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Current Trends in North American Supply Chain Management: Agriculture The Case of Beef and Pork Flynn Adcock Center for North American Studies Dept. of Agricultural Economics Texas A&M University C C Prepared for the Conference North

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SLIDE 1

Current Trends in North American Supply Chain Management: Agriculture The Case of Beef and Pork

Flynn Adcock Center for North American Studies

  • Dept. of Agricultural Economics

Texas A&M University Prepared for the Conference North America Works

Kansas City, MO, October 13, 2005

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SLIDE 2

Overview

  • Trends in North American Agricultural

Trade

  • The Growing Integration of the North

American Beef and Pork Industries

  • Factors Impacting the North American Beef

and Pork Supply Chains

  • Summary and Implications

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SLIDE 3

Trends in North American Agricultural Trade

  • Implementation of CUSTA (‘89) and NAFTA

(‘94) Decreased Border Restrictions and Encouraged Integration

  • U.S.-Canada and U.S.-Mexico Trade Began to

Grow Significantly following CUSTA/NAFTA

  • Canada-Mexico Trade Growing but Restricted

by Geography and Large U.S. Market

  • 30% of U.S. Ag Exports Now Go to N.A.

(12.5% in 1989)

  • 35% of U.S. Ag Imports Now Come from N.A.

(24% in 1989)

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SLIDE 4

U.S. Agricultural Exports

Source: Foreign Agricultural Trade of the United States, Calendar Year, USDA/ERS

$40.0 $39.5 $39.4 $43.2 $43.0 $46.1 $56.2 $60.4 $57.2 $51.8 $48.4 $51.2 $53.6 $53.1 $59.5 $61.3 1989 1994 1999 2004 $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 $70.0 Billion Dollars ROW NAFTA

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SLIDE 5

U.S. Agricultural Imports

Source: Foreign Agricultural Trade of the United States, Calendar Year, USDA/ERS

$21.9 $22.9 $22.9 $24.8 $25.2 $27.0 $30.2 $33.5 $36.1 $36.9 $37.7 $39.0 $39.4 $41.9 $47.3 $54.0 1989 1994 1999 2004 $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 Billion Dollars ROW NAFTA

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SLIDE 6

The Evolving North American Beef and Pork Supply Chain

  • CUSTA and NAFTA Have Led to Greater N.A.

Trade in Beef, Pork and Live Animals

  • Greater Integration of Other Resources (Capital,

Technology, Grains) Has Also Occurred

  • A North American Beef and Pork Complex Has

Resulted

  • The BSE Outbreaks Changed the Nature of N.A.

Beef Supply Chain

  • N.A. Pork Supply Chain Has Stabilized

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U.S. Beef and Pork Exports, 1989 - 2004

+ + + + + + + + + + + + + + + + 200 400 600 800 1,000 1,000 Metric Tons

Beef Pork

+ Source: PS&D Online, www.fas.usda.gov/psd

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SLIDE 8

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U.S. Beef Exports, 2003 & 2004

Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade Canada 7.7% Mexico 23.3% Korea 25.1% Japan 36.1% Other 7.8% Canada 8.6% Mexico 78.5% Other 12.9%

2003 Total: 820.6 TMT 2004 Total: 135.6 TMT

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U.S. Pork Exports, 2003 & 2004

Japan 51.0% Mexico 17.7% Canada 9.6%Korea 5.1% Taiwan 4.0% O ther 12.5% Japan 45.3% Mexico 24.1% Canada 9.2% Taiwan 4.9% China 3.5% Russia 3.4%Korea 3.2% O ther 6.5% Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade

2003 Total: 494.5 TMT 2004 Total: 651.1 TMT

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SLIDE 10

U.S. Imports of Beef and Pork

226 234 216 186 208 209 194 184 191 217 266 321 325 367 401 376

+ + + + + + + + + + + + + + + + 639 699 710 729 719 715 642 641 734 823 880 945 987 987 898 1,104 1989 1994 1999 2004 200 400 600 800 1,000 1,200 1,000 Metric Tons Beef Pork + Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade

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U.S. Beef Imports, 2002 & 2004

Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade Australia 38.3% Canada 38.7% New Zeal 20.3%

  • C. Amer

2.3% O ther 0.4% Australia 33.7% Canada 32.1% New Zeal 19.2% Uruguay 11.6% C.l Amer 2.8% O ther 0.5%

2002 Total: 987.0 TMT 2004 Total: 1,104.2 TMT

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U.S. Cattle Imports, 1989 - 2004

Source: Foreign Agricultural Trade of the United States, Calendar Year, USDA/ERS

1989 1994 1999 2004 500 1,000 1,500 2,000 Thousand Head Canada Mexico

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Composition of U.S. Beef Imports by Source, 2004

