Economic Study Shows That US Beef and Pork Industry Will Lose Market Share Without An Animal ID and Traceability Program
The following is the executive summary of an Economic Assessment of Evolving Red Meat Export Market Access Requirements for Traceability of Livestock and Meat. The full report can be downloaded as a pdf at: http://www.usmef.org/downloads/USMEF-Final-Project-Report-Tonsor-et-al.-03.30.20111.pdf. It was prepared by agricultural economists from Montana State, Kansas State and Colorado State Universities and was funded by the U.S. Meat Export Federation (USMEF).
The international marketplace for red meat is rapidly changing with animal identification (ID) and meat traceability systems becoming widely adopted in many key U.S. meat export destinations. The United States lags behind many countries in adopting livestock and meat traceability systems. As major meat importing and exporting countries adopt animal and meat tracking systems, the United States is becoming less competitive and risks losing market access. The purpose of this study is to provide an economic analysis of impacts of potential changes in U.S. meat access to global markets and costs associated with possible increases in domestic adoption of traceability programs.
A host of complementary research activities were conducted including:
1. Reviewing existing published literature associated with ID and tracing;
2. Conducting several personal interviews with industry and government stakeholders;
3. Gathering details on current animal ID and tracing programs in major meat exporting countries and associated requirements in major importing countries;
4. Estimating costs of adopting animal ID and tracing systems that may be required for future exporting of U.S. beef and pork; and
5. Quantifying short-run and long-run net economic impacts of adjustments in international market access and domestic tracing programs using an equilibrium displacement model.
Summary of Findings
Our evaluation of changes in traceability requirements and associated adjustments in international trade focuses on a particular traceability system. In this study, we consider source and age verification programs as a potential requirement for future access to specific beef export markets. Similarly, we consider a comparable pork traceability program that is market based, but specifically focuses on source verification because age verification is not relevant for the pork sector. The economic impact of adjustments in the U.S. livestock and meat industry is estimated for several scenarios that could represent future realities for industry stakeholders. The impact of costs associated with expanded participation in traceability programs and various responses in export meat demand is assessed. Similarly, the economic impact of maintaining the status quo (i.e., not expanding traceability domestically) and losing access to various export markets is considered.
The loss of access to both beef (7.3%) and pork (6.3%) export markets roughly the size of 2009 volumes sent to South Korea as a result of not expanding domestic traceability in the U.S. beef and pork industries is estimated to harm the beef and pork industries by $1,792 million and $518 million dollars, respectively, while U.S. meat consumers gain $610 million over a ten-year period. Furthermore, losing market access to all countries except Canada and Mexico (48.7% decline in beef; 68.3% decline in pork exports) results in the beef and pork industries incurring damages of $12,582 million and $5,505 million, respectively, versus consumers being better off by $6,094 million. These estimates quantify the potential damage to domestic livestock industries if the United States were to lose access to key target markets.
Export expansion that would be necessary to offset direct costs associated with adopting domestic traceability is also assessed. The increases in 2009 export volumes required to "break even" (i.e., exactly offset costs of traceability program participation) are equivalent to gaining (or losing) access to a single country. For example, to offset costs of 20% participation in cattle and pork traceability programs, an increase in beef exports of 1%(19.5 million lbs.) and pork exports of 0.5% (21.7 million lbs.) would be required. To put this in perspective, the United States exported 140 million lbs. and 258 million lbs. of beef and pork, respectively, to South Korea in 2009.
Implications and Industry Recommendations
This study highlights the substantial economic damage that could occur to U.S. livestock industries if export market access is restricted because of comparatively slow responses to global animal ID and traceability standards. Industry leaders are encouraged to weigh the estimated impacts of "doing nothing" with the associated costs of expanding participation in enhanced traceability programs. This study provides information to help the red meat industries assess tradeoffs of expanding domestic traceability programs versus lagging behind export competitors and importing country requirements. Our assessment is relatively conservative in its consideration of traceability costs and associated impacts. For instance, it is expected that future economies of scale and scope in information technology development will reduce traceability participation costs. Similarly, our export market access simulation results are conservative estimates of industry benefits. The estimates are conservative because we do not consider a variety of potential benefits that could result from expanded traceability programs including possible domestic demand enhancements, improvements in disease surveillance and eradication efforts, better on-farm management capabilities, cost reductions in meeting country of origin and recently passed nutritional labeling regulations, and related efficiencies in developing value-added programs and credence claims.
Targeted industry recommendations reflecting this study's findings and implications include:
1) Prosperity of the U.S. livestock industries will increasingly depend on expanding international trade of meat products. Industry stakeholders must recognize this fact and carefully consider the corresponding adjustments necessary if they desire to remain competitive in the global meat marketplace.
2) A candid and more complete recognition of the United States falling behind competing global meat exporters with respect to evolving world meat trade standards for animal and meat traceability should be a priority for industry leaders. Serious consideration should be given for producer educational programs raising recognition.
3) Designing and adopting animal and meat traceability systems that attain current world standards involves differential benefits and costs to individual industry participants. As a result, despite large meat and livestock industry-wide economic benefits from adoption of traceability practices gained through greater global market access, direct benefits for some
will be smaller and less obvious. Furthermore, philosophical changes may be necessary to encourage adjustments required to meet world standards. Success will necessitate industry champions to help guide the industry effort to become a world leader in animal and meat traceability.
4) Industry leaders and individual producers should start viewing additional traceability as investments in the viability of their industry. This study notes the substantial value of export market maintenance and expansion. Coupled with other recognized benefits omitted from this assessment, we suggest corresponding "investment" should be seriously discussed and considered.
5) While economies of size exist resulting in higher per head costs for smaller operations participating in traceability programs, broader recognition is needed of these same operations absorbing a substantial segment of industry economic losses stemming from lost export markets or an inability to gain access to potential markets. Industry leadership that clearly communicates this is needed to facilitate substantial increases in voluntary participation rates in traceability systems.