In the past two decades U.S. animal-protein exports have grown from $7.4 billion to $20.7 billion, driven by industry marketing and government trade negotiations. Currently trade accounts for 10 percent to 30 percent of U.S. animal-protein production, depending on industry segment.
The Trump administration’s harder line on trade, continued by the current administration, has led to mixed results for U.S. agriculture. Ag exports to China have flourished under the Phase One agreement, but the U.S. withdrawal from the Trans-Pacific Partnership cost U.S. exporters some opportunities.
From opening trade to Cuba to exporting broiler paws to China, diversification of markets and products is vital for a vibrant U.S. protein-export trade. Successful trade also depends on maintaining commitments with long-established partners, as seen with Mexico, Canada, Japan and others. Trade policy is crucial to building consistent export markets, and the United States needs to be at the negotiating table. The recent nomination of a chief agriculture negotiator with the Office of the U.S. Trade Representative is an important step forward but she has yet to be confirmed by the Senate.
Since 2000 the share of U.S. meat and poultry volume exported has increased from about 6 percent to more than 13 percent, and almost tripled in value. Those gains were made on the heels of the North American Free Trade Agreement, the Uruguay Round of the General Agreement on Tariffs and Trade, and the World Trade Organization’s Agreement on Agriculture, and supported by U.S. administrations dating back to President Ronald Reagan. But for more than a decade free trade has become decidedly less popular in the United States. Unfortunately for U.S. meat exporters, the rest of the world continues to make headway on trade agreements that threaten to put U.S. producers at a disadvantage in global markets. In the near term the Phase One trade agreement with China expires at the end of the year, and there is a fair degree of uncertainty as to how negotiations will play out in the coming months.
As recently as the 1990s, China was a relatively minor buyer of U.S. meat and poultry, at times struggling to make it into the top-10 export destinations. That quickly changed in the early 2000s. Between 2002 and 2012, China’s purchases increased more than tenfold to $26 billion, easily becoming the largest export market during 2012-2016.
However in an effort to rebalance the widening trade deficit with China, under the Trump administration the United States implemented tariffs on its imported goods beginning in January 2018. Initially tariffs were imposed on solar panels and washing machines imported from China, and then expanded to steel and aluminum imports from all destinations. In a tit for tat, both Chinese and U.S. officials began levying additional tariffs and restrictions, finally escalating to announcements of tariffs on more than $300 billion of imports from China. Amid the larger trade war, U.S. meat and poultry exports to China collapsed to about $9 billion in 2018.
Washington and China ultimately signed the Phase One trade deal in January 2020, which expires at the end of 2021. The pact called for China to boost purchases of U.S. products by $200 billion across two years – a target that Beijing is well behind in meeting. However from an agricultural viewpoint, Phase One must be considered a moderate success. Aggregate agricultural exports to China increased 58 percent year-over-year in 2020, and are currently at a pace to meet or exceed levels not seen since 2012-2016. The Phase One agreement created stability in what had been an unpredictable trade partnership with China. Since the agreement’s implementation China has become a top destination for U.S. protein.
The agreement re-opened China’s markets to U.S. poultry as China quickly developed an affinity for U.S. beef, becoming a top-three U.S. export destination this year. U.S. sourced beef is priced at a premium, which helps meet the Phase One financial targets. While it remains to be seen if China is willing to pay a premium for U.S. beef in the longer term, the near-term opportunity is assumed to be robust compared to pre-2016 levels. The volume for the top-three destinations for U.S. beef – China, Japan and South Korea – has accounted for 67 percent of all U.S. beef export volume so far in 2021.
The Phase One trade deal is not the only reason for the successful growth in U.S. protein exports to China. After African swine fever was reported in China’s hog herd in 2018, Chinese government statistics reported a 40 percent decline in total swine inventory compared to a year earlier. U.S. Department of Agriculture reports that pork production in China decreased 21 percent by 2019 and 32 percent by 2020 relative to pre-African-swine-fever levels. As a result of African swine fever, China’s pork imports skyrocketed from 1.5 million metric tons in 2017 to 5.3 million metric tons in 2019, accounting for more than 40 percent of global pork trade.
But by 2021 China’s sow herd had been rebuilt to such an extent that internal market prices collapsed by mid-year. Although China’s pork production is expected to contract again in 2022, it’s unlikely its imports will come close to those in 2019-2021. That may contribute to elevated global protein exports, as China’s total swine herd remains more than 13 percent less than pre- African swine fever levels.
Phase One appears to have given U.S. broiler exports a significant boost into China. Although shipments have slowed somewhat recently, China has imported more than $1.3 billion in U.S. broiler products since the beginning of 2020. China had banned U.S. poultry products since 2015 due to a U.S. outbreak of avian influenza. An additional force driving demand for U.S. protein is China’s strong affinity for U.S. broiler paws. When direct market access to China returned, U.S. broiler-paw prices went from rendering credit or less – to more than $1 per pound, landed price in China. Through August the 2021 cumulative export total is more than 180,000 metric tons, valued at $438 million. In comparison in the first eight months of 2014, exports of paws to China totaled about 49,000 metric tons with a value of $60 million.