Source: USDA/FAS. Note 3 refers to beef entering under the TRQ, Other Frozen Boneless indidicates over-quota beef 347.1 24.1 206.4 14.6 21.8 24.2 298.0 5.6 5.4 7.9 0.1 0.7 0.0 99.0 0.0 1.1 32.6 0.5 9.2 0.1 Australia Canada New Zealand Uruguay

  • C. Amer

0.0 50.0 100.0 150.0 200.0 250.0 300.0 350.0 400.0 Thousand Metric Tons

Frozen Boneless, Note 3 Fresh/Chill Boneless, Note 3 O ther Frozen Boneless O ther

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Canadian Beef Exports

Source: Agriculture and Food Canada, USDA/FAS 1 8 9 2 4 7 2 9 2 3 2 9 4 1 4 8 5 4 4 5 4 8 9 2 9 6 4 5 4 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 100 200 300 400 500 600 1,000 MT U.S. Japan Korea Mexico Others

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Mexico Beef Imports

Source: FAS/USDA attache reports 30 60 110 150 180 220 240 280 225 205 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 50 100 150 200 250 300 350 1,000 MT U.S. Canada Others

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Monthly U.S. Corn Exports to Canada, January 01 - July 05

Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 Jul 03 Jan 04 Jul 04 Jan 05 0.0 100.0 200.0 300.0 400.0 500.0 600.0 Thousand Metric Tons Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade

BSE in CANADA

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Integration in the North American Cattle and Beef Industry, 2002

$301 Million, 816,000 Head of Beef Cattle $23 Million, 6,000 Metric Tons of Beef $283 Million, 76,000 Metric Tons of Beef $75 Million, 105,000 Head of Beef Cattle $592 Million, 206,000 Metric Tons of Beef $50 Million, 134,000 Head of Beef Cattle $218 Million, 67,000 Metric Tons of Beef $1.1 Billion, 1.7 Million Head of Beef Cattle $1.1 Billion, 392,000 Metric Tons of Beef

Integration in the North American Cattle and Beef Industry, 1989

$284 Million, 873,550 Head of Beef Cattle $176,000, 70 Metric Tons of Beef $72 Million, 124,937 Head of Beef Cattle $76 Million, 29,606 Metric Tons of Beef $11 Million, 23,650 Head of Beef Cattle $119 Million, 31,406 Metric Tons of Beef $377 Million, 584,732 Head of Beef Cattle $185 Million, 87,106 Metric Tons of Beef

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The North American Beef Supply Chain: Comments

  • BSE Reduced and Altered the N.A. Beef Industry

Integration, Especially Among Canada and the U.S.

  • While Unable to Export Fed Steers to the U.S.,

Canada Increased Feeding, Slaughter Capacity, and Beef Exports to U.S.

  • U.S. Firms (Tyson/IBP, Cargill) Have Increased

Investment in Canadian Processing Plants

  • Will Resumption of Canadian Cattle Exports to

U.S. Spark Return to 2002 Scenario – Maybe but Doubtful

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Intra-NAFTA and ROW Pork Trade

Source: USDA/FAS and CanFax 225.6 600.2 747.1 507.0 1,590.4 1,769.3 1993 2002 2004 0.0 500.0 1,000.0 1,500.0 2,000.0 Thousand Metric Tons

NAFTA ROW

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U.S. Swine Imports from Canada 1989 - 2004

Source: Foreign Agricultural Trade of the United States, Calendar Year, USDA/ERS

1.1 0.9 1.1 0.7 0.8 0.9 1.7 2.8 3.2 4.1 4.1 4.4 5.3 5.7 7.4 8.5 1989 1994 1999 2004 0.0 2.0 4.0 6.0 8.0 10.0 Million Head

Feeder Pigs Slaughter Hogs

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U.S. Pork Imports, 2003 & 2004

Canada 87.2% Denmark 11.4% O ther 1.4% Canada 85.1% Denmark 12.4% O ther 2.5% Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade

2003 Total: 400.9 TMT 2004 Total: 376.3 TMT

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Canadian Pork Exports

Source: Agriculture and Food Canada, USDA/FAS 309 331 368 423 493 618 681 748 788 778 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 200 400 600 800 1000 1,000 MT U.S. Japan Mexico Korea Other

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Mexico Pork Imports

Source: FAS/USDA attache reports 4 9 5 4 6 3 9 1 1 1 4 1 6 6 1 8 1 2 3 5 2 6 9 2 5 7 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 50 100 150 200 250 300 1,000 MT U.S. Canada Other

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Integration in the North American Swine and Pork Industry, 2004

$25 Million, 138,800 Head of Swine $302.6 Million, 156,900 Metric Tons of Pork $1.06 Million, 5,900 Head of Swine $182 Million, 60,200 Metric Tons of Pork $530 Million, 8.5 Million Head of Swine $761 Million, 320,300 Metric Tons of Pork $57 Million, 60,300 Metric Tons of Pork

