Transcript Document
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How Will The Canadian BSE Situation Affect Our Markets?
K-State Research & Extension
Canadian Situation
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Rapid BSE tests performed on the original quarantined herd were negative.
The infected cow was six years old.
The mother of the infected cow was identified, culled and is undergoing tests. The offspring of the cow are also being traced and will also be tested.
17 farms quarantined.
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All related to the cow, her offspring or suspected feeds. 1 feedlot that received calves from the original farm has been quarantined. More animals are being tested.
K-State Research & Extension
Imports Are An Important Part of Our Beef Supply
Percent 14
U S BEEF AND VEAL IMPORTS
As a Percentage of Production, Carcass Weight, Annual 12 10 8 6 4 2 0 197 9 198 2 198 5 198 8 199 1 199 4 199 7 200 0 200 3
Source: USDA & LMIC K-State Research & Extension
Canada Is An Important Supplier
Mil. Pounds 1200
MAJOR U S BEEF IMPORT SOURCES
Carcass Weight, Annual 1000 800 600 400 200 0 Aus trali a
Source: USDA & LMIC
New Zea land Canad a Arge ntin a Avg.
1996/00 2001 2002
K-State Research & Extension
Canada’s Also An Important Beef Customer 2002 U.S. Beef Exports Market Share By Country OTHER 7% CARIBBEAN 1% CANADA 10% S. KOREA 25% MEXICO 26% JAPAN 31% Source: USDA & KSU, based on quantity shares K-State Research & Extension
Short Run Impacts
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Cattle & beef imports from Canada banned
Net cattle imports from Canada in 2002 totaled 1.55 million head (4.3% of U.S. slaughter) Net beef imports from Canada in 2002 equaled 3.1% of U.S. beef production Short run: Smaller supplies in the U.S.
Consumer demand for beef: Holding up well so far K-State Research & Extension
Longer Run Impacts
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How long will ban be in place? One isolated incident or first of many?
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Canadians holding back cattle
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Canadian weights will increase
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But Canadian on feed inventory down 30% compared to 2002 K-State Research & Extension
Long-Run Beef Export Growth Has Been Phenomenal Annual U.S. Beef Exports .
3.0
2.5
2.0
1.5
1.0
0.5
0.0
61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 Year Source: USDA .
K-State Research & Extension
Long-Run Beef Export Growth Has Been Phenomenal U S BEEF INDUSTRY EXPORT VALUES
Annual 4 3 2 Bil. $ 6 5 1 0 1976 1979 1982 1985 1988
Source: U.S. Dept. of Commerce & LMIC
1991 1994 1997 2000 Tallow & Greases Variety Meats Hides & Skins Beef & Veal Live Cattle
K-State Research & Extension
Net Import Quantities Have Fallen Sharply
8 6 4 Percent
U S BEEF AND VEAL NET IMPORTS
As a Percentage of Production, Carcass Weight, Annual 10 2 0 197 9 198 2
Source: USDA & LMIC
198 5 198 8 199 1 199 4 199 7 200 0 200 3
K-State Research & Extension
U.S. Is A Significant Net Beef Exporter In $ Terms
Bil. $ 3
U S BEEF INDUSTRY NET EXPORT VALUES
Annual 2 1 0 -1 Live Cattle Beef & Veal Hides & Skins Other Total -2 197 6 197 9 198 2
Source: Dept. of Commerce & LMIC
198 5 198 8 199 1 199 4 199 7 200 0
K-State Research & Extension
Largest U.S. Ag. Product Export Customer? K-State Research & Extension
Largest U.S. Ag. Product Export Customer? Canada Top 5 Markets for Fiscal Year 2002 10 7 6 9 8 5 4 1 0 3 2 $8.7
$8.4
$7.3
$6.1
$2.7
Canada Japan Mexico E.U.
S. Korea K-State Research & Extension
What Is Country of Origin Labeling (COL)?
Retailers Must Inform Consumers Of The Country Of Origin Of “Covered Commodities” At Final Point Of Sale
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Farm Bill, Title X, Modified Agricultural Marketing Act of 1946
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Voluntary COL Available Oct 11, 2002
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Mandatory COL Starts Sep 30, 2004 K-State Research & Extension
“Covered Commodities”
1. Muscle Cuts Of Beef, Pork, & Lamb 2. Ground Beef, Pork, & Lamb 3. Farm-Raised & Wild Fish 4. Peanuts 5. Perishable Ag Commodities
Fresh & Frozen Fruits & Vegetables K-State Research & Extension
Exemptions To “Covered Commodities” 1.
