Brett StuartTrade AnalystU.S. Meat Export Federation

Future Potential and Challenges Future Potential and Challenges for U.S. Red Meat in the Global for U.S. Red Meat in the Global

Marketplace Marketplace

UNL – ANSI DepartmentUNL – ANSI DepartmentMay 4, 2005May 4, 2005

USMEF Mission Statement

“To increase the value and profitability of the U.S. beef, pork and lamb industries by enhancing demand for their products in targeted export markets through a dynamic partnership of all stakeholders.”

USMEF Offices & Representatives

Taipei

Singapore

Guangzhou

Denver

Mexico City

Sao Paulo

MoscowLondon

Beirut OsakaTokyoSeoul

Monterrey

St. Petersburg

Caracas Hong Kong

Shanghai

USMEF StakeholdersPrivate Companies

– Tyson– Swift & Company– Excel– National Beef– Hormel– Smithfield

Agribusiness– Chicago Mercantile

Exchange– Elanco Animal Health

U.S. Dept. of Agriculture

Nat’l & State Organizations– National Pork Board– Cattlemen’s Beef Board– United Soybean Board– American Farm Bureau

Federation– National Cattlemen’s Beef

Association– NE Beef Council– NE Corn Board– NE Dept of Ag– NE Soybean Board– American Meat Institute– National Pork Producers

Council

Strategic Priorities

• Market Access• Trade Support• Market Presence• Buyer Education and Loyalty• Product Image• Total Carcass Utilization

Relevance of Trade to U.S. Livestock Industries

• In 2003, we exported 12% of domestic beef production

0%

2%

4%

6%

8%

10%

12%

14%

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Per

cen

t o

f P

rod

U.S. Beef/BVM Exports as a Percent of Production

Source: USDA, USMEF

Relevance of Trade to U.S. Livestock Industries

• In 2003, we exported 12% of domestic beef production– Impact on cattle prices (chart)

• In 2004, we exported 11% of domestic pork production

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

met

ric

ton

s

0

500

1,000

1,500

2,000

2,500

mil

lio

n $

PVM - MTPork - MTValue - million $

U.S. Pork and Pork Variety Meat Exports

Source: USDA

14.3% Average Annual Growth - Volume14.3% Average Annual Growth - Volume

Relevance of Trade to U.S. Livestock Industries

• In 2003, we exported 12% of domestic beef production– Impact on cattle prices (chart)

• In 2004, we exported 11% of domestic pork production

• In 2003, we exported 320 million bu. of corn and 38 million bu. of soybeans through red meat

Relevance of Trade to U.S. Livestock Industries

• In 2003, we exported 12% of domestic beef production– Impact on cattle prices (chart)

• In 2004, we exported 11% of domestic pork production

• In 2003, we exported 320 million bu. of corn and 38 million bu. of soybeans through red meat

• Even indirect trade issues impact U.S. producers – (chart)

June LC Contract - 2002

On March 10, 2002 Russia banned U.S. poultry keeping 53 million pounds per week in the U.S.

Source: Chicago Mercantile Exchange web site

Topics

• Promotional Efforts

• Global Demand and Competition

• Current Issues - BSE

• Challenges

• Outlook

Promotional Efforts

Promotions

• Media

• Retail

• Foodservice

• Trade

• Foodshows

Global Demand and Competition

Income and PCC of Meat-- Log Scale --

1

10

100

1,000

10,000

100,000

1 10 100 1,000

Per Capita Consumption of Meat (kg/capita/year)

Per

Cap

ita

Inco

me

(US

$ P

PP

)

Estimate: 1% Increase in PCI Increases PCC 0.6%

Source: FAO

Red Meat Demand Drivers

World Population in billions

0

2

4

6

8

10

1950 1975 2000 2025 2050

World Per Capita Income Growth Index

0

50

100

150

200

250

1970 1980 1990 2000 2010

1970

=10

0

Source: U.S. Census Bureau, World Bank, USDA/ERS

FAO Meat Consumption Forecasts

Source: FAO

0

50

100

150

200

250

300

350

mil

lio

n m

etr

ic t

on

s

1997/1999 2015 2030

Poultry

Pork

Ovine

Bovine

+34%

+108%

+30%

+57%

+22% +44%

+22%+64%

% change from base year

+29%

+67%

China Factor

• World food demand will increase 50% over the next 20 years, paced by the growing population and greater affluence of China

1988 to 2002• In China

– calories from animal sources +120% – calories from vegetable sources - unchanged

• In the Developing World– calories from animal sources +48% – calories from vegetable sources +4%.

Global Beef Market Share

Brazil

Australia

India

New Zealand

Argentina

CanadaUruguayEU-25

U.S.

Others

0%

20%

40%

60%

80%

100%

1999 2000 2001 2002 2003 2004 f 2005 f

Source: USDA Estimates

Global Beef Exporters by Country

0200400600800

1,0001,2001,4001,6001,800

1,0

00

MT

CW

E

1999

2000

2001

2002

2003

2004

2005 (f)

Source: USDA

Competition is Fierce

Global Pork Market Share

Canada

EU-25

United States

Brazil

ChinaOthers

0%10%20%

30%40%50%60%70%

80%90%

100%

1999 2000 2001 2002 2003 2004 2005 f

Source: World Trade Atlas

0

100

200

300

400

500

600

700

1996 1998 2000 2002 2004

China

U.S.

Brazil

Canada

Hog Production

Source: FAO

Million

head

94% of China’s hogs are on operations with <9 head

Global Pork Exports- Key Exporters -

0

200400

600

8001,000

1,200

1,400

1,6001,800

2,000EU-2

5

Canad

a

U.S.

