The World Beef Trade Picture...and Canada's Place in it
This discussion is limited to trade in beef and veal and therefore excludes trade in live slaughter and feeder cattle. Veal constitutes a tiny fraction of the whole, but my sources cite “beef and veal”. The data source is the Foreign Ag Service (FAS) of the USDA. The data on Canadian production exports and imports is sourced from Canadian sources and. if there is any significant difference between Canadian and US data I will comment.
Live export trade tonnage makes up a very sizeable proportion of Canada’s beef industry exports and thus Canada’s total exports are understated in most source records that report only product trade. When Canada’s export trade in live slaughter and feeder cattle is converted to beef tonnage that tonnage has averaged 19% of total industry production since 2000 while beef exports have averaged 35% of annual beef production. The sum of live and product exports totals 54% of total industry exports. The role of Canada in global beef trade will be discussed in more detail after reviewing the Global Situation
Global Trade 2016
To understand Beef Trade, it is best to start with the size of the domestic industries.
Production
Table 1 shows in descending order the 15 nations, or economic regions that produce 1% or more of the global beef production and their cumulative total.
Table 1
Global Beef Trade Data 2016 Metric Tonnes
Data Source FAS/USDA
Canada is ranked 12th on this list providing just under 2% of global production and New Zealand ranks 15th. The cumulative total of these 15 countries is 91% of global productions.
India stands out as the third largest producer and the production consists of both cattle, at about 60% of production and buffalo at around 40%. The beef produced is of the lowest quality and most of its exports go to Middle East, North African Countries and to China. Because of the poor quality Indian production and exports represent no competitive threat to Canadian production, and in fact could stimulate demand for a higher quality product.
Exports
The total of the top 12 beef exporting countries cumulates to 96% of total exports. I have added to this table the percent of production represented by each country’s exports. Some interesting observations can be made. The USA is the 4th largest exporter but exports just 9% of its production while New Zealand ranks 5th and exports 95% of its production. This is an interesting situation where the fourth largest exporter is not heavily, or even significantly export dependent and the 5th largest exporter is almost totally export dependent.
Canada stands in 6th position but this does not include the beef equivalent of live slaughter and feeder cattle exports. Thus, while Canada exports 37% of its production as beef the inclusion of the live cattle would elevate Canada’s percent of production that is exported to 57% and Canada would move up to 5th place, displacing New Zealand in Tonnage. However New Zealand still holds the top ranking for the percent of its production that is exported. This is the consequence of an industry that produces about half as much as Canada produces but has a human population just over 10% of the Canadian population. This table also identifies some “sleeping giants” such as Brazil and Argentina that export only 19 and 8% respectively of their rather considerable production. India is again included in this list but, as earlier noted the inferior quality of Indian Beef poses little threat to other countries.
Global Beef Trade Data 2016 Metric Tonnes
Data Source FAS/USDA
Together these 6 countries accounted for over 76% of total exports and 41% of total production. Canada is the smallest exporter player in this group but Canada exports a much higher proportion of its production than does the USA or Brazil. As already noted however Canada also exports about 20 % of its production as live slaughter and feeder cattle.
Imports
The major beef importers are shown below along with the percent of total imports and those imports, combined with un-exported domestic supply makes it possible to show the percent of consumption that is imported.
Global Beef Trade Data 2016 Metric Tonnes
Data Source FAS/USDA
There are few surprises in this table except to note the low figure for the EU and of course the significantly high figure for Canada. In the case of the EU the figure confirms the fact that most trade is within the EU itself with only small quantities coming from outside. The Quota and requirements that the EU has granted and imposed on Canadian beef imports confirms that access will be limited well into the future.
In the case of Canada, it is noted that almost one third of total consumption is of imported product, two thirds of which came from the USA in 2016.
An interesting further observation is that the US exports slightly less beef than it exports. In fact, if the tonnage of beef imported from Canada as live slaughter and feeder cattle to US the US the ratio of beef imports to beef exports would increase.
Some Further Observations
This review is written with a primary focus on the opportunities that may exist for Canada in a world that appears to have a growing appetite for the type of high quality beef that is produced almost exclusively in Canada and the USA, and to a lesser degree in Australia.
The dominant producer of this type of high quality beef is, of course the U.S.A. and average production since 2002 has been 11.7 million Tonnes (carcass basis). This level of production has been remarkably stable with a standard deviation of only */- 0.38 million tonnes. In 2016 a new record level of production at 12.3 million tonnes was established with the industry in its third year of expansion. Modest supply increases are therefore likely over the next two to three years. Despite a slowly growing population (<1% per year since 2000) beef consumption is quite static averaging approximately 12, million Tonnes since 2000. That means that any increases in supply resulting from herd expansion will be available for export.
US Beef and Variety beef meat exports have essentially doubled from 665,000 tonnes in 2006 to 1.246 million tonnes in 2016. (Source US meat Export Federation) This increase, in an industry with an essentially static level of production is remarkable but can be explained largely by declining domestic consumption levels. It should also be noted that the current level of US beef exports has been assisted significantly by the fact that, from 2006 onward Canada has exported 1.5 million more tonnes of beef to the USA than the USA has exported to Canada. Live exports are not included here because live exports are included in US domestic slaughter figures.
The steadily increasing export levels also suggest an aggressive and successful marketing strategy that sends product into over 30 countries or regions.
Canada’s beef exports meanwhile are very heavily concentrated on the US market. In 2017 to the end of October, 77% of Canadian beef export tonnage went to the U.S. and these exports accounted for 74% of the total value. While one must acknowledge that product mix affects average export prices it is noted that exports to several markets were at higher average prices than were exports to the USA. This raises the question of why more product was not sent to the higher priced markets. It is also apparent that, when an adjustment is made for the value of the exchange rate Canadian beef enters trade channels at a significantly lower price than competing US product. Also, it is evident that the US is not the highest priced market for Canadian beef exports. In 2017 the 7 highest priced markets which received significant quantities of Canadian beef had a weighted average price of $6.81 compared to $6.31 for exports to the USA. Here again product mix may be a factor.
The apparent export strategy, whether intentional or accidental, is to concentrate the dominant share of beef exports into the American market. Higher transportation costs to more distant markets may be a deciding factor, but one wonders why Canadian product cannot command the same price as US production given the near identical nature of the product. Alternatively, if Canadian product cannot command the same price as American product Canada should exploit the competitive advantage of a high-quality product that also happens to be cheaper.
Summary
The Canadian Beef Industry remains one of the most export dependent industries in the world consistently exporting over half of its production. This situation has evolved over time supported by the constant demand pull from the US industry which, despite its massive size, is a slight deficit producer. Beef consumption in the USA is modestly import dependent. The question has been asked, and must be asked again, if Canada’s heavy reliance on the US for the bulk of its exports is a prudent strategy. At the same time, it should be noted that without a significant increase in the size of the national breeding herd and with its continued heavy reliance upon the US market the Canadian Industry cannot provide meaningful increased export tonnage to offshore markets. What is the beef industry’s export strategy?
As always Comments and criticisms are invited and welcome.