2.
3.
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Ingredients In Processed Food Products Ham, Bacon, Fresh Pork Sausage, Bratwurst
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Food Service Establishments Restaurants
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Retailers With Less Than $230,000/Year In Fruit & Vegetable Sales Butcher Shops, Fish Markets, Small Grocers K-State Research & Extension
Exemptions To “Covered Commodities”
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Estimated 30-40% Of Beef & Pork Consumption Occurs In Food Service Est.
Processed & Prepared Meat Products Are Increasing Popular
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A Substantial Amount Of Meat Won’t Be Labeled K-State Research & Extension
Not “Covered Commodities”
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Poultry
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Chickens Turkeys Eggs K-State Research & Extension
To Be U.S. Origin…
Meat Must Be Exclusively From Animals 1. Born In U.S.
2. Raised In U.S.
3. Slaughtered In U.S.
And Will Be Labeled As Such…
K-State Research & Extension
Example Labels -- For Animals Born, Raised, & Slaughtered In U.S.
1.
“Country Of Origin – United States” 2.
“Product Of The United States” 3.
“Produced In The United States” 4.
“Product Of USA” K-State Research & Extension
Example Labels – For Animals Not Born/Raised/Slaughtered In U.S.
For Beef From Cattle That Were: 1.
Born In Mexico 2.
3.
Raised In U.S.
Slaughtered In U.S.
Label May Read: “From Cattle Born In Mexico And Raised & Slaughtered In The U.S” K-State Research & Extension
Example Labels – For Animals Not Born/Raised/Slaughtered In U.S.
For Mixed/Blended Meat Of Multiple Origins, Origin Must Be Labeled In Order Of Prominence By Weight: “Product Of Canada, From Cattle Born & Raised In Canada & Slaughtered In The U.S., And Product Of U.S.” K-State Research & Extension
Notification To Consumers At Retail Outlet
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Label Or Sign On Covered Commodity Or On Package, Display, Or Case Required For Internet Sales Too (at time of purchase)
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So, Some Retailers May
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Sell Only Covered Commodities Originating From One Source (U.S. Or Elsewhere)
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Need Additional Coolers Or Displays K-State Research & Extension
State Programs Do Not Satisfy COL Guidelines K-State Research & Extension
COL Does Not…
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Provide Food Safety Assurance
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There Are NO Safety Standards Or Guidelines In The COL Regulation
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Does Not Replace USDA Meat Inspection
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However, Some Consumers May Associate Knowing The Origin Of Meat With Safety K-State Research & Extension
Mandatory ID System?
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COL Legislation Specifically Forbids The Secretary From Creating A Mandatory National Identification System
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Secretary May Use Existing Programs
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Vertical Alliances May Have An Advantage
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Private Firms Can Mandate An ID System
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Retailers Processors K-State Research & Extension
COL Verification
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3 rd
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Party Verification?
Driven From Retailers, to Packers, to Producers Records Must Be Kept For Two Years
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Who Will Provide 3 rd
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Party Verification?
It’s Not Yet Clear Who Can Do This, Possibly:
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Veterinarians?
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Producer Alliances Or Cooperatives?
Business With Technology For Identification?
K-State Research & Extension
Enforcement
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Secretary of Agriculture Enforces COL Retailer Is Responsible
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Violations
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Secretary Notifies Retailer Retailer Gets 30 Days To Comply Willful Violations After 30 Days Result In $10,000 Fine For Each Violation
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Each Day Is A Violation Others In The Supply Chain Could Be Held Responsible, Either By USDA Or By Buyers Of Their Product K-State Research & Extension
COL Isn’t Likely To Go Away
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Legislative Repeal or Change?
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Possible, but does not seem likely at this time
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But would not have to open up entire Farm Bill
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Some Early Proponents Are Now In Favor of Voluntary COL Only
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But COL Could Become A Consumer Issue K-State Research & Extension
Impacts & Economic Assessments
K-State Research & Extension
“Though The Benefits And Costs Of The Voluntary Program Are Difficult To Quantify, The Agency Believes That Retailers Will Only Choose To Participate If The Benefits Outweigh The Costs.” ~Ag Marketing Service, USDA So Why Hasn’t Voluntary COL Taken Off?
