While the meat casino has been a recent hot topic in the cattle markets, this week we’ll spend some time on international trade. This is a topic my colleague, Anton Bekkerman, discussed a few weeks ago. While there are many differences between the current presidential candidates, one similarity (though to varying degrees) is that both Clinton and Trump agree that they would not sign the Trans-Pacific Partnership (TPP) agreement into law. To complicate matters, Senate Majority leader Mitch McConnell (R-KY) recently stated that the TPP, which was once thought to be voted on in the Senate during the lame duck session, would likely not be voted on until the next administration takes office.
This disdain for the TPP has not been found within many of the largest commodity organizations in the U.S., including the National Cattlemen’s Beef Association and the American Farm Bureau. With this in mind, let’s talk a bit about the importance of trade to U.S. beef production. Over the last 5 years, U.S. Beef has exported and imported an average of around 10% of total U.S. production. This is a dramatic increase since the mid-1980s, where the U.S. exported around 1.5% of total production and imported around 8% of total production. This period of increased trade has included the passing of NAFTA in 1994 and the US-Korea Free Trade deal in 2010. Over the last couple of years, Japan has become our largest beef export destination, ahead of other major trading partners Canada, Mexico, and South Korea. Australia has become our leading country of origin for imported beef, followed by Canada, New Zealand, and Mexico (See figures below).
This brings us to the TPP, which is a trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. It is notable that some of our major trading partners in beef are included in this deal, most importantly Australia, Japan, and New Zealand. As part of the TPP, Japan has agreed to reduce duties and tariffs on a range of beef and beef products, including a tariff reduction from 38.5 percent to 9.0 percent on fresh and chilled beef over the next 16 years. This implies that beef in Japan, our largest beef export destination and the third largest importer of beef in the world (behind only the U.S. and Russia), will be relatively cheaper for Japanese consumers. The U.S. will then agree to eliminate beef import tariffs, which are as high as 26.4 percent, over the next 15 years. While lower trade barriers will likely increase our ability to import lower priced beef from Australia and other trade partners, ranchers in Montana are more likely to benefit from the increased beef demand that comes from expanding into markets that value high quality beef. The TPP appears to be part of a larger commitment to open free trade for U.S. agricultural commodities. Each of these agreements are important to maintain competitiveness for Montana ranchers by expanding future demand for U.S. beef products.