November 7, 2003
Canada's Beef Industry: Pre- & Post-BSE Situation
On November 5, Statistics Canada released the first of a series of economic articles, focussing on the impact of bovine spongiform encephalopathy (BSE) or mad cow disease on the Canadian livestock industry.
Following is the text of the report by Denis Poulin and Attah K. Boame of Statistics Canada International Trade Division and Agriculture Division:
Outlook of Canada's Beef Industry
On May 20 2003, Canada's beef industry was rocked when the announcement was made that a single breeder cow in northern Alberta was tested positive for bovine spongiform encephalopathy (BSE), more commonly known as mad cow disease.
Prior to the worldwide ban on Canadian beef products, Canada was the third largest exporter of beef in the world. In 2002, beef export market was worth about $4.1 billion. Following the ban, beef exports in June, July and August dropped to virtually zero.
Export markets have traditionally been important to Canadian beef farmers. Prior to the ban, almost half of the cattle sold in Canada were exported as either live animals or meat.
Canada exports the vast majority of its beef products to the United States, the world's largest beef importing country. About 90% of Canadian beef exports went to the United States in 2002.
Canadian beef imports increased above historical levels in June 2003 before dropping in July and August. These imports have not been trivial (about $900 million in 2002) and represent a substantial proportion of the Canadian meat supply (almost 30% over the past three years).
Before the worldwide ban, Canada exported far more beef products than it imported. This surplus in beef trade amounted to about $3.2 billion in 2002.
In contrast to Canada, the U.S. beef supply was tight pushing retail prices to record levels.
In 2001, Canada held about 15% of the world beef market, ranking in third place. The United States was second with a share of 16% and Australia was first with 23%.
Scope Beef products in this report refer to live cattle, fresh or chilled beef products and frozen beef products, which represent respectively about 45%, 45% and 5% of total exports of these products in 2002.
Cattle farmers depend on export markets. Prior to May 20, 2003, almost half of the cattle sold in Canada were exported as either live animals or meat.
In 2002, the farm value of the animals sold for slaughter and exported as meat amounted to $1.8 billion. The corresponding exports, which are worth about $2.2 billion, include all the other costs such as processing and transportation.
In addition, the farm value of the live animals exported also amounted to $1.8 billion. This total of $3.6 billion in farm cash receipts accounted for nearly one-half (48%) of the $7.5 billion total farm cash receipts for cattle in 2002.
It required approximately 1.7 million cattle to produce the 612 thousand MT of meat exported in 2002, or approximately the same number of animals that Canada exported live.
Canada-US Beef Deal
Canada: The biggest exporter of beef to the United States As far as the U.S. market is concerned, geography and free trade play important roles in the success of Canada's exports. After all, the United States is Canada's largest trading partner and the world's largest economy.
Canada's proximity and integration within the U.S. beef market partly explain the success of Canadian exporters of beef products. Canadian beef exports to the United States totalled $3.7 billion in 2002.
About 90% of Canadian beef exports went to the United States in 2002. Virtually all (99.6%) of Canada's exports of live cattle in 2002 were shipped to the United States. The relatively low values exported to other countries illustrate the importance of the U.S. market for Canadian cattle producers.
Canadian exports of beef products as defined by this article accounted for 55% of U.S. beef imports in 2002. Canadian exports of live bovine animals (dairy cattle, meat cattle and bison) represented about 80% of U.S. bovine imports in 2002 while Canada supplied 85% of U.S. imports of fresh or chilled beef products. In contrast, Canada supplied a very low proportion of U.S. imports of frozen beef products (3.5%).
The fact that Americans are the largest importers of beef in the world (32% of world imports, followed by Japan at 14%) also contributes to the profits reaped by Canadian beef exporters.
Americans are also among the largest consumers of meat per capita at 44.6 kilograms for beef and veal compared to 31.9 kilograms for Canadians. The combination of all these factors creates favorable conditions and a very important market for Canadian cattle and beef exporters.
