of 2010," he said Thursday in comments at a board meeting of the federation, a trade development group, at La Jolla, California.

 

Though resumption of beef trade is slow, there are some positive signs for the future, including South Korea's official recognition of a ruling this week by the World Organisation for Animal Health that the US is a "controlled risk" country for BSE, which is a "great step forward," he said.

 

South Korea and Japan have been key export markets for US beef in the past, and while the opening of their borders might not be as US producers would like, with careful trade negotiations and strong marketing, they can return to their previous prominence, he added.

 

Japan also banned US beef late in 2003, and while this market formally reopened in July last year, beef is still only trickling in.

 

Australia, the second-biggest global beef exporter by volume after Brazil with the value of exports approaching A$5 billion (US$4.2 billion), has enjoyed buoyant trading conditions in North Asia in the absence of US product.

 

Peter Weeks, chief market analyst at marketing concern Meat & Livestock Australia Ltd., said Friday that Australian beef exports to South Korea in 2007 would not fall much from last year's 150,000 bone free tonnes, which has more than doubled in three years.

 

The US is not back into South Korea early enough in the year to force a sharp decline in Australian exports, with demand for Australian beef also likely to pick up in the coming months, he said.

 

A key South Korean import restriction on US beef was eased in April, namely over the response to bone fragments, clearing the way for some of the trade to resume, he said.

 

But US bone-in product is still excluded, with the bone-in short rib cut accounting for 60 percent of the trade in 2003, he added.

 

"We won't see substantial quantities of US product in the market until they allow bone-in product," which based on official South Korean comments likely won't be much before September, he commented.

 

Malcolm Foster, president of the Australian Lot Feeders Association, believes the US will mount a sustained major effort to win back South Korean market share, and was only half joking when he said, "An armada of boats is approaching the country, loaded with containers of frozen US beef."

 

The US will ship large quantities at competitive prices at least initially to win market share, he said.

 

"It's an image thing as much as a financial thing for the Americans; it's been very hard on their ego to be forced out of world markets the way they have," Foster told Dow Jones Newswires.

 

The impact of the partial US return can be seen in the latest Australian data.

 

Exports to South Korea in April of 7,480 boneless tonnes were down 46 percent on- month and down 18 percent on-year amid uncertainty about the price and volume of US beef shipments, he said.

 

However, in the first four months of 2007, total exports to South Korea grew 40 percent on-year to 49,436 tonnes.

Whatever the immediate future holds, Foster reflected on what he said has been an "extraordinary three-year period, the likes of which the industry almost certainly has never seen before."

 

"We all knew it had to come to an end, and it has. So we're back in the world of competition."

 

Out-turn from feedlots accounted for about one third of the total number of cattle slaughtered in Australia in 2006. Exports account for two-thirds of total domestic production.

 

Bill Bray, president of national producer lobby Cattle Council of Australia, agrees the last few years have been a bonanza, and while the Australian industry has prepared for it, tougher times seem certain, and not just due to the entry of US beef.

 

A strong Australian dollar, still near a 17-year high against the US dollar posted in April, is crimping returns to exporters, or reducing the competitiveness offshore of Australian beef.

 

"There's still room for us both," with the challenge for both the US and Australia to grow the South Korean market back to where it was before bans on the US were imposed, he said.

 

A longer-term worry is a free trade agreement between the US and South Korea that will progressively cut import tariffs on US beef, and for which Australia is lobbying for equal access rights, he said.