Interestingly, when combined with Hong Kong, total U.S. broiler paw exports for 2021 year to date have decreased about 8,000 metric tons from the same time frame in 2014 – but have increased $170 million in value. One takeaway is that U.S. broiler producers received value for the part only through direct access to the Chinese market. But inflation, tariffs and supply-chain inefficiencies as a result of the COVID-19 pandemic have contributed to the increased values as well.
U.S. protein exporters have found much success in China since Phase One and African swine fever, but the question remains regarding how much U.S. protein exporters should depend on China in the future. Declining pork and poultry shipments in recent months suggest the country truly has a handle on African swine fever, meaning the best market opportunities may already be behind us.
U.S. beef and pork had already enjoyed duty-free access to partners under the North American Free Trade Agreement, so 2020’s U.S.-Mexico-Canada Agreement had minimal if any impact. However revising a commitment with the U.S. first- and third-largest food and agricultural-export markets calmed participants as policymakers sought to rebalance trade at the time. Mexico continues to be a top destination for U.S. poultry and pork. U.S. broiler meat exported to Mexico reached records on several occasions during the past 12 months and have accounted for more than one-quarter of all shipments this year. As export volume to China has eroded recently, a healthy trade relationship with Mexico is critical.
The current bottlenecks at seaports further raises the strategic importance of trade with Mexico and Canada. But access to diverse markets remains vital for U.S. meat exports. For example U.S. Department of Agriculture-Economic Research Service trade data show the United States exported 650 million pounds of broiler meat to 111 destinations in August. Almost 65 percent went to the top-three destinations of Mexico, China and Cuba, but 20 destinations claimed at least 1 percent of U.S. broiler-meat exports. As exports to East Asia and North America have expanded, European markets have eroded for U.S. protein exporters. Nations outside of those top-two regions comprise almost one-third of all U.S. protein-export volume. Many of those countries are directly involved in multilateral trade deals, or are destinations for exporters who are involved in multilateral trade deals such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
At a minimum the U.S. lack of participation in evolving global trade partnerships in recent years has put its export success at risk.
President Donald Trump campaigned on a platform of “America First,” focusing on trade flows that affected the U.S. economy, with changes implemented almost immediately upon inauguration. Although the Biden administration was expected to pursue more international trade policy, it’s off to a very slow start. It took eight months for the president to nominate Elaine Trevino to the position of chief agriculture negotiator in the Office of the U.S. Trade Representative and she still awaits Senate confirmation. In early October, for the first time in the Biden presidency, U.S. Trade Representative Katherine Tai outlined the administration’s stance on China. She provided few details, but made it clear that existing tariffs on Chinese goods will remain in place and that the U.S. will enforce China’s purchasing obligations under the Phase One deal.
Tai recently said at the National Chicken Council’s annual conference, “I think the main challenge we face is how we take down the temperature in this trade relationship. The temperature has gotten to the point where I feel like the entire relationship feels kind of like a pile of dry tinder and a stray remark or misunderstanding … is likely to spark just a giant fire with really drastic implications for all of us.”
Given that statement, the U.S. meat industry’s successes from the Phase One agreement are not at all certain to continue into 2022 and beyond.
With more than half of all global protein trade headed to East Asia, fair and open access to the markets of the region is a significant opportunity for protein exports. The U.S. withdrawal from the proposed Trans-Pacific Partnership in 2018 – and absence from the subsequent Comprehensive and Progressive Agreement for Trans-Pacific Partnership – put the United States at a disadvantage versus its main protein-export competitors to destinations like Japan and Vietnam. Indeed the 2018-2020 beef, veal and pork export volume to Japan from the United States declined as other countries’ volumes increased.
Because U.S. trade representatives of the previous administration preferred exclusive trade agreements to large multilateral agreements, they suggested and secured a bilateral U.S.-Japan trade agreement. As a result effective April 1, 2021, duties on U.S. beef exported into Japan decreased from 38.5 percent to 25 percent, and are to be phased down to 9 percent by 2033. Additional details of the agreement benefit U.S. pork, where duties were reduced from 4.3 percent to 1.4 percent.
Closer to home, Cuba has become a major destination for U.S. poultry exports during the past decade. It consistently ranks in the top-five export destinations for U.S. broiler meat, and broiler meat consistently accounts for the vast majority of U.S. agricultural exports to the island. Through August, 9 percent of U.S. broiler meat was shipped to Cuba, making it the second-largest export destination for U.S. broiler meat in volume. Cuba’s market access was opened and facilitated during the Obama administration when the U.S. broiler industry needed a new market for excess meat after both Russia and China restricted U.S. poultry access to their markets in 2014. China has returned as a buyer of U.S. poultry but its staying power remains in question. Given its proximity and need for meat imports, Cuba should remain a steady market for U.S. leg quarters for years to come.
Healthy trade relationships remain crucial to the U.S. animal-protein industry. In recent years meat-exporter opportunity in China has grown, but domestic supplies are continuing to recover from the severe depopulation during the peak of African swine fever. It’s increasingly important for U.S. meat exports to seek more global opportunity. That’s especially true if top protein-exporting nations join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and if the United States is not a member. As competitors look to bolster their export volume, the United States must be at the negotiating table.
Brian Earnest is lead economist for animal protein in CoBank’s Knowledge Exchange division. He provides market and industry research for the poultry, pork and beef sectors; he has more than 10 years of industry and consulting experience. Visit cobank.com for more information.