At the recent World Meat Congress in Beijing, China, Chinese government officials acknowledged a shortage of about 1 million metric tons (MMT) of beef per year. China is thought of as a pork consuming country that is eating increasing amounts of chicken. This is a major new market for beef exporting countries.
China’s increasing demand for beef in recent years has been precipitated by food safety and public health incidents for China’s poultry and pork supplies. The U.S. Agricultural Attaché in China cites the H7N9 avian influenza outbreak in China in the first half of 2013 that led to 44 deaths and losses of $10.0 billion for China’s poultry industry. Public health concerns for pork resulted from 10,000 head of dead swine found floating in Shanghai’s Huangpu River.
To import beef from the U.S., China needs to first grant market access. It imposed a ban after the first U.S. case of bovine spongiform encephalopathy (BSE) in December 2003, and USDA had extensive discussions with Chinese officials as other countries reopened markets. China refused to change policies despite the World Organization for Animal Health’s classifying the U.S. as a negligible risk for BSE in May 2013. Brazil and India also do not have access to the market.
Chinese food safety agency officials have been in the U.S. reviewing beef production. A USDA briefing was held in Washington, DC before the officials traveled to Texas and California to view ranches, beef processing facilities and feed mills. The delegation from China’s General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) will develop a report after they return home. China will likely begin with allowing imports of bone-in and boneless beef from cattle 30 months age or younger. Hong Kong recently announced it will now accept all U.S. beef products from animals of any age. Hong Kong is officially part of China, but serves as its own customs zone and maintains its own regulations.
According to estimates by the Foreign Agricultural Service (FAS) of USDA, Chinese beef consumption averaged 5.57 MMT per year for 2010-2012. Consumption increased to 5.96 MMT for 2013 and is projected at 6.26 MMT for 2014. For 2010-2012 annual production averaged 5.56 MMT. Production increased to 5.64 MMT for 2013 and is projected at 5.76 MMT, a shortfall of 0.32 MMT and 0.50 MMT. Imports averaged less than 0.10 MMT per year in 2010-2012 and increased sharply to 0.412 MMT in 2013. Imports for 2014 are projected at 0.550 MMT. Exports for 2014 are projected by the Agricultural Attaché at only 0.027 MMT.
The total annual Chinese cattle inventory was estimated by FAS at 104.8 million head for 2010-2012. That declined to 104.2 million head for 2013 and is steady for 2014. Live cattle exports are estimated at about 20,000 head per year and imports at 100,000 head per year. FAS estimates that the dairy cow herd has expanded from 7.1 million head in 2010 to 8.9 million head in 2014. The Agricultural Attaché estimates the beef cow herd at about 46 million head.
According to the Agricultural Attaché, Australia, Uruguay and New Zealand were the top three suppliers of beef to China in 2013, with Australia supplying about half of the total. Canada was also price competitive in 2013 and saw its volume increase to 25,000 MT. China’s average beef import price for the first eleven months of 2013 was $4313 metric ton, less than half the average domestic price of $9,585 per metric ton. With that price spread, there a great incentive for the Chinese government to allow more beef imports to meet an expected continued growth in demand for beef.
With domestic consumption in 2014 at 6.26 MMT and imports at 0.55 MMT, imports will be about 8.8 percent of consumption. If half of the increase in imports of 1.0 MMT increases consumption and half supplies existing demand at lower prices, consumption would increase to 6.76 MMT (6.26+0.50) and imports would increase to 22.9 percent of domestic consumption. If consumers rapidly shift away from pork and poultry, beef demand could continue to exceed supply. Total pork and chicken consumption in China in 2014 is estimated by FAS at 70.0 MMT.
For 2014 according to FAS estimates, total worldwide beef imports are estimated at 7.76 MMT up from 7.42 MT in 2013. Expanding Chinese imports by 1.0 MMT would be 12.9 percent of current import. Three of the top four exporters of beef do not have access to the Chinese market – number one Brazil at 2.03 MMT, number two India at 1.88 MMT and number four the U.S. at 1.14 MMT. China’s biggest supplier, Australia, currently exports 1.56 MMT per year. New Zealand exports 0.54 MMT, Uruguay 0.39 MMT and Canada 0.36 MMT. The four-country total is 2.85 MMT. If they were to supply China’s extra 1.0 MMT of demand, they would need to shift 31.1 percent of current exports to the Chinese market. That is not likely to happen without disruptions in existing markets. China needs to open the market to more suppliers.
The expanding beef market in China is occurring at a time of tightening U.S. supplies. According to the Economic Research Service (ERS) of USDA in its Livestock, Poultry and Dairy Outlook – June 18, 2014 U.S. beef exports were up 7 percent through the first four months of 2014, but are expected to be down 3 percent for the entire year. Exports will likely decline another 3 percent in 2015. U.S. average monthly retail Choice beef prices for May were $5.91, a new record and up 13 percent from May 2013. ERS noted that spring rains in the southern plains, where drought has reduced the cow herd, could reduce cow slaughter and further reduce beef supplies. The U.S. is also drawing more beef imports with shipments up 6 percent for the first four months of the year and expected to be up 9 percent for the total year. Once herd rebuilding in the U.S. does begin when rains become more plentiful, several years will be needed to increase beef supplies.
China is entering the international market for beef at an inopportune time. By refusing market access for three of the four largest exporters of beef, Chinese trade policies were sending signals to beef exporters to look for markets elsewhere and reduce production if none were found. Chinese consumers were also deprived of lower-priced beef as an alternative to products like pork and chicken.
The only choice that beef exporters have now is to accept China as a buyer with all the opportunities and requirements of long-term buyers like Japan. Trade policy makers should ensure that the Chinese beef market remains open after the current need for imports subsides.