Aussie beef: Triumphant or trumped?

Rural and Agribusiness

Agribusiness

Throughout the US presidential election campaign, Presidential candidates Donald Trump and Hillary Clinton have touted their opposition to the Trans-Pacific Partnership (TPP). With the US presidential election result looming, we take a look at the potential positive outcomes for Australian agriculture post-election. 

As the world waits with bated breath for the United States of America (US) presidential election to conclude, the Australian agricultural industry should be quietly revelling in the possible positive outcomes it might provide.

In a bid to lure ‘working-class Americans’ to their side, Presidential candidates Donald Trump and Hillary Clinton are touting their opposition to the Trans-Pacific Partnership (TPP).

However, despite the US’ potential withdrawal, the enactment of the TPP is still possible. The agreement only requires at a minimum, six countries representing 85 per cent of combined GDP to ratify for it to enter into force. With China and Japan expected to authorise it, the possibility of the TPP becoming tangible remains real.

Whilst there is plenty of debate around the TPP, when considering a purely Australian agricultural market access centred view, the conclusion is the 12-nation trade deal in its current form will provide improved and defined market access for Australia on the world’s stage. The potential exit of the US from the TPP only further strengthens trade with our vital markets, albeit to the detriment of the declining super power.

For Australian beef, a TPP including the US would see sharpened competition in Japan, the world’s third largest economy. In all the talk of China, Australian beef producers have largely forgotten the importance of Japan. The Asian nation is the second largest export market for Australian beef, buying on average 290,000 tonnes annually, an average of 131,000 tonnes more each year than China. It is also a key market for our quality beef products. In 2015, 53 per cent of the exports to Japan were grain-fed beef, returning AUD$1.89 billion to the Australian economy.

Beef Export Volume by Country

SOURCE: Australian Government, Department of Agriculture and Water Resources, 2015

Japan is however, also the world’s number one importer of US beef. Whilst the already in place Japan-Australia Economic Partnership Agreement (JAPEA) has provided Australia with an edge by reducing tariffs significantly below the 38.5 per cent applied to US imports, a US-inclusive TPP would erode any such margin Australia currently holds.

Despite the TPP proposing to further reduce tariffs on Australian beef to 9 per cent in 15 years and therefore providing a windfall of over $200 million annually, the US managed to negotiate into the TPP a lower tariff of just 8.85 per cent. At a time when the high prices and low supply metrics of Australia are in opposition to the metrics of our main competitor, the importance of tariff benefit cannot be underestimated.

In the face of uncertain medium-term international outlook for Australian beef, continuing to encourage growth in smaller markets is also critical. Despite a much smaller tonnage of 42,000 being exported to Canada in 2015, the North American country remains our fifth largest beef market. Consequently, the TPP’s elimination of the 26.5 per cent Canadian beef tariff within 10 years is crucial for continued growth.

Whilst the US currently has a stronghold on Canadian markets through the North American Free Trade Agreement (NAFTA), once again, the US presidential election continues to play into the hands of the Australian beef market. Trump has announced his regime will renegotiate NAFTA, the trilateral trade bloc between Mexico, Canada and the US. This can only be a positive move for Australia, presuming his intention for renegotiation is not to further reduce restrictions.

The Australian beef industry is standing on the edge of uncertain times. Cattle prices remain escalated as low supply levels promote anxiety amongst all categories of domestic buyers. Despite this, the international horizon appears daunting.

Eastern Young Cattle Indicator

SOURCE: MLA Market Information, 3 November 2016

The rapidly expanding US herd and high feeder weights have driven US domestic prices down and as a result, diminished demand for costly Australian grinding meat.

United States Cattle Herd

SOURCE: United States Department of Agriculture

The US and Brazil have both regained access to Chinese markets over the last twelve months and further, the US has recently opened their doors to Brazilian meat.

As Ben Thomas of the Meat and Livestock Australia highlighted at BeefEx 2016, Australia accounts for only 1 per cent of the world’s beef production and therefore we should not overestimate our ability to gain and control international markets. However, as a nation that has seen beef exports increase by over 10 per cent in the last decade to approximately 70 per cent of total output, international markets remain key to our prosperity and for this reason must be protected and continually developed.

As with all commodities, one parties’ loss is another parties’ gain. In the case of the US presidential election, while the US loses integrity, the rest of the world gains entertainment. In the case of the aftermath, if the US loses the TPP, Australia gains key export markets.

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