Thursday, January 25, 2018
Australian producers have benefited from a trade agreement with Japan, while U.S. cattle farmers have already seen losses since Trump pulled out of TPP.
By Steve Burak, Kathy Baylis, Jonathan Coppess and Qianting Xie, farmdoc daily
For 10 consecutive years, Japan has increased its meat consumption. The Japanese people’s taste for beef, in particular, make it an essential market for the United States.
Beef consumption is expected to grow nearly 4 percent in Japan this year after two straight years of decline. Japan is already one of the world's leading countries when it comes to beef consumption, both in terms of total tonnage and per capita. Japan has also consistently been one of the top beef buyers in the world, with 851,000 metric tons imported in 2017, making it the third-largest import market in the world.
Total sales of agriculture products from the United States to Japan totaled $11 billion in 2016, of which $1.5 billion was beef. Since 2010, Japan has been the United States' No. 1 export market for beef.
Through 2003, the U.S. and Australia split the Japanese beef market. But in late 2003, Japan banned U.S. beef because of U.S. cases of bovine spongiform encephalopathy (BSE). During the ban, North American Free Trade Agreement partners Canada and Mexico replaced Japan as the top export destinations for U.S. beef.
The U.S. has rebuilt beef market share in Japan but cannot rest on its laurels.
The BSE crisis allowed Australia to replace the U.S. as the largest beef exporter to Japan, with exports totaling $1.8 billion in 2016.
Australian beef producers benefit from the Japan-Australia Economic Partnership Agreement (JAEPA) of 2015, which lowers the import tariffs it faces. This advantage will only grow with President Donald Trump's withdrawal from the U.S. from the Trans-Pacific Partnership (TPP).
The lack of an economic partnership agreement between the U.S. and Japan has become evident in the past several months. Japan has enacted emergency tariff safeguards, increasing tariffs on frozen beef imports from the U.S. to 50 percent from 38.5 percent. By contrast, Australia faces a tariff rate of 27.2 percent.
The TPP would have exempted the U.S. from this "global snapback" tariff as JAEPA has exempted Australia. JAEPA exempts Australia from tariff increases but has also lowered their tariff rate. The U.S. faces a standard beef tariff of 38.5 percent, but the rate is just 30.5 percent for Australia on frozen beef (phasing down to 19.5 percent over 18 years), and 32.5 percent for fresh beef (phasing down to 23.5 percent over 15 years).
Not only would the U.S. be saved from tariff increases under the TPP, but the agreement would have set a new fresh and frozen beef tariff of just 27.5 percent in the first year of the agreement, gradually decreasing each year until the final rate of 9 percent in year 16.
For evidence that these tariffs matter, look at Japan's beef imports in August, the first full month of the increase. Frozen U.S. beef imports fell 26 percent, while Australian imports increased 30 percent.
As TPP negotiations continue without the U.S., American farmer could lose further market to countries that remain part of the talks, such as Australia, Canada and New Zealand.
This article is part of the University of Illinois Gardner Agriculture Policy Program, which focuses on policies pertinent to the upcoming farm bill, conservation, trade and other ag-related issues. The program is funded through the Leonard and Lila Gardner/Illinois Farm Bureau Family of Companies endowment. Click here to read the full article.
About the authors: Jonathan Coppess and Kathy Baylis are faculty members at the University of Illinois’ Department of Agricultural and Consumer Economics (ACES). Steve Burak is an ACES graduate student, and Qianting Xie is a data specialist with ACES.
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