Can Chinese cattle withstand the impact of American beef?
Thirteen years have passed, and now that American beef can openly reach Chinese dinner tables, it is bound to put pressure on the domestic beef market. Although it is unknown how much American beef will formally clear customs and be imported into the Chinese market in the future, it will certainly be far greater than the 4,000 tons per year before the 2003 ban.
After a ban lasting 13 years, news suddenly emerged that China plans to resume imports of beef products from the United States. China's Ministry of Agriculture and the General Administration of Quality Supervision, Inspection and Quarantine stated in a declaration on the 22nd of this month that, based on the results of a risk assessment, the ban imposed by the Ministry of Agriculture and the former State Administration for Entry-Exit Inspection and Quarantine on boneless beef and bone-in beef from U.S. cattle under 30 months of age is conditionally lifted as of that day, allowing the export to China of American beef that meets China's traceability system requirements and inspection and quarantine requirements.
The U.S. Department of Agriculture quickly responded, calling this the Chinese government's key first step toward restoring the re-entry of American beef and beef products into the Chinese market, and saying it looked forward to further negotiations on the specific conditions for allowing the resumption of the beef import trade. In fact, American beef suppliers cannot wait to enter the Chinese market, and some have already begun taking substantive steps. However, this news can be described as a mix of joy and worry for China. On the one hand, Chinese consumers can look forward to enjoying lower-priced imported beef, but on the other hand, people immediately began to wonder: can China's cattle-raising industry still hold up?
This week, "2016 China International Meat Industry Week" opened in Beijing, with meat organizations or enterprises from Brazil, the Netherlands, the United States, France and many other countries gathering here. Clearly, they all have great hopes for China's meat market. This scene is in fact a microcosm of the hopes that foreign peers place in China's meat market. "At present, at least more than 70 brands worldwide are planning to knock on the door of the Chinese market as early as possible," an industry insider said. Chinese people's meat intake is increasing markedly, "and the increase is mainly in beef and mutton rather than China's traditional pork, which is a huge market opportunity for foreign meat traders. On the other hand, compared with Chinese people, who mainly take in grains and vegetables as their food, Westerners clearly have a much higher proportion of meat intake, and this difference in lifestyle habits is also regarded by many foreign meat traders as a huge business opportunity."
Market
The United States missed China's golden growth period for beef
At the end of 2003, American beef and beef products were detected as infected with bovine spongiform encephalopathy, commonly known as "mad cow disease." China then stopped imports of the vast majority of American beef. Before that, the United States was China's main source of beef. According to statistics from the U.S. Department of Agriculture, China's total beef imports in 2003 were 15 million U.S. dollars, of which imports from the United States alone reached 10 million U.S. dollars. With the development of Chinese society, China's beef imports began to show explosive growth after 2010. Last year, China's beef imports already reached 2.3 billion U.S. dollars, more than 15 times higher than 12 years earlier. The U.S. Department of Agriculture predicts that China's beef imports this year will reach 825,000 tons, or may surpass Japan to become the world's second-largest beef importer after the United States, making it one of the fastest-growing markets for global beef consumption demand. But in this beef feast, the United States grabbed almost no share because of the import ban.
At present, most of China's beef comes from countries such as Australia, Uruguay and New Zealand. In particular, after China successively signed free trade agreements with Australia and New Zealand in recent years, beef from these two countries began pouring into the Chinese market on a large scale.
Of course, because China's beef and mutton market gap has reached more than 2 million tons annually in recent years, in addition to beef imported through formal channels, smuggling is also a channel in beef imports that cannot be ignored. According to customs officers, China's smuggled beef currently mainly comes from Brazil, India and the United States, and this beef enters the Chinese market through channels such as non-compliant e-commerce and wholesale markets. At present, the price of beef entering the Chinese market through smuggling channels is roughly about 25 yuan per kg, with an obvious cost advantage. It is said that the gross profit for smuggling 1 ton of beef is 20,000 to 30,000 yuan. However, smuggling is ultimately not the mainstream of the market, which means that during the golden period of rapid growth in China's beef demand, the United States could only watch from the sidelines and could not enter the game.