No increase in U.S. imports from other countries. The ban has clearly had an impact on U.S. beef imports from Canada, which fell to virtually zero in June, July and August from the $288 million level in April, the last unaffected month.
U.S. importers did not import more from other countries to fill the gap created by the banned Canadian beef. In fact, total U.S. beef imports in August were slightly lower than those recorded in June.
Retail prices for beef in the United States were at record levels in February 2003, this was before the confirmation of BSE case in Canada. Record retail beef prices continued through August, reaching US$3.74 a pound, the highest since June 2001, when prices reached US$3.48 a pound.
The reasons for the United States supply shortage, beside the drop in supply from Canada, are strong consumer demand and a falling U.S. dollar, which supports meat exports. In addition, seven years of herd liquidation in the U.S. is catching up to the beef business. Prices are so high for both fed and breeding cattle that ranchers are starting to rebuild their herds. The initial part of the herd rebuilding process means that more heifers are held back for breeding and less go into the feedlots.
U.S. beef exports to the world jumped by 17% after the ban on Canadian beef exports. This increase more than filled the gap on the world markets resulting from this ban. Most of this increase went to countries where Canadian and U.S. beef exporters traditionally compete: Mexico, Japan and South Korea.
The average monthly U.S. beef exports went from $460 million in the first four months of 2003, to $540 million in June, July and August. This $80 million increase was much more important than the $34 million (monthly average for 2002) drop in Canadian beef exports to countries other than the United States.
Alberta: Beef Exports Drop Sharply
Of all Canadian provinces, Alberta is clearly losing the most. Its average beef exports from January - April 2003 were about $160 million per month. Alberta is followed by Ontario where exports were averaging $62 million per month and by Saskatchewan ($23 million) and Quebec ($11 million).
Beef Imports
Imported beef is important to Canadian domestic supply. Beef imports represent a substantial proportion of the Canadian domestic meat supply. Over the past three years, bovine meat imports represented almost 30% of the beef consumed in Canada.
Imports are largely prime cuts of boneless beef and veal or portion-packed products for the hotel and restaurant industry.
Notwithstanding the export ban, Canada was obliged under international regulations to continue to allow red meat and livestock imports into the country. This meant that Canada was unable to introduce an import ban policy on these products to help address the domestic oversupply.
Under the North American Free Trade Agreement (NAFTA), there is no restriction on the import of red meat and livestock from the United States, Mexico and Chile. As a member of the World Trade Organization (WTO), Canada is also obliged to accept negotiated quantities of beef from WTO countries.
Under the WTO obligations, Canada has a tariff rate quota (TRQ) of 76,409 MT for non-NAFTA fresh, chilled and frozen beef per annum. Imports entering Canada within this TRQ quantity are duty-free, while imports above this quota are subject to duty. The tariffs are punitive and very little beef enters Canada unless it is duty-free. The Minister of Foreign Affairs and International Trade, however, may authorize supplemental duty-free imports of non-NAFTA beef over the TRQ level.
By the end of July 2003, duty-free imports for non-NAFTA beef had already exceeded the annual quota by almost 30%. The primary sources of these high imports were beef products from the European Union, Uruguay, Argentina and Brazil-countries all subject to the TRQ. At the end of July 2003, the Canadian government announced that it would not authorize any further supplemental duty-free imports of non-NAFTA beef.
Beef import is recorded to be up in June, down in July and August Canadian beef imports in June increased above historical levels before dropping in July and August.
The 10% jump in June relative to May might reflect the fact that beef products do not arrive in Canada without advance negotiations and preparations. Importers sign contracts and arrange import shipments some time prior to the date that they require the goods. It is, therefore, very likely that the imports recorded in June were in large part contracted for in advance of the beef export ban imposed on Canada.
The June increase might also reflect importers' efforts to anticipate a consumer preference to substitute imported beef for domestic meat, similar to the consumer reaction in Japan and the United Kingdom following the identification of BSE in those countries. If that was the case, it was an unnecessary precaution, as Canadian consumer demand for domestic beef never faltered.
The general oversupply of beef and low cattle prices probably explain the drop in beef imports in July and August.
