Barriers to Meat Trade

By John H. Dyck and Kenneth E. Nelson. This is the fourth article in the series taken from the Economic Research Service's Structure of the Global Markets for Meat report. To read the other articles in this report, see the Further Sections table below.
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Barriers to Meat Trade - By John H. Dyck and Kenneth E. Nelson. This is the fourth article in the series taken from the Economic Research Service's Structure of the Global Markets for Meat report. To read the other articles in this report, see the Further Sections table below. USDA Economic Research Service
Further Sections
Introduction and Contents

Competitiveness in the Supply Chain

Differing Preferences for Meats

Current Structure of World Meat Trade

Indications of the Future Structure of World Meat Trade

Appendix 1: Feeding Meat Animals - Where Are the Feed Resources?

While global trade in meat has grown strongly in recent decades, many meat producing and consuming countries are still not linked by trade. In some cases, no trade occurs because neither supply nor demand factors make trade profitable, but in other cases there is no trade because countries have erected import barriers (and in a few cases, export barriers).

Sanitary Standards
Sanitary standards are extremely important determinants of meat trade. The distinction between countries judged free of foot-and-mouth disease (FMD), and those judged not free, largely defines world trade in fresh, chilled, or frozen beef and pork. For most of the last 50 years, the FMD-free zone consisted chiefly of the United States, Canada, Australia, New Zealand, Japan, South Korea, Taiwan, and Denmark. Most trade in uncooked beef and pork occurred among these areas—ignoring trade within the European Union (EU). The importance of this factor was evident as Argentina’s beef export opportunities expanded when it gained FMD-free status in 1999 but then contracted in 2000 when FMD recurred. Taiwan’s large pork export trade vanished in March 1997 when an outbreak of FMD was discovered. Hog cholera and African swine fever barriers also define pork trade.

Figure 6: Ratio of Japan / U.S. broiler part prices
Note: Japan data on a fiscal year basis (Apr.-Mar.); U.S. data on a calendar-year basis.
Sources: For Japan, Agriculture and Livestock Industries Corporation, data for boneless cuts; for the United States, ERS Animal Products Branch database, data for boneless, skinless breasts and bone-in legs (bone-in converted to boneless by dividing by .76).

The U.S. poultry sector also offers an example of the importance of sanitary rules in trade. U.S. consumers have an affinity for chicken breasts (white meat). Dark meat is preferred by many consumers in the rest of the world, and the breast is accorded a lower value, particularly in parts of Asia. Japan is a well-documented example (fig. 6). The market price of chicken breasts is consistently lower in Japan than in the United States. This is despite the fact that Japan’s broiler industry faces higher costs than the U.S. industry: virtually all feed is shipped across the Pacific, incurring transportation costs, and serious environmental problems (aggravated by Japan’s dense population) make expanding plant size difficult. But sluggish demand for breasts means that they are sold at a low price.

The situation may be similar in other Asian countries, such as China. Despite this, the United States imports very few chicken breasts. One reason is that chicken meat does not have a long shelf life unless it is frozen, and frozen meat is not preferred in the United States. However, another reason is that producers in most of the world, including China, Mexico, and Japan, cannot export chicken meat to the United States because of the danger of infecting U.S. flocks with Exotic Newcastle disease (see table 1).7

Although they can forestall significant potential meat trade flows, sanitary standards are effective in preventing the spread of serious diseases that can devastate animal production. The potential cost of a disease outbreak in the United States, for example, could be large for diseases like FMD, Exotic Newcastle, and African swine fever. The risk of infection is always a factor in all countries. Even countries where a disease is endemic often enforce sanitary rules for meat imports, in order to prevent a possible vector for the entry of the disease while the country is working to eradicate it internally. Major steps were taken in the 1990s to eradicate diseases in important areas, especially FMD in parts of South America, Mexico, and Europe. When disease-free status is attained, new channels for meat trade can open up, based on advantages in supply and/or differences in preferences for meat cuts. However, permanent disease eradication has proven to be difficult, and FMD outbreaks in 2000 and 2001 badly hurt the export trade in fresh, chilled, and frozen red meat from several countries that had been recognized as FMD-free in the 1990s (e.g., Argentina, Uruguay, Britain).

The danger of transmitting diseases to humans has also led to segmentation of the meat trade based on sanitary rules. Bovine spongiform encephalopathy (BSE, also called mad cow disease) virtually ended Britain’s beef exports in the late 1990s and has since barred beef exports from much of Europe to other parts of the world. Avian influenza led to a suspension of poultry exports from China and Hong Kong to Japan in 2001, and a swine virus closed down exports of pork from Malaysia in 1999. In these cases, the primary fear was that the viruses had an ability to infect humans. Strict controls on plants that process meat for export are also related primarily to concerns about human health. Major importing countries sometimes inspect and certify plants in exporting countries, and allow meat imports only from certified plants.