Current situation
American beef at 10 yuan per jin is "too cheap"
Many Chinese people who have visited American supermarkets have sighed like this: "Meat is too cheap!" Beef is the main type of meat for Americans. In ordinary American supermarkets, promotional beef at 1 to 2 U.S. dollars per pound is not uncommon, equivalent to about 10 yuan per jin after conversion. In particular, over the past year, U.S. beef prices have been at a recent low. Data from July this year showed that the average price of U.S. beef cattle fell 25% year on year. Data from the U.S. Meat Export Federation showed that in 2015 the United States exported about 1.07 million tons of beef, worth 6.3 billion U.S. dollars, with both declines exceeding 10%. Forecasts from the U.S. Department of Agriculture show that by 2017 the average price of high-quality U.S. beef cattle will continue to fall, to about 17 to 19 yuan per kg.
The rapid decline in prices includes the reason of reduced beef demand, so opening up the route to export to China as soon as possible is an important way to save American beef, because exports are crucial to the U.S. beef industry. In 2015, U.S. beef was exported to 112 countries worldwide, with total export value reaching 5.8 billion U.S. dollars. Overall, U.S. beef exports account for about 14% of total U.S. beef supply. Losing China, the market with the greatest potential, has clearly left the U.S. beef industry incomplete. For this reason, over the past dozen years, news has repeatedly emerged of China and the United States discussing the resumption of the beef trade, but ultimately none of it was realized. If this time the road to the Chinese market can truly be restored, then whether in scale or structure, U.S. beef exports will undergo a qualitative leap.
Analysis
Cost differences will put Chinese cattle under "tremendous pressure"
In the Chinese market, although beef prices have not soared like pork over the past year, they are still at the level of 40 to 50 yuan per kg, with an obvious cost difference from American beef. In this regard, some industry insiders said that the main reason for the high cost of Chinese beef is that insufficient scale has led to higher breeding costs, and there is still a relatively large gap with developed foreign countries in safety management, process management and efficiency management. In addition, the relatively high price of Chinese feed is also an important factor, especially raw grain. At present, the cost of corn and wheat in China is about double that of the United States.
Although breeding costs are already high, China's cattle-raising industry is still a low-profit industry at present, and may even suffer losses at the slightest disturbance, so the industrial impact after opening up to American beef should not be underestimated. "Thirteen years have passed, and now that American beef can openly reach Chinese dinner tables, it is bound to put pressure on the domestic beef market. Although it is unknown how much American beef will formally clear customs and be imported into the Chinese market in the future, it will certainly be far greater than the 4,000 tons per year before the 2003 ban." Because the problems in these links cannot be improved overnight, industry insiders predict that for a considerable period after the ban is lifted, Chinese beef will probably have to withstand tremendous pressure from American beef.
Prospects
The ban may be gradually lifted to ease pressure on Chinese cattle
But some people also said that the ban may also be gradually lifted in order to ease pressure on Chinese peers. In addition, some industry insiders said that there are relatively few large-scale cattle-raising companies in China, and a considerable portion of the beef supply comes from culled dairy cows. After the resumption of American beef exports to China, the selling price of culled dairy cows from farms is expected to be affected, and this may even affect the dairy industry chain in turn.
On the other hand, once American beef is allowed again, it will also create tremendous competitive pressure for other beef-exporting countries. The first to be affected may be Australia. Because drought has caused a shortage of cattle available for slaughter in Australia, Australian beef prices have soared, causing Australia's beef exports to China to fall by 35% this year. The lifting of the ban on American beef may cause Australia's market share to decline further.
Another main competitor the United States faces in returning to the Chinese market is Brazil. At present, Brazilian beef prices are lower than both American and Australian beef. In response to this situation, American industry players have already set their sights on capturing the high-end market.