New tariff cuts set major beef export markets

While much of 2019 was dominated by discussion around China, other key markets - Japan and South Korea - have continued to perform well. But, with more limited production in Australia expected to flow through to reduced export volumes and strong cattle prices in the coming year, how are we placed competitively? Even with our trade agreements?

Strong demand out of China saw our export volumes to Japan and South Korea dip in 2019. For the 2019 year (to November) volumes to Japan (266,254t swt) were down eight per cent while volumes to South Korea (147,467t swt) were down by 4pc.

Japan just managed to hold off China to remain our largest export market.

On the other hand, prices were very good in 2019 and the value of exports rose. At the individual cut level, we saw prices rise at the beginning of the year, then remain relatively stable through the middle of the year before spiking in November when the heat from Chinese demand drove some prices to record levels.

Prices for Japanese imported Australian frozen brisket jumped nine per cent (from JPY 740/kg to JPY 804/kg) between October and November, while Japanese imported frozen US shortplate only jumped 2pc in the same period. This is most probably a result of the competition from China for Australian beef pushing our prices higher while US product did not experience the same level of competition.

From January 1, tariffs on Australian beef into South Korea drop from 24pc to 21.3pc as we enter the seventh year of the agreement. Likewise from April 1, tariffs on beef to Japan will fall to 25.8pc under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership ratified in 2018.

We are not alone in this trade agreement space. The US secured an agreement with South Korea two years before we did and will be on a tariff rate of 16pc in 2020.

This advantage would have supported a seven per cent increase in US export volumes to South Korea, compared to our shrinking volumes. Furthermore, last year the US announced an agreement with Japan that would mean US beef exported to Japan will receive the same treatment as that afforded to Australia under the CP-TPP, removing our soon to be 12.7pc advantage.

With the tariff advantage eroding, we rely more heavily on price competitiveness. This year export prices to Japan have generally been on par (for brisket) or cheaper (chuck roll) than US prices but there is not a lot of wriggle room. With the prospect of higher cattle prices and strong competition from China, managing price and volumes into these very important trading partners will be a challenge.