REN Zegang, Adam Shi Chen
As a result of “US-China 100 day action plan” that China’s president Xi Jingping and the US president Donald Trump agreed on in April 2017, the Chinese government officially approved import of US beef on June 20. A ceremony was hold in Beijing on June 30, celebrating reintroduction of the US beef to China after a break of 14 years.
China National Cereals, Oils and Foodstuffs Corporation (COFCO) and Womai.com will jointly handle the US beef import. The first arrival which is for testing purposes is from Lexington, Nebraska, the USA.
A strict standard of inspection has been set. All types of the beef with or without bones should be from the cattle under the age of 30 months, including heart, kidney, liver, tendons and etc. The beef that failed to meet the requirement will be returned or destroyed.
The US is the largest beef producer and fourth largest beef exporter in the world. It was the largest foreign beef supplier to China before 2003. Because of outbreak of BSE (bovine spongiform encephalopathy) in the US in 2003, China has halted import of the US beef till now.
The beef cattle industry plays a big role in the US agriculture as it accounts for 18% of the total US agricultural outputs. Technological level of the US beef industry is high which is featured with high concentration and large economies of scale.
United States Department of Agriculture (USDA) predicted that the US beef production would increase by 5% to the amount of 12 million tons in 2017, the highest level from the past 9 years. Meanwhile, price of beef may drop to historically low mainly due to rise of supply. Consequently the US government and the beef industry are actively in looking for export opportunities.
Though at a current level of 5kg per capita China has the fastest rate of growth in beef consumption in the world. In comparison with the average of 20kg per capita in developed nations the market potential is huge in China. USDA predicted that China would account for 13.42% of the total global beef consumption in 2017, only second to the US but ahead of EU.
However China’s beef production is growing at a slow pace. The statistics show that domestic beef demand outweighed domestic beef supply by 0.83 million tons in 2016. China’s official data indicated that imported beef reached 0.58 million tons and valued at 16.6 billion yuan in 2016, an increase of 22.4% from the level last year.
After US beef was banned in 2003, China’s beef import has expanded to countries including Australia, Uruguay, New Zealand, Brazil, Argentina and Canada. These seven countries accounted for 95% of China’s total beef import from 1997 to 2014.
The return of US beef signals intensified competition in the Chinese beef market. Beef exporters in Australia and Japan will be particularly threatened.
In 2015, after the deal between China and Australia on the export of live cattle from Australia to China, the import of live cattle from Australia to China has increased dramatically. According to the deal China will import a million of Australian cattle per year and exempt the 10% tariff in four years. In 2016, Australia held 70% of China’s live cattle import.
In accordance with the insiders, beef flavour varies among countries of Australia, US and Argentina. The beef from Australia and the US are mostly grass-fed. However, Australian cattle are mostly grazing in free range, while American beef are mostly mechanized reared. The large economies of scale and deployment of machinery contribute to a low cost in beef production in the US which is only half of that in Australia. This makes the US beef cheaper than Australian beef in market places.
However, because of China-Australia Free Trade Agreement, Australian beef enjoys a low tariff rate of 8.4% and theoretically this will be totally exempted in the future. The change of market share among foreign beef suppliers after the re-entry of the US beef requires sometime to settle down.
The changed environment in the beef industry imposes a great challenge to the Chinese producers. It is obvious that the Chinese beef producers will be hard to compete with their American counterparts who have clear advantages in terms of quality and cost. Although many actions have been taken, only 20% of cattle in China is crossed bred, which has caused their low weight in average.
However, some experts point out that the imported beef is normally frozen due to long distance of transportation. Such beef, which is mainly for restaurant and supermarket, can not sell as fresh meat in local agricultural markets where Chinese families buy their meat and groceries. Because of this some domestic beef producers who are mainly in fresh beef business believe the impact of the US beef to them will be limited.
A major domestic consultancy, TF Security, estimated that the import of US beef will not increase in quantity abruptly. The competition will be mainly carried on between foreign beef suppliers. The windows are still open for the Chinese beef producers to lift their performance. Chinese beef producers are fully aware of the fact that their survival will be dependent on improvement of efficiency and cost reduction. Currently the Chinese beef industry is trying to have breakthrough in improving feeding technology and cross breeding.
Given increase of beef import, beef production overseas that enjoy cost advantages has attracted great attention among Chinese investors. It has been reported that WH Group, the parent company of Shuanghui, one of the largest domestic meat producers is currently looking for opportunities in investing in beef industry in the US and Europe. Other major companies such as Delise Group, Maling, Fucheng and Hengyangsp are making the same move overseas.