Emerging Issues in Global Animal Product Trade

The effects of free trade agreements on global meat, poultry and dairy trade were examined at a Sept. 27-28, 2012, in Washington, D.C.  USDA’s Economic Research Service (ERS) coordinated the workshop in collaboration with Farm Foundation, NFP, Texas Tech University’s Combest Endowed Chair for Agricultural Competitiveness and the S-1043 Regional Research Group. The workshop took place in Washington, D.C. As available, speaker presentations are posted below.

The workshop targeted industry experts, policy makers, embassy attaches, market analysts, lenders, wholesale distributers, internationl traders, regulatory officials and the academic community.

Passage of the U.S. Free Trade Agreements with South Korea, Colombia and Panama, represent growth opportunities for U.S. meat exports.  The Trans-Pacific Partnership, which is now in negotiations, could also lead to greater expansion of U.S. meat and dairy exports.  The workshop provided information to help expand understanding of the global context in which the U.S. meat, poultry and dairy sectors operate. Sessions will focus on how free trade agreements impact global meat, poultry and dairy trade,  create the opportunity to expand market access, and address technical trade barriers.

Welcome, Introductions
Mary Bohman, ERS, USDA
Sheldon Jones
, Farm Foundation, NFP
Norbert Wilson, Auburn University, S-1043 representative

Keynote Address: How Free Trade Agreements Affect Global Meat, Poultry and Dairy Trade
Sharon Bomer Lauritsen, Assistant USTR for Agricultural Affairs and Commodity Policy

Session I: Free Trade Agreements & Global Meat, Poultry and Dairy Trade
Topics included the importance of FTAs to trade in animal products; outlook for U.S. exports to Colombia, Korea, and Panama; the pending Trans-Pacific Partnership (TPP) and U.S. exports; and the significance of Japan, Canada and Mexico as TPP member countries

Casey Bean, USDA Foreign Agriculture Service/OASA

Brett Stuart, Global AgriTrends

Ted Bilyea, Canadian Agri-Food Policy Institute

Guillermo Maynez Gil, Consejo Mexicano de la Carne

Session II: Industry Panel: Importance of Free Trade Agreements in Expanding Market Access for U.S. Meat, Poultry and Dairy Exports

Tom Suber, U.S. Dairy Export Council

Kevin Brosch, USA Poultry & Egg Export Council

Alfred Breuer, National Pork Producers Council

Chandler Keys, JBS USA

Session III: Free Trade Agreements and Technical Trade Barriers
Topics include animal diseases and international trade; outbreaks and global market volatility; technical trade barriers and animal product trade; and the role of FTAs is reducing technical trade barriers

Daniel A. Sumner, University of California, Davis

Jason Grant, Virginia Tech University

Thad Lively, U.S. Meat Export Federation

John Clifford, Chief Veterinary Officer, APHIS, USDA

Selected Papers Breakout Session I Emerging Issues in BRIIc Countries

Productivity and Efficiency of the Brazilian Beef Industry: Constanza Valdes*, USDA-Economic Research Service; and Jose Gasques, Ministry of Agriculture, Brazil
Brazil’s beef industry has undergone a process of rapid modernization over the last decade, aided by policy changes, new technologies, and the development of supply chains. These changes have resulted in further reductions in production costs and greater efficiency which, in turn, have increased exports. How much of an edge on competitiveness might Brazil gain in the future because of productivity gains will have implications for global meats trade. Using producer’s survey data to identify the productive structure of cattle operations in Brazil, the analysis seeks to examine beef production’s overall efficiency and measure its competitiveness using a non-parametric technique.

Demand Growth for Animal Products in BRIIC Countries: David Abler* and Danhong Chen, Penn State University
This paper conducts a meta-analysis of recent studies on the effects of economic growth on animal product demand in the five largest emerging market economies, the so-called BRIIC: Brazil, China, India, Indonesia, and Russia. A meta-analysis is a “study of studies” that address a common research theme, with the primary goal of obtaining better estimates of parameters of interest than is possible from a single study. The parameters of interest in this case are income and price elasticities of demand for animal products. This paper examines whether and, if so, how rapidly these elasticities in the BRIIC countries are moving toward the low elasticities seen in high-income countries. We anticipate that the results of our paper will shed light on projected market sizes for animal products in the BRIIC countries during the coming decade and, in turn, the potential gains from eliminating barriers to animal product trade in these countries.

Meat Demand in Urban China: The Role of Increasing but Missing Dining Out Consumptions: Junfei Bai, Chinese Center for Agricultural Policy, Beijing; James Seale Jr., University of Florida; Thomas I. Wahl*, North Dakota State University; Bryan Lohmar, U.S. Grains Council, China
The recent rapid increase of corn and meat imports by China has attracted considerable attention of policymakers, industries, and researchers to revisit Chinese meat demand and its future trends. In this study, we reexamine meat consumption in China by considering meat away from home (MAFH). We empirically examine how the exclusion of dining out could bias the estimation of explanatory variables, in particular, income/expenditure effects. The findings from this study provide strong evidence for one to have a relatively complete perspective of meat demand in China.