The Costs Probably Outweigh The Benefits
K-State Research & Extension
Cost Estimates…
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AMS
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$1.97 Billion For Recordkeeping This Is For All Covered Commodities Does Not Cover Other Costs To The Industries, Or Impacts On Markets Or Trade Set Up Record Keeping Conduct Record Keeping Producers Food Handlers Retailers 8 Hours 12 Hrs/Year 16 Hours 40 Hours 52 Hrs/Year 365 Hrs/Year K-State Research & Extension
Cost Estimates…
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COL With A Trace Back System
$1.02 Billion For Pork Industry
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10% Increase In Farm Costs, or $10.22/hd
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Plus Loss Of Export Business Source: Hayes and Meyer K-State Research & Extension
Cost Estimates…
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U. of Florida study says that costs would be much lower if only imported commodities are tracked
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Most attorneys think COL legislation precludes this approach
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Consumer Labeling Issue K-State Research & Extension
Potential Benefits of COL
COL Proponents Expect Demand Increase
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Market Share U.S. Already Has 90% Of Domestic Beef & Pork Market, So Little To Gain
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Higher Price Little Research To Suggest Consumers Will Pay For Country Of Origin Information K-State Research & Extension
Consumer Willingness-To-Pay For “U.S. Certified Beef”
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Loueiro & Umberger Found That A Select Group of Consumers, In A Survey Conducted In Grocery Stores Would:
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Pay $183.77 Per Year For Mandatory COL
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Pay $1.53/lb. More For Steak
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$0.70/lb. More For Hamburger K-State Research & Extension
Consumer Willingness-To-Pay For “U.S. Certified Beef”
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Umberger et al. used an experiment with a select group of consumers & found:
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73% Were Willing To Pay A Premium for Beef Labeled For Country Of Origin
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11% Premium For Steak
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24% Premium For Hamburger
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But NCBA estimates that only 5% of beef in retail stores is not U.S. origin
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Likelihood of price premium is very low K-State Research & Extension
Potential Problems
1.
World Trade Organization Violations?
2.
Foreign Competitors Use COL To Their Advantage 3.
Verification System Isn’t Clear Yet 4.
Packer’s Transaction Costs Increase, So They Buy From Fewer Producers 5.
Retailers/Processors Design Proprietary ID Systems, Limiting Marketing Flexibility K-State Research & Extension
Potential Problems
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Packers Will Segregate Plants Or Shifts 1. Costs Rise & Prices Paid to Producers Fall 8.
Retailers Will Move To Case-Ready 1. Already Seeing A Shift To This 2. Allows Retailers To Shift All of Liability to Suppliers 9.
Retail Pork & Beef Price Could Increase Relative To Poultry 1. Result: Poultry Demand Increases 10. Costs Likely To Exceed Benefits 1. If 95% of Beef in Grocery Stores is U.S. Origin, How Do You Charge A Premium For It?
K-State Research & Extension
Possible Effects
1. Unverified Meat Will Go To HRI Or Export
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High Value Markets, But Blended/Mixed Product Will Be Hardest To Verify 2. Audit Trail (Or Trace Back) Exposes Producers To Other Liabilities
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Food Safety 3. Canada Increases Packing Capacity & Exports Pork Instead of Hogs
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U.S. Pork Exports Decline K-State Research & Extension
Possible Effects
4.
Pork & Beef Demand Decline 1.
Higher prices lead consumers to shift towards relatively cheaper poultry 5.
Some U.S. Producers Quit 6.
Some U.S. Packers Go Out Of Business 7.
Pork & Beef Demand Improve 1.
Consumers “tastes & preferences” shift because of COL K-State Research & Extension
Livestock Producers’ Alternatives Stick Your Head In The Sand & Hope This Goes Away
Not Likely To Go Away
Your Buyer Won’t Allow You To Do Nothing Because Your Buyer Has To Do Something
K-State Research & Extension
Requirements For Hogs Born In Dec 2003 & Calves Born Now : 1. Have 3 rd Party Verified Documentation Proving Where Animals Were Born & Raised.
Requirements For Hogs Born In Dec 2003 & Calves Born Now: 2. Sign An Affidavit For Each Load Stating There Is A 3 rd Party Verified Audit Trail & Identifies Hog’s Origin.