Brazil

China

1,0

00

MT

CW

E

1999

2000

2001

2002

2003

2004

2005 f

Source: USDA

Recent Developments

• Argentina receiving FMD clearance by region – Beef access agreement with China

• Brazil wants to double meat production in 10 years

• Uruguay is 100% USDA Process-Verified

• Canada (Maple Leaf) will be using DNA traceability for Japan in 2005

• What is the U.S. doing?

Brazil Factor

Current Issues - BSE

Key U.S. Beef Markets - BSE

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

2003 2004

met

ric

ton

s

Other

C/S America

Caribbean

EU

Taiwan

ASEAN

Middle East

HK/China

Russia

Canada

S. Korea

Mexico

Japan

LOST EXPORT PREMIUMS DUE TO WORLDWIDE BSE BANSTop 10 Exported Items

Pre-BSE Price 12/03

Post-BSE Price 12/04 Loss/lb Lbs / Hd Loss/Hd

Annual Lost Premiums*

Short plates 1.80$ 0.71$ (1.09)$ 40.0 (43.60)$ (1,229,520,000)$ Liver 0.35 0.10 (0.25) 11.0 (2.75) (77,550,000) Short ribs 2.37 0.71 (1.66) 5.0 (8.30) (234,060,000) Intestine 0.55 - (0.55) 7.5 (4.13) (116,325,000) Chuck roll 1.66 1.52 (0.14) 38.0 (5.32) (150,024,000) Tongues 4.25 0.70 (3.55) 3.5 (12.43) (350,385,000) Skirt 3.11 1.81 (1.30) 7.0 (9.10) (256,620,000) Rib Fingers 2.45 0.51 (1.94) 4.0 (7.76) (218,832,000) Tripe 0.99 0.43 (0.56) 7.5 (4.20) (118,440,000) Hanging Tender 2.00 0.85 (1.15) 2.5 (2.88) (81,075,000)

126.0 (100.46)$ (2,832,831,000)$

or(8.04)$ per cwt

*Based on steer/heifer slaughter of 28.2 million head in 2003

Nebraska steer/heifer slaughter 2004=6.196 million head, or $619.6 million dollars lost in NE due to BSE bans, not considering other aspects of BSE losses (increased supplies, affiliated industry impact, etc)

Current Situation

Perhaps the largest ‘non-issue’ issue in industry history

1. There is virtually zero risk of animal to human transmission

– SRM removal

2. There is no risk of animal to animal transmission

Then what is the issue?

Key Market Bans

Japan• U.S. beef/bvm exports of

384K mt worth $1.4 billion in 2003

• Backed away from 100% testing; poor record of public health

• 64% of beef consumed is imported – half was U.S.

• Beef is 4th protein source behind Fish, Pork, Poultry

01,000,0002,000,0003,000,0004,000,0005,000,0006,000,0007,000,0008,000,0009,000,000

mt

Beef Fish Pork Poultry

Japan Meat Consumption 1961-2001

USMEF Efforts

• Trade Teams

• Media Teams

• Proposals

• Information

When Will the Markets Reopen

• Japan– Agreed in principle to re-open (10/04)– Domestic rulemaking required

• S. Korea– May move independently of Japan– Requires political maneuvering

• Others

Current BSE Status

• 65 countries initially closed – 28 have reopened– Represent 40% of 2003

volumes– Many have boneless and

age restrictions

• Beef exports to Mexico have reached 81% of pre-BSE levels

Challenges

Threats to U.S. Success

• Production built to domestic market– Our competitors have a very different

perspective• Traceability

Threats to U.S. Success• Production built to domestic market

– Our competitors have a very different perspective• Traceability

• Funding sources– Checkoff uncertainty– Budget deficits will decrease future federal

agriculture funding

• Protectionist attitudes– At home and abroad

• FTA’s– China / S. America?– Asian Free Trade Area?

Threats to U.S. Success (cont.)

• Inability to control food safety and animal health issues– FMD, BSE, etc

• Inability to develop standardized trading principles– Sovereignty rights vs. worldwide

obligations– Non-tariff trade barriers: dumping cases,

SPS issues, etc.

As Tariffs Fall…Other Measures Rise

0%

5%

10%

15%

20%

25%

30%

'87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99

Ave

rag

e T

arif

f ra

te

050100150200250300350400450500

Nu

mb

er o

f A

D M

easu

res

in

Pla

ce

Avg. Tariffs

Measures in Force

Source: Cato Institute

Average Tariffs and Antidumping Measures(nontraditional users, 1987-1999)

Outlook

U.S. has a 35% advantage over Australia/N.Z.

compared to Jan. ‘03

Source: 2005 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada

U.S. Pork Export Forecasts

0

200

400

600

800

1,000

1,200

'000

MT

'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07

USDA and USMEF

USMEF forecasts

$2.2 billion in 2004

USMEF Beef Export Forecasts

0

300

600

900

1,200

1,500

'000

MT

'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07

USDA and USMEF

USMEF forecasts

$3.9 Billion in 2003

2005 Outlook• Continued weak U.S. dollar• Global economic growth• Bigger importers and exporters are emerging

(specialization)• Animal disease issues driving

production/consumption trends• China consumption and Brazil production• Trade Policy

– Will the Doha Round reach a conclusion?– CAFTA– Will TPA be renewed (expires in June - could be

extended 2 years)

For more information:Brett Stuart

bstuart@usmef.org

(303)623-6328

Or visit USMEF at www.usmef.org

Questions ?