Economic Meltdown Hinders U.S. Beef, Pork Exports, but Long-Term Position Strong

Source: USMEF

Wednesday, November 05, 2008

Limited credit availability, volatile currency exchange rates and global economic uncertainty will create an uphill climb for U.S. beef and pork exports in many foreign markets for the remainder of the year. This was common theme provided by directors of the U.S. Meat Export Federation’s (USMEF) international offices at the USMEF Strategic Planning Conference in Tucson, Ariz. Despite these obstacles, however, both products have performed extremely well in 2008, and are well-positioned for continued long-term strength.

“We’re extremely pleased with the way beef and pork exports performed in the first eight months of the year,” said USMEF President and CEO Philip Seng. “But the financial crisis that has plagued us in the past six weeks has obviously had a major impact, and so our members are very interested in hearing first-hand reports from each of the key regions.”

Japan is one of the few key trading partners whose economy has fared well in recent weeks, according to Greg Hanes, USMEF Japan director.

“There will be some slowdown there, but not as much as we expect to see in some of the other countries,” Hanes said. “Japan is an extremely steady, consistent customer.”

Hanes noted that seafood consumption is trending downward in Japan, and this is creating opportunities for red meat. The strength of the yen against the U.S. dollar and most other currencies also has enhanced Japan’s appetite for imported products. Through August, U.S. pork exports to Japan have increased 29 percent in value over the same period last year, while beef exports have increased 64 percent. But the market holds even greater potential if market access can be improved.

According to Hanes, Japan’s gate-price system for imported pork hinders imports to some degree by moderating the current purchasing power of the yen. But that obstacle is not likely to go away until further progress in made in the Doha round of the World Trade Organization negotiations. U.S. beef exports are slowed by Japan’s policy that limits imports to U.S. beef from cattle 20 months of age or younger. Hanes said he is cautiously optimistic that this age limit could be raised to 30 months at some point next year, but this remains a very sensitive and volatile issue in Japan.

Other markets have been much more heavily impacted by economic conditions and the surging value of the U.S. dollar. South Korea, for example, has had a sluggish economy, and the Korean won has performed poorly in 2008 versus the U.S. dollar. Still, Korea has increased its imports of U.S. pork by 47 percent in volume and 28 percent in value over last year. U.S. beef also has re-entered Korea, finding some success among small retail outlets. Jihae Yang, USMEF director in South Korea, said long-term growth opportunities for U.S. beef are extremely bright in Korea, but many challenges must be overcome.

“There is no question about the competitiveness of U.S. beef in Korea, but consumer acceptance is the key,” Yang said. “Large retailers are still reluctant to sell U.S. beef, so we continue to work hard to get sales started among chains in both the retail and the foodservice sectors.”

Mexico is currently the largest foreign market for U.S. beef and third-largest for U.S. pork, but the recent devaluation of the peso has caused exports to slow from the record-breaking totals reached earlier in the year. Chad Russell, USMEF director for Mexico and the Dominican Republic, says he expects September beef export results to be down about 13 percent compared to August, with pork exports expected to decline by more than 12 percent during the same period.

“The devaluation of the peso is having a big impact in the amount of product flowing to Mexico,” Russell said. “We’re also having problems getting some products across the border, due to tightened and increased inspection operations.”

Russia – a rapidly emerging market for both U.S. beef and pork – has also been slammed by the devaluation of its currency as well as a severe drop in oil revenues and other economic issues.

“Russia is oversupplied and overstocked,” said John Brook, USMEF director for Europe, Russia and the Middle East. “There is a period of correction going on, which could last several months.”

Still, Brook is very excited about the prospects for U.S. beef and pork in Russia, as evidenced by their performance in the first eight months of 2008.

“In the medium term, Russia is going to be a market of tremendous interest for the United States,” Brook said. “The Russian processing industry relies heavily on imported product, and that is a need that still must be filled.”

Joel Haggard, USMEF senior vice president for the Asia Pacific region, discussed the massive increase in U.S. pork exports that entered China during the first half of 2008, and the reasons behind a recent slowdown. With regard to China, the slower pace of pork exports appears to be more related to shifts in China’s policy priorities rather than current economic conditions.

“China has started to rebuild its domestic herd, and the numbers suggest they are having success and it is paying off,” Haggard said. “So we’ve seen some slowing of pork moving to China, even though we’ll still achieve record totals for the year.”

Another factor USMEF is watching closely, Haggard said, is the food safety problem China has experienced with melamine contamination. While this issue is not related to U.S. imports, it remains to be seen if it will cause any consumer backlash with regard to livestock-related food products.

The USMEF Strategic Planning Conference concludes Wednesday with a meeting of the USMEF Executive Committee, and a business meeting that includes the election of new officers. For updates, please visit www.usmef.org.

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