Beef Production and International Trade

Simulation of Price Variation in the U.S. Beef Industry, 1970-2009: Jean-Claude Bizimana*, Texas AgriLife Research; James W. Richardson and David P. Anderson, Texas A&M University
The U.S. cattle industry is an important component of the U.S. agricultural sector with a value of $31.8 billion in 2009. However, this industry has experienced issues with regard to supply chain and change in beef demand. The paper seeks to analyze the supply and demand of beef in the U.S. and their impact on beef price using data from 1970 to 2009. With price ranging from $67.74 to $163.54, the optimal control method found the optimal price of beef at $113.65/100 lbs. The price distribution helps the beef producers make informed production decision in terms of investment and expected profit.

Mexican Beef and Cattle Production and Trade: Current Situation and Implications for Coming Years:  Derrell S. Peel*, Oklahoma State University
Mexico has long been a major beef and cattle trading partner for the U.S. in a continuously evolving role. This paper describes the current situation for beef and cattle production in Mexico with projections for future Mexican beef production, consumption and trade in cattle and beef. Two factors of particular importance include the current drought in northern Mexico; and rapid growth in Mexican beef exports to the U.S. Other important factors include: the Mexican macroeconomic weakness contribution to less beef consumption; growth in cattle feeding and TIF (federally inspected) slaughter in Mexico; and continued struggles to control bovine tuberculosis (TB).

Restrictions in Export Markets for Brazilian and U.S. Beef:  John N. Giamalva*, U.S. International Trade Commission
Sanitary restrictions on U.S. and Brazilian beef exports are described. Effects are estimated utilizing an applied general equilibrium global trade model with 50 sectors and 21 economies. The simulated removal of all identified restrictions on beef trade results in an increase in U.S. beef exports to the world of $281 million to $1.29 billion. Because estimated price gaps in some importing countries are larger for imports of U.S. beef than for imports of beef from Brazil, the simulated removal of all identified restrictions on beef trade results in an ambiguous change in Brazil’s total beef exports.

Selected Papers Breakout Session II:
Impacts of Volatility and Regulations on the Gravity of Animal Product Trade

Trade Creation and Diversion Effects of Selected Bilateral and Regional Free Trade Agreements and Exchange Rate Volatility in the Global Meat Trade:  David Karemera* and Louis Whitesides, South Carolina State University; Won Koo, North Dakota State University
This study intends to specify a generalized gravity model with application to global meat trade. The objectives of the study are to identify and analyze factors affecting world meat trade flows and discuss the impacts of major bilateral and regional free trade agreements. The free trade agreements included in the study are NAFTA, EU, MERCOSUR, and ASEAN. In light of currency exchange rates fluctuations, the study will determine whether exchange rate uncertainty impairs or enhances meat trade flows. Short-term and long-term exchange rate volatility measures are used to provide an empirical explanation of the impacts of exchange rates on global meat trade.

Impacts of Exchange Rate Volatility on World Poultry Trade Flows:  Christopher G. Davis*, Andrew Muhammad, and David Harvey, USDA-Economic Research Service; David Karemera, South Carolina State University
Besides transportation costs and various trade regulations, studies have shown exchange rate volatility to impact the level of commodity trade. This study used a gravity model to determine whether exchange rate volatility affect broiler and turkey exports and to assess the impact of major competing poultry exporting countries on world broiler trade. Using 1990 – 2008 data, results show exchange rate volatility on broiler trade is only significant in the short-run, while the effect on turkey trade is highly significant in both the short run and long-run period in all models. Distance from ports has the appropriate sign, but statistically significant only during the long-run in the turkey trade models.

The Differential Effects of Food Safety Regulations on Fish Products: Nhuong Tran, The World Fish Center, and Norbert Wilson*, Auburn University
This paper investigates the differential impacts of cloramphenicol standards (veterinary drug residue regulations) on different crustacean imports in the EU15, Japan and North America. Strictercloramphenicol standards negatively affect all products. The stricter standards have the strongest negative impacts on frozen shrimps and prawns and frozen crabs. The results of the models show that top crustacean exporters experience a more negative impact of increasing stringency of cloramphenicol standards than other exporters. The researchers’ results show that the capacity to find lower levels of residues can have substantial effects on the trade of animal products at the intensive and extensive margins.

Sanitary and Food Safety Issues in Animal Product Trade

The Impact of BSE on U.S. Exports of Beef and Pork: William F. Hahn* and Fawzi Taha*, USDA-Economic Research Service
In late December 2003, the United States announced the discovery of a domestic case of BSE and immediately lost most of its beef export markets. Afterward, the United States regained access to most of it export markets, albeit under new conditions. This paper compares U.S. exports of beef meat, beef offal, pork meat and pork offal before and after the BSE outbreak using a VAR model. The paper also develops a method for measuring coefficient similarity. Many but not all of the similarity restrictions are insignificant. The significant ones imply lower beef and higher pork exports in the post-BSE period.

