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Opening The Market To Brazilian Beef Trade
DR. ANDREW P. GRIFFITH
KNOXVILLE, TENN.
In August, the USDA announced the reopening of fresh and frozen beef trade with Brazil. There are two sides to this trade reopening. The first side is United States exports to Brazil. The second side, and arguably the most important side, is imports of fresh and frozen beef to the U.S. from Brazil.
Let us first focus on U.S. exports to Brazil. Brazil is primarily a producer of grass fed lean beef while the U.S. is known for its highly marbled grain fed beef. The ability of the U.S. to produce a different product than Brazil may result in exports gaining a foothold in the higher end markets in Brazil. Many counties’ economies are struggling relative to the U.S. economy, and Brazil is no exception. However, a longer term economic perspective would support opening the Brazilian market to exports of beef from the U.S.
The import side is where most of the controversy resides. It should first be noted that Brazil has been exporting cooked and canned beef items to the U.S. for several years, but the fresh and frozen beef market has essentially been closed since 2003. The reason behind this closing was because Brazil had been classified as affected by foot-and-mouth disease (FMD). FMD is a viral disease affecting cloven-hoofed animals that could have severe implications for animal agriculture which does bring cause for concern. The last known case of FMD in the U.S. occurred in 1929. However, USDA’s Animal and Plant Health Inspection Service (APHIS) recently conducted a risk analysis and concluded the risk to U.S. livestock is “low” for contracting diseases from fresh beef imported from Brazil. Much more could be discussed here by proponents and opponents, but it is best if the reader ruminates for a while.
A more direct economic consideration of the decision to allow imports of fresh and frozen beef from Brazil is the impact on domestic markets for beef and cattle. The U.S. has been expanding the cattle herd for more than two years which is resulting in increased beef production. Thus, where are domestic producers going to market their beef, and what impact are Brazilian beef imports going to have on prices? The quick answer for now is the opening of the U.S. beef market to Brazilian imports will have a relatively insignificant impact, at least the next few years.
Some may ask why the impact will be small the next few years. First, the Food Safety and Inspection Service must inspect and approve a Brazilian beef processing facility prior to that facility exporting fresh or frozen beef to the U.S. At this time, there is no public information stating that any plants have been inspected and approved for export.
The second reason for a small impact, tariff-rate quotas should be a limiting factor at least until 2020 when tariff-rate quotas are due to be changed. Tariff-rate quotas allow a country or group of countries, without a trade agreement, to export fresh beef to the U.S. However, there is a limit to the quantity of beef that can be exported to the U.S. without facing a large tax. For instance, Australia and New Zealand have the largest tariff-rate quotas which are 418,214 and 213,402 metric tons respectively. The next category with the largest tariff-rate quota is “other” countries which totals 64,805 metric tons.
Since Brazil does not have its own designation, it will import beef to the U.S. under the quota limit in “other” countries at least until 2020. This portion of the quota is a first come first served quota, and Brazil will be competing with the likes of Nicaragua, Honduras, Costa Rica, and Ireland to fill the quota. Once the quota is met, beef can continue to be imported, but it will be taxed at a rate of 26.4 percent which makes the beef extremely expensive.
In the near term, the impact of fresh beef imports from Brazil will be negligible, but it could be a different story in a few years. Even if the U.S. imports fresh beef from Brazil, it is likely most of the product imported will be fresh lean grinding beef. Lean grinding beef may be at a premium the next couple of years as Australia, who is known for lean grinding beef, attempts to rebuild a cattle herd depleted by drought. The rebuilding of the Australia cattle herd will decrease beef imports to the U.S. ∆
DR. ANDREW P. GRIFFITH: Assistant Professor, Department of Agricultural and Resource Economics, University of Tennessee
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