Cost of retaliatory duties mounts on U.S. pork
It is important to be in a position to provide a competitively priced product, and that’s very difficult when you’re up against a 62% tariff.
Source: U.S. Meat Export Federation (USMEF)
via National Hog Farmer - Mar 13, 2019
Last year was a solid year for U.S. pork exports, with volume reaching 2.44 million metric tons, just 0.5% below the 2017 record. Export value was $6.39 billion, down 1% year-over-year and the third-highest on record. But comparisons with years past do not always tell the entire story, and a more pressing question is, “Did pork exports approach their full potential in 2018, given the global demand dynamics?”
U.S. pork performed spectacularly in some markets, most notably South Korea, Central America, South America, Southeast Asia and Australia, and achieved solid results in leading value market Japan. But retaliatory duties had a dramatic impact on exports to Mexico and China, which are critically important, high-volume destinations for U.S. pork. These obstacles in Mexico and China also impact prices for pork cuts and variety meat items shipped to other destinations and for some products consumed in the domestic market.
For many years, U.S. pork has enjoyed duty-free status in Mexico under the North American Free Trade Agreement. But in June of last year, in response to U.S. tariffs on imports of steel and aluminum, Mexico’s duty rate on U.S. pork muscle cuts increased from zero to 10%, and the rate jumped to 20% in July. Mexico also imposed a 15% duty on sausages and a 20% duty on some prepared hams and shoulders.
The impact of these retaliatory duties was felt immediately. Through May 2018, pork exports to Mexico appeared to be sailing toward a seventh consecutive volume record, running 6% ahead of the torrid pace of 2017. But year-over-year export volume declined in every month thereafter, and finished 2018 down 3% (777,143 mt). This is still a strong volume figure — the second-largest on record and 6% higher than in 2016 — but keep in mind that volume swung from 6% higher year-over-year to 3% lower over a seven-month period. Had export volume simply been steady with 2017 in the final seven months of the year, exports would have ended 2018 at a record-shattering 821,000 mt.
The impact on pork export value to Mexico is even more telling, with the final 2018 total falling 13% year-over-year to $1.31 billion — the lowest since 2015. The June-December decline equated to $218 million, or an average decrease of $31.1 million per month.
“This really highlights the degree to which U.S. pork producers and exporters had to absorb the cost of Mexico’s retaliatory duties in order to keep products moving south,” explains U.S. Meat Export Federation Economist Erin Borror. “The Mexican Treasury is collecting a 20% tax on most of that pork, and there’s simply no way that burden is going to be passed on to the end user. The added cost of exporting hams, picnics and other cuts to Mexico also affects the prices other customers are willing to pay, making the import duties even more disruptive.”
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