Economic Analysis of MERCOSUR’s Integration into the “Food-and-Mouth (FMD) Free Status” Red Meat Market:  Pierre Charlebois, Carole Gendron, Paul Lirette*, Agriculture and Agri-Food Canada
This exploratory analysis estimates the global impacts of MERCOSUR member countries being recognized as FMD free without vaccination. The removal of trade barriers would increase competition in price premium “FMD free without vaccination” markets. Relatively lower production costs, ideal climatic conditions, and pasture availability for cattle, present a clear competitive advantage for some MERCOSUR member countries. Such a scenario could lead to price decreases in Pacific Rim beef and pork markets and increases in Atlantic beef and pork markets. Trade flows could be redefined as the market becomes more competitive.

Does Country-of-Origin Labeling Function as a Food Safety Cue in Beef and How Much Does It Matter?: Kar H. Lim*, Wuyang Hu, Leigh J. Maynard, University of Kentucky; Ellen Goddard, University of Alberta
This study investigates the relationship between perceived risk and willingness to pay (WTP) for country-of-origin labeled beef. Consumers’ right to know is commonly cited as the primary reason for mandatory Country of Origin Labeling (COOL). We conducted a choice experiment, where we focused on consumers’ preference for country-of-origin labeled beef steak. The results indicated a strong link between perceived risk and the negative WTP for imported beef, which support the notion that risk-averse individuals tend to avoid imported beef.

Selected Papers Breakout Session III

Issues in Global Dairy Trade

Spatial Price Transmission of Milk Soaring Prices from Global to Domestic Markets: Evidence from Panama: Alejandro Acosta, Food and Agriculture Organization of the United Nations; Miguel Robles*, International Food Policy Research Institute
Milk has become the most volatile agricultural commodity in the world. High volatility of commodity prices and their implications for food security are clearly among the most important issues facing policy makers today. A deeper understanding of the magnitude, speed and symmetry to which global milk prices are being transmitted to domestic dairy producers at the farm gate level is a fundamental factor for the design of appropriate policy measures oriented to reduce not only the level of milk price volatility, but also poverty and food insecurity. This work assesses the dynamics of the relationship between global and producers milk prices.

What does U.S.-South Korean Free Trade Agreement Mean for South Korean Dairy Product Import?: Keithly Jones* and Don P. Blayney, USDA-Economic Research Service
This study provides empirical estimates of South Korean short-run and long-run import demand parameters for source-based dairy products to assess the impacts of the KORUS FTA on dairy product trade. The estimates were derived using a Central Bureau of Statistics (CBS) demand system. The impact of the tariff reductions associated with the free trade agreement was calculated. Based on the results, it appears that free trade agreements open the South Korean dairy product markets primarily by reducing prices which in turn increases competition among product suppliers and results in an overall expansion of dairy product imports.

Vertical Price Transmission of Milk Prices: Are Small Dairy Producers Efficiently Integrated into Markets?:  Alejandro Acosta*, Alberto Valdes and William Foster, Food and Agriculture Organization of the United Nations
The objective of this study is to estimate the degree of vertical price transmission of milk prices among consumers, wholesalers, and small dairy producers in order to assess the efficiency of the market chain. To this end, we utilize a time series econometric analysis to evaluate the price dynamics between producers, wholesalers and retailers. The results show that although wholesalers and producers prices share a long-run equilibrium, the speed at which price changes are completely transmitted is slow, and that price changes at the consumer level are not being transmitted to other levels of the market chain.

Meat Production and Trade in the United States

U.S. Livestock Production under Climate Change: Implications for International Trade: Robert Beach*, Yuquan W. Zhang, and Justin Baker, RTI International; Amy D. Hagerman, USDA-Economic Research Service; Bruce A. McCarl, Texas A&M University
Climate change can affect livestock production directly through effects on animal productivity as well as indirectly through effects on feed grain yields and pasture productivity. The researchers applied the Forest and Agricultural Sector Optimization Model with Greenhouse Gases (FASOMGHG) to explore the effects of alternative climate scenarios on U.S. agricultural markets. Because the United States is a major exporter of livestock products, these effects have important implications for global trade. The researchers found substantial impacts of climate change on livestock productivity, grain prices and feed use, livestock production at the U.S. national and regional levels, market prices, and international trade.

Analyzing the Impact of Country-of-Origin Labeling (COOL) on U.S. Import Demand for Meat Products: A Source Differentiated AIDS Modeling Approach: Cephas Naanwaab*, Osei Yeboah, and Saleem Shaik, North Carolina A&T
The U.S. Country-of-Origin labeling law requires retailers to notify consumers of the source of origin of certain covered commodities including meat products (whole-muscle-cuts and ground meat). This paper investigates the impact of mandatory COOL requirements on U.S. meat imports from major trading partners. A source-differentiated AIDS model is used to estimate meat import demand elasticities for beef, pork, and lamb. Conditional expenditure elasticities and price elasticities have remained fairly constant in the aftermath of COOL. The results also show that the share of beef imported from Australia has declined following implementation of mandatory COOL, while the shares of beef from Mexico, Nicaragua, and Uruguay have increased.


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