Glynn Tonsor
In the Cattle Markets
Japanese beef import restrictions: possible changes and implications
The beef industry took full note of media releases the first week of November indicating Japan may soon relax the current restriction of imported U.S. beef being from animals younger than 21 months of age. The expected, yet to be officially confirmed, adjustment to raise the limit to animals younger than 30 months of age would have notable effects. While industry optimism is warranted, a few points of clarification and comments regarding plausible effects are in order.First, the timing of when new age limits may be implemented is uncertain, with several reports suggesting the middle of 2012 is likely. The reduced U.S. fed-cattle supplies that are expected at that time may present limitations on the extent to which exports to Japan can instantly be expanded. Moreover, this would continue the trend of displacing domestic consumption with expanded exports, which, while certainly beneficial to the industry, will supplement already heightened "high food price" discussions.
It remains to be seen what will be required for age verification going forward. For instance, if dentition or a physiological method similar to A40 becomes acceptable for age verification, the U.S. may expand exports to Japan more quickly. Conversely, if current age-verification practices remain the protocol for trade, the current volume (approximately 10%) of cattle enrolled in source- and age-verification (SAV) programs would place initial limits on the cattle eligible for supplying additional beef destined for Japan.
The effect on premiums for cattle enrolled in third-party administered SAV programs is likely dynamic. If an alternative form of age verification became accepted, premiums for SAV-eligible cattle would probably decline. Conversely, if SAV enrollment remains the prevalent method of supplying beef eligible for export to Japan, SAV premiums likely would expand initially given the limited supply of eligible cattle. However, over a longer period SAV premiums on a dollar-per-head basis would likely fall as additional cattle would be enrolled.
While these points of clarification are important to note, the bottom line effects of improved terms of trade should not be lost in the discussion. As markets operate under more favorable conditions, entire industries benefit, with product ultimately being consumed in markets valuing it the most. As overall demand for U.S. beef expands, the value of all U.S. cattle rises. Thus, even producers of beef "ineligible for export to Japan" are benefactors.
Some individual producers already active in SAV programs with comparatively lower participation costs may lose from the change in age restrictions. However, even if SAV dollar-per-head premiums notably decline, the industry as a whole benefits from increased overall revenue of expanding markets. Recognition and appreciation of related implications of operating in a global marketplace is critical for industry stakeholders not only in discussions regarding age restrictions but a multitude of other issues facing the industry.