Requirements For Hogs Born In Dec 2003 & Calves Born Now: 3. Swift & Co. Will Conduct Random Producer Checks To Verify Audit Trail.
Requirements For Hogs Born In Dec 2003 & Calves Born Now: 4. Swift & Co. Will Pass Any Fine/Penalty It Receives To Party Responsible.
Liability For COL Accuracy
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Will Be Passed Down The Supply Chain, Likely Through A Series Of Affidavits Or Contracts
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These Would Require The Supplier Of The Product To Provide Country Of Origin Information & Confirm That The Information Can Be Verified
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The Ultimate Responsibility For Determining & Documenting Country Of Origin Will Fall Upon Livestock Producers K-State Research & Extension
What Should Producers Do Now?
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Document Location Of Birth For Livestock Born On Farms & Ranches, Along With Other Production Records
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Retain These Records For At Least 2 Years Be Ready To Make Them Available When Selling The Livestock Obtain Country Of Origin Information, Documentation, & Verification (If Possible) For Livestock Purchases K-State Research & Extension
Livestock Producers’ Alternatives Become a preferred supplier that has reliable information paper trail K-State Research & Extension
One Thing To Consider: What Are U.S. Beef Customers Doing?
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Japan All Japanese cattle tagged and registered
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Central cattle id database Information available to consumers at retail and foodservice outlets via Internet Legislation proposed & then withdrawn to impose same requirements on imported beef K-State Research & Extension
Cyclical Peak In Slaughter Cattle Prices Still Ahead
Annual Average Steer Prices .
Kansas Slaughter Steers .
85 80 75 70 65 60 55 50 45 40 35 75 77 79 81 83 85 87 89 91 Year .
Source: USDA, 2003 Forecast 93 95 97 99 01 03 K-State Research & Extension
Domestic Demand Started To Rebound Last Fall 90 80 70 60 50 40 30 Wholesale Beef Demand Index October - December Quarter 83 77 77 78 72 69 66 67 66 67 57 56 53 51 50 50 45 45 52 51 48 49 20 10 0 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 Year Source: USDA, Dept. of Commerce & K-State Research & Extension Price Deflated By CPI, 1980 =100 for Beef Demand Index K-State Research & Extension
Demand Rebound in ‘03 Has Had Big Impact Wholesale Beef Demand Index January - March Quarter 100 89 90 80 70 60 80 77 80 72 64 65 69 65 64 61 58 57 53 51 46 44 43 44 50 52 47 51 50 40 30 20 10 0 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 Year Source: USDA, Dept. of Commerce & K-State Research & Extension Price Deflated By CPI, 1980 =100 for Beef Demand Index K-State Research & Extension
Futures Anticipate Weaker Prices This Summer But Have Recovered Following BSE Scare Mid-Month Futures Based Price Forecasts Kansas Slaughter Steers
79 77 75 73 3 Yr. Avg. Basis Most Neg. Basis Most Pos. Basis 71 69 67 65 63 Jun.
'03 Jul.
'03 Aug.
'03 Sep '03 Oct.
'03 Nov.
Dec.
Jan.
'03 '03 '04 Month & Year Source: CME & K-State Research & Extension Forecasts =5/27/03 Futures Settlement Prices + Basis Estimates Feb.
'04 Mar.
'04 Apr.
'04 May '04
K-State Research & Extension
Feeder Cattle Prices Rebounding in 2003 Corn Prices Could Be A Factor This Year 65 60 55 50 45 40 35 30 95 90 85 80 75 70 75 77 79 81 83 85 Source: USDA, 2003 Forecast 87 89 Year 91 93 95 97 99 01 03 K-State Research & Extension
Feeder Futures Suggest Prices In Low to Mid-$80’s This Year But Feed Grain Prices Will Be Important Mid-Month Futures Based Price Forecasts 700-800 Lb. Feeder Steers, Dodge City, KS
90 89 88 87 86 85 84 83 82 81 80 3 Yr. Avg. Basis 79
Jun. '03 Jul. '03 Aug.
'03 Sep.
'03
Most Neg. Basis
Oct. '03 Nov.
'03
Most Pos. Basis
Dec.
'03 Jan. '04 Feb. '04 M ar. '04 April '04
Month & Year Source: CME & K-State Research & Extension Forecasts = 5/27/03 Futures Price + Basis Estimates
K-State Research & Extension