Positive Developments For Beef Exports

BMI View: Recent developments in Australia's export market bolster our positive outlook for the country's livestock - mainly beef - sector. First, thanks to a recent free trade agreement signed with Japan, Australia will see its competitiveness increase, which is likely to help reverse the decline in beef exports to Japan. Second, the future looks bright for live cattle exports, as China is increasingly eager to open its market to live cattle sales amid soaring demand for beef.

There have recently been positive developments in Australia's beef sector on the export front, and this will boost the sector's outlook in the medium term. First, after seven years of negotiations, Australia and Japan in April signed a substantial free trade agreement (FTA) that will strongly favour Australia's beef exports. Second, Australia could soon benefit from an opening in China regarding live cattle exports. At the same time, exports to other markets, including emerging Asia and the Middle East, are increasing.

The recently signed FTA between Japan and Australia will prove beneficial to Australia's agribusiness, as it will boost exports of the concerned goods, mainly livestock. Below are the details of agriculture tariffs in the FTA. The bilateral agreement is expected to take effect in early 2015.

  • Japan's import tariffs on processed beef products will be cut, from 38.5% to 30.5% for frozen beef and to 32.5% for chilled beef in the first year. A series of smaller annual cuts will then take the duties to a floor of 19.5% and 23.5% for frozen and chilled products respectively. The quota for the low tariff is set at 195,000 tonnes for Australia's frozen beef (raised to 210,000 tonnes over a decade) and at 130,000 tonnes for chilled beef (expanded to 145,000 tonnes).

  • Tariffs on pork imports from Australia will drop by a maximum 50%, to 2.2% from 4.3%, with a quota that limits volumes to 6,700 metric tonnes in the first year and rises to 16,700 tonnes within five years.

  • Tariffs on chicken imports from Australia will drop by a maximum 40%.

  • Some Australian dairy (mainly cheese) , seafood, fruit and wine products are also included.

  • Japanese import duties on rice, milling wheat, sugar, butter and milk powder are maintained.

The successful completion of the FTA could be the harbinger of further liberalisation of Japan's beef market, with tariffs eventually eliminated and other impediments to Australia's trade removed.

Australia Losing Market Share
Japan - Fresh/Chilled (LHC) & Frozen (RHC) Bovine Meat Imports, '000 tonnes

The deal will boost Australia's competitiveness - particularly compared with the US - on the Japanese beef market. As such, the FTA could help to reverse the decline in Australia's share of Japan's large beef import market. The US, which is Australia's main competitor for beef exports across Asia, has become dominant in providing beef to Japan since 2013, when the import restrictions imposed in 2003 following the discovery of bovine spongiform encephalopathy were lifted. Indeed, the US now accounts for 35% of Japan's beef imports, from 0% in 2005. Australia's beef exports to Japan have been lacklustre in recent years owing to the return of the US to the Japanese market. Australia's beef meat exports to Japan, including chilled and frozen cuts, dropped by 10.2% year-on-year (y-o-y) in 2013, to 285,900 tonnes, while the US's exports grew by 41.0% y-o-y to 186,100 tonnes.

Live Cattle Trade Potential In China

Apart from the probable boost to beef meat exports on the back of the Japan FTA, the outlook for Australia's live cattle exports looks brighter. Australia has been looking to persuade China to allow live cattle imports for many years. In April, live exporters from Western Australia and Chinese business representatives signed a memorandum of understanding (MoU) to pave the way for live cattle exports from Western Australia to China. Although it may take years before the MoU is actually turned into an official agreement, we believe it is a step towards live cattle exports being permitted in China. That said, there are still significant barriers, such as agreement on animal health and welfare protocols. Biosecurity concerns, raised by the Chinese delegation in April, are seen as one of the stumbling blocks.

Australia has been exporting live cattle to neighbouring Indonesia since the early 1990s. A deal with China would reduce Australia's dependence on Indonesia, where trade has been disrupted over animal cruelty concerns in Australia and import curbs by Jakarta as it strives for self-sufficiency. In our view, Australia's cattle ranchers in the Northern Territory and Western Australia would see the most benefits from a deal with China. For China, live cattle imports would help to support the meat slaughtering and processing sectors. Indeed, abattoirs in the country are running at only 30% of capacity, as China is failing to increase its beef herd despite subsidies and government support.

Australia Beef & Veal Production & Consumption, 2013-2018
2013 2014f 2015f 2016f 2017f 2018f
Beef & Veal Production, '000 tonnes 1 2,245.0 2,360.0 2,260.0 2,237.4 2,246.3 2,302.5
Beef & Veal Consumption, '000 tonnes 2 780.0 795.6 796.4 798.0 804.4 810.8
Notes: f BMI forecasts. Sources: 1 Australian Bureau of Statistics; 2 USDA.
Australia Pork Production & Consumption, 2013-2018
2013 2014f 2015f 2016f 2017f 2018f
Pork Production, '000 tonnes 1 356.0 361.0 362.1 366.4 370.1 373.8
Pork Consumption, '000 tonnes 2 528.0 530.1 535.1 540.1 545.0 550.0
Notes: f BMI forecasts. Sources: 1 Australian Bureau of Statistics; 2 USDA.
Australia Poultry Production & Consumption, 2013-2018
2013 2014f 2015f 2016f 2017f 2018f
Poultry Production, '000 tonnes 1 1,046.0 1,080.5 1,102.1 1,124.2 1,146.7 1,169.6
Poultry Consumption, '000 tonnes 2 976.0 1,013.1 1,045.5 1,077.9 1,112.4 1,148.0
Notes: f BMI forecasts. Sources: 1 Australian Bureau of Statistics; 2 USDA.
This article is tagged to:
Related sectors of this article: Agribusiness, Livestock
Geography: Australia, China, Japan, New Zealand, United States

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