U.S. Beef to China, a Long Journey to Go?
5 months later since U.S. China Beef Protocol had reached, U.S. beef still is rare in China market.
On June 12, 2017, U.S. and China finalized the protocol allowing U.S. beef to enter Mainland China market again since beef trade was blocked due to “Mad Cow” issue in 2003. Since then, cheers and excitement have filled the whole beef industry on both sides. Many beef producers quickly took action to become certified beef exporters. Some, without waiting for China’s domesticizing the Protocol, rushed the first package to China, in order to become the first company shipping beef to China. No question, everyone wanted to catch opportunity. Like many U.S. beef exporters, China side was in action too. Through different channels, Chinese importers had worked very hard trying to secure U.S. beef resources.
However, 5 months later since U.S. China Beef Protocol had reached, U.S. beef still is rare in China market. Small quantity of U.S. beef appears in some major cities in China, such as, Beijing, Shanghai, Guangzhou, Shenzhen, but pricing is high, which is contrast to the impression that U.S. is cheaper than Australian beef. The Protocol does not shake China beef market. By date, China market is still dominated by beef from Australia, Brazil and others.
China is one of the largest beef consumption country. By the end of 2016, the total consumption of beef in China had reached to almost 7.76 million metric ton with about 3.9%/year growing rate. The increasing consumption is largely attributed to the income growth, taste adjustment as well as food safety concerns in China. In total consumption, about 1/3 is imported beef. Imported beef will go up due to the fact that China domestic production of beef has been slow down.
No doubt, China has huge demand for imported beef. Early of this year, China blocked some beef importers from Brazil. People naturally thought U.S. beef would be filled in the gap quickly. But U.S. beef did not grow much. Recently, Brazilian beef export resumed back to China market again.
So, what troubles U.S. beef industry? Did U.S. beef lose the best opportunity? Would recent news that China’s JD.com to import $1.2 billion in U.S. beef make any difference?
According to U.S. China Beef Protocol, all beef experts know China imposes conditions on U.S. beef qualified to import to China, for example, tracing record for birthplace of cattle, certification requirement for each production point, certification of exporter and importer, no synthetic hormone residue…These conditions limit qualified U.S. beef to be all natural, which is about 5% of all production in U.S. No wonder U.S. beef producers are not very much excited about beef exportation to China. But would China market therefore be cooled down for a while?
In addition to quantity issues, some other facts also impact beef trade between U.S. and China.
Beef experts know that Chinese people have completely different taste in term of beef consumption. Many low value cuts in U.S. market are delicacy in China; but high value cuts are not and could become difficult seller, for example, sirloin, tenderloin, rib eye, T-bone… Many Chinese importers actually do not want to import U.S. cuts. But U.S. producers expect to ship the whole cow to China without further negotiation, because they can’t sell left over. Neither of them want to keep the inventory for difficult sellers.
Another issue related to U.S. China beef trade is the payment term. U.S. producers usually ask for cash. Some even ask for millions of dollars for premium to secure the cattle source. This is normal trading practice in U.S. beef market but most Chinese importers totally can’t understand it. Chinese importers are more comfortable to use Letter of Credit to back up payment. And, like other goods, they expect to trade the documents, which is a common practice for international trade.
The last two points could be a key to be successful in U.S. China beef trade. However, compromise could be difficult. Even though beef importers in China have strong financial resource to back up beef trade, step back to take the whole cow and to pay cash in advance mostly is not acceptable. This could be the huge challenge faced by both sides.
Everyone sees opportunities, but, for small importers and exporters, barriers could be huge. In short term, to increase production of China specified cattle is one thing, and how to reach the deal is the other. U.S. China beef trade could be a longer journey to go.