By Dennis McDonald for the HDN
Montana Cattlemen's Association opposes a free trade agreement with Australia and/or New Zealand. While a NAFTA-type agreement with these countries may be good business for some segments of the U.S. economy, it is very difficult to understand how such an agreement could be in the best interests of U.S. cow/calf producers.
The cost of production in Australia is approximately 50 percent of the cost of production in the United States. The differences are due in part to differing internal standards with respect to environmental regulations, producer costs for worker safety, health and retirement, and licensing and use costs of chemicals and pharmaceuticals. Taxes and insurance costs also play a role. Transportation costs for a 700- to 750-pound calf from Australia to the United States, including quarantine costs and veterinarian expenses, total about 27 cents per pound. Obviously, the Australian calf could be placed in a U.S. feedlot at substantially less than our average cost of production for the same weight calf. Australia is the world's largest beef exporter. In 2001, it placed 1.4 million metric tons into the world market. In 2002, the Australians are on pace to export 1.41 million metric tons. By comparison, the United States is the world's second largest exporter having exported 1.03 million metric tons in 2001.
Currently, Australia exports almost no live cattle to the United States. However, it sent nearly 1.2 billion pounds of beef to the United States last year. Much of this product is lean ground beef which finds its way into our fast food restaurants and into our meat case in the form of a blended product. New Zealand exports another 637 million pounds of beef to the United States. Both countries can and would export much more beef but for the tariff rate quotas. Actually, in 2001, Australia sent 318 million pounds over its tariff rate quota and then placed this amount into bonded storage for the balance of 2001 to avoid payment of the over quota duties. This beef was then released into our market after January 2002. Australia subsequently asked the United States to increase the quota level by 10 percent representing an additional 77,161,999 pounds. This request is pending. The USDA projects both Australia and New Zealand will fill their tariff rate quotas during 2002 and 2003.
When considering the ultimate effects of this added supply of beef, one must be mindful of the rule of thumb that a 1 percent increase in supply results in a 1 to 2 percent decrease in live finished cattle prices. Further, most of this supply will be "captive supply" product and will be used to leverage down domestic live cattle prices. This at a time when the market for slaughter cattle remains at or below break even prices causing even more economic hardship for family ranchers.
The proposed unfettered access to the U.S. market for our Australian and New Zealand friends will offer no new opportunities for exporting U.S. beef. Currently, the United States exports almost no beef to these countries and there is no evidence that U.S. beef will be exported in greater quantities as a result of a free trade agreement. Notwithstanding these circumstances, our U.S. trade representative has expressed enthusiasm for such an agreement with Australia. Leo McDonnell, president of R-CALF USA, explained: "This is just the start of several free trade agreements that will be coming our way since the passage of TPA (Trade Promotion Authority, aka Fast Track)." MCA and R-CALF USA are disappointed that the administration would seek such an agreement in light of the tremendous economic pressures already on the live cattle industry.
The administration's announcement that the U.S. Trade Representative would seek a free trade agreement with Australia is a reversal of previously stated intentions. Reuters News Service reported that this reversal was "partly due to Washington interest in wooing allies for its campaign against Iraq." So I ask, will U.S. cattlemen once again be asked to shoulder the burden of solving world problems? These and other challenges facing the U.S. cattle industry will be discussed at Cattlemen's Day on Dec. 5, 2002, at the Billings Hotel and Convention Center, commencing at 10 a.m. Cattlemen's Day is sponsored jointly by MCA and R-CALF USA. More information about this event may be found at www.montanacattlemen.org or by calling (406) 429-7101.
Dennis McDonald is vice president of the Montana Cattlemen's Association and chairman of the R-CALF USA Trade Committee .