The risk of a disease outbreak is shared by all the producers in a nation (or disease-free region of a nation). One case of a disease on one farm can shut down the exports of an entire country (e.g., Canada in May 2003). The impact of such a loss in trade can be serious for the producing country.8 Meat that would otherwise go out of the country must suddenly be consumed in the country, and declines in meat prices are necessary to stimulate the additional consumption needed. Government efforts to control diseases can lower the risk, both by disease eradication within a country’s borders and by measures to prevent infection passing across the borders, (e.g., through meat from a foreign infected area). Since disease controls entail costs, governments and private firms assess both the costs and benefits of disease control before beginning a program.

For firms that distribute meat internationally or import meat, a disease outbreak can be devastating, since exports may be impossible for one or more years. An option for meat-trading firms is to cope with risk by sourcing meat from more than one country. An outbreak that closes one supply source may leave another source untouched, and a trading firm can continue to supply its customers. Risk may be further reduced if supply countries are in regions that are distant from each other, so that spread of disease is less likely.

Protectionist Barriers
Other barriers to trade are erected by governments in the form of tariffs, tariff-rate quotas, and nontariff barriers. Like sanitary standards, they inhibit trade. But, while sanitary standards protect against the spread of disease and can be overcome through sanitary improvements in exporting countries, high tariffs9 and other nonsanitary barriers are designed to discourage imported meat from competing with domestic products. Thus, they are referred to as protectionist barriers.

Table 2: Meat tariffs and tariff equivalents for 2004
Notes: This table presents applied tariffs for selected meat cuts that are expected to prevail in 2004, when all tariff reductions under the Uruguay Round Agreement on Agriculture will have been carried out. If tariff-rate quotas exist, the tariffs or tariff equivalents are those that apply for imports outside the quota. Tariffs are for most-favorednation trade partners, and ignore regional trade agreements, bilateral reductions, and developing-country preferences. In the case of Taiwan, tariffs are those that will apply in 2005. Shading indicates that a tariff-rate quota will be in place in 2004 and after. Numbers in italics are estimates of tariff equivalents (see below), not actual tariffs. The gate price is a minimum import price enforced by Japan, together with a tariff of 4.3%. For authoritative, updated tariff rates, consult official tariff sources for various countries and territories.
1 For an explanation of how the tariff equivalent was calculated, (see box, “ Ad ValoremTariff Equivalents.”
2 Indonesia has banned imports of poultry meat parts since Sept. 2000.
3 Applied rates. Tariff given for beef is for frozen meat. Fresh and chilled beef imports face a 20-percent tariff.
Sources: Appendix table 2 for tariff data; the Pacific Exchange Rate database for exchange rates; and official trade data of the United States and Japan for average import prices.
The evolution of the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO), since World War II has in general seen a lowering of protectionist barriers. Only minor tariffs now affect pork and poultry meat imports into the United States. Canada’s pork market is relatively unprotected. Australia has abandoned nonsanitary barriers. Japan’s barriers have been substantially lowered for all meats (Dyck), and South Korea has given up its meat quotas. The Uruguay Round (1995) of the GATT replaced a number of trade bans with tariff-rate quotas and lowered tariffs in a number of developing countries. The admission of China and Taiwan to the WTO includes provisions opening their meat markets to significant potential imports (see Appendix 2, “Meat Trade Barriers in Major Countries”). Trade within regional zones has increased as partners to trade agreements have opened their borders within the zones. The EU, North American Free Trade Agreement, and MERCOSUR (a regional trade pact including Brazil, Argentina, and Uruguay) are the leading examples.

However, major protectionist barriers still remain (table 2), and the global mean for meat tariffs remains higher than the means for most other tariffs on agricultural commodities (Gibson et al., pp. 12-13). Within North America, tariff-rate quotas for beef remain in Canada and the United States, and for poultry meat in Canada and Mexico. Japan has a 38-percent tariff on beef imports, and operates the gate price system for pork, an import barrier that raises importers’ costs and reduces the transparency of border transactions.10 Even some major exporting countries have high import barriers. Thailand and Brazil enjoy growing success in the poultry export trade, but protect themselves against poultry imports with tariffs. The United States and Canada, as noted above, maintain beef tariff-rate quotas.

The EU occupies a special position in the world meat trade because of its export volume (see fig. 3), but part of its export performance is related to subsidies and protection, rather than to strengths in its resource base or opportunities to export meat cuts for a higher price in other countries. Some meat exports are subsidized through refunds given to offset the high feed costs caused by the Common Agricultural Policy. The EU limits meat imports with high tariffs and a complex set of quotas (see Appendix 2, “Meat Trade Barriers in Major Countries”). In addition, the EU has introduced sanitary barriers unrelated to the spread of disease among meat animals. Strict regulations on slaughter and processing plants and a decision to ban imports of meat from animals that received hormones in their feed have placed strong restrictions on trade. The net effect of the meat barriers is to limit beef imports to special, country-specific quotas, with small imports outside the quotas. Pork imports are small, and limited to special quotas for Central Europe. Poultry meat imports, unlike pork and beef, substantially exceed quota levels.

Source: U.S. Department of Agriculture, Economic Research Service - September, 2003
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