Integration in the North American Swine and Pork Industry, 1989

$7.9 Million, 78,112 Head of Swine $48.4 Million, 19,275 Metric Tons of Pork

$101,000, 285 Head of Swine $8.4 Million, 2,610 Metric Tons of Pork

$101 Million, 1.1 Million Head of Swine $310 Million, 186,000 Metric Tons of Pork

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The North American Pork Supply Chain: Comments

  • Decrease in Canadian Grain Transportation Subsidies

Helped to Spur Local Animal Feeding

  • Canadian Hog Slaughter Capacity Has Decreased, and

While U.S. Capacity Has Decreased, U.S. Hog Production Has Decreased Even More

  • U.S. Hog Producers Have Gone from Many Small,

Farrow to Finish Operators to Fewer, More Specialized Operators

  • Canadian Pig Production More Efficient than U.S.,

and Exchange Rate Favored Importing Canadian Hogs from ’96 – ‘02

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Potential Disruptions to N.A. Beef and Pork Supply Chain

  • Diseases Such as BSE, FMD Have Already Caused

Disruptions

  • Domestic Legislation, such as MCOOL and the

Bioterrorism Act, Have Potential to Cause Disruptions

  • Anti-Dumping/Countervailing Duty Cases Filed by

All Three N.A. Countries Against Each Other Strain Relations and Could Disrupt Trade Flows

  • Fluctuations in Exchange Rates Often Result in

Temporary Changes in Advantages for Either U.S.

  • r Canada/Mexico – and This Will Continue C

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Integration in the North American Cattle and Beef Industry, 2004

$543 Million, 1.4 Million Head of Beef Cattle $33 Million, 5,900 Metric Tons of Beef

$213 Million, 87,700 Metric Tons of Beef $671,000, 1,400 Head of Beef Cattle $371,000, 106,500 Metric Tons of Beef $2.4 Million, 14,000 Head of Beef Cattle $12 Million, 56,000 Metric Tons of Beef

$55,000, 135 Head of Beef Cattle $1.2 Billion, 354,000 Metric Tons of Beef

Integration in the North American Cattle and Beef Industry, 2003

$470 Million, 1.2 Million Head of Beef Cattle $34 Million, 6,700 Metric Tons of Beef

$70 Million, 20,000 Metric Tons of Beef $23 Million, 24,000 Head of Beef Cattle $606 Million, 193,000 Metric Tons of Beef $30 Million, 68,000 Head of Beef Cattle $321 Million, 81,000 Metric Tons of Beef

$396 Million, 512,000 Head of Beef Cattle $850 Million, 256,000 Metric Tons of Beef

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Alberta Direct Sale Steer Prices, Weekly Average, Jan 01 - Sep 05

Source: Alberta Agriculture, Food and Rural Development, www.agric.gov.ab.ca 2001 are monthly averages, source CANFAX, calculated by LMIC Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec $20 $40 $60 $80 $100 $120 CN$/CWT 2001 2002 2003 2004 2005

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Summary

  • North American Beef and Pork Industries

are Integrated - Almost One Supply Chain

  • Markets React Immediately to ‘News,’ But

in U.S. has Recovered Quickly While Pain Lingered in Canada

  • Unique Market Conditions Likely to Change
  • U.S. Increased Cattle Imports from Mexico

and Beef Imports from Canada (and Uruguay) to Help Meet Demand

  • U.S. Pork Exports Have Gained As Beef &

Poultry Exports Have Declined

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Implications

  • Degree of Trade Dependence Likely Continue

Though Product Mix May Change

  • Disruptions will Continue to Occur, But N.A.

Supply Chain Too Entrenched to Change Much

  • Maintaining Consumer Confidence is Crucial on

Animal Health/Food Safety Issues

  • Protectionist Response to Increase Trade to

Continue

  • Support for VCOOL Growing & Animal

Identification May Be Necessary to Export

  • Canada & Mexico May Seek Marketing

Alternatives

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Primary References

  • Haley, Mildred. “U.S.-Canadian Hog Trade: Market

Integration at Work.” Amber Waves. Economic Research Service, USDA, Volume 3, Issue 1, February 2005.

  • Rosson, C. Parr, III and Flynn J. Adcock. “Food Chain

Disruptions and Trade: The Importance of North American Market Integration.” Choices. 2nd Quarter, 2005, 20|2. On-line journal of the American Agricultural Economics Association, available at http://www.choicesmagazine.org, July 2005.

  • U.S. Trade Internet System and Attache Reports, Foreign

Agricultural Service, USDA, www.fas.usda.gov.

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Center for North American Studies

Flynn Adcock or Parr Rosson Ph: 979-845-8694 or 845-3070 E-mail: fjadcock@tamu.edu or prosson@tamu.edu

“Informed Decisions for Global Change”

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