Is US beef under a Free Trade Agreement a threat to EU beef production?

A new study analyses likely competitiveness and perspectives of production and trade in terms of a possible tariff liberalisation between the EU and the US.

The US and Canada are major beef producers and exporters and have an interest in exporting beef meat to the EU due to the higher beef price. But the existing import tariff of approximately 40 percent, as well as hygienic trade restrictions, mean limitations of beef imports from both North American countries to the EU.

EU-officials reiterate that – as currently – beef imported from the US will have to be produced without the use of growth promoters (hormones, beta-agonists) when entering the European market. The Free Trade Agreement (FTA) is more about the removal or reduction of the present tariff.

A new study gives an estimation of the possible impacts on the economics and competitiveness of beef produced without growth promoters. For this purpose, the data of the agri benchmark Beef and Sheep Network were used and in cooperation with the US-partner from Kansas State University the productivity and cost levels for a situation without the use of growth promoters is examined.

The study comes to the conclusion that the total impact of an FTA on beef production in the EU appears rather limited. This view is supported by calculations with the global trade model GTAP which show a very limited increase of US beef imports into the EU and a decrease of merely 0.5 percent in German beef production (Pelikan and Banse 2012).

Excerpt from the main conclusions:

• On a per kg live weight basis, weaner price differentials between the US and the EU are minor. In many cases, weaner prices in the US and Canada are even higher than in the EU. Thus, there is no incentive to export weaners from a cost or price point of view. Even with the existence of a price differential, it is questionable whether live exports would ever be allowed due to animal welfare concerns.
• The present situation in beef finishing illustrates that there are substantial price and cost differences between US farms and EU farms. The differences narrowed from 2011 to 2012.
• Reflecting transport costs as well as the costs for not applying growth hormones and beta-agonists would take the US-costs to a level which is slightly above EUR 400 per 100 kg CW and thus slightly higher than the prices received by most typical EU farms in 2012. At the same time, US-prices remain below EU-prices. With the present price relations, this would mean that with the EU-price the US feedlot would have a small economic incentive to export to the EU.
• The findings suggest that if there is any beef coming from the US it can be expected to be rather high quality grain-fed.
• Increasing imports from the US would replace domestic beef from the EU rather than pasture-finished beef coming from South America. Silage systems which are wide-spread in the EU would be most affected by a possible increase in imports from the US.
• Non-EU markets might be more attractive for American exports if beef prices are higher in these countries and market access is available for them (with or without low tariff protection and/or TBTs). Examples are China and Indonesia.

The study has been published in the IMS Newsletter and in the German journal “Fleischwirtschaft” and will be also published in the journal “Fleischwirtschaft International”.

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