Current Trends in North American Supply Chain Management: Agriculture The Case of Beef and Pork Flynn Adcock Center for North American Studies Dept. of.

Current Trends in North American Supply Chain

Management: Agriculture

The Case of Beef and Pork

Flynn AdcockCenter for North American Studies

Dept. of Agricultural EconomicsTexas A&M University

Prepared for the Conference North America WorksKansas City, MO, October 13, 2005 CNASCNAS

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 CNAS

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)

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

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

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 CNAS

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

19891994

19992004

0

200

400

600

800

1,0001,000 Metric Tons

Beef Pork

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

CNAS

U.S. Beef Exports, 2003 & 2004

Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade

Canada7.7%

Mexico23.3%

Korea25.1%

Japan36.1%

Other7.8%

Canada8.6%

Mexico78.5%

Other12.9%

2003 Total: 820.6 TMT 2004 Total: 135.6 TMT

U.S. Pork Exports, 2003 & 2004

Japan51.0%

Mexico17.7%

Canada9.6% Korea

5.1%Taiwan4.0%

Other12.5%

Japan45.3%

Mexico24.1%

Canada9.2% Taiwan

4.9%

China3.5%

Russia3.4%

Korea3.2%

Other6.5%

Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade

2003 Total: 494.5 TMT 2004 Total: 651.1 TMT

U.S. Imports of Beef and Pork

226234 216186 208 209 194 184 191 217

266321 325

367401376

639699 710 729 719 715

642 641

734

823880

945987 987

898

1,104

1989 1994 1999 20040

200

400

600

800

1,000

1,2001,000 Metric Tons

Beef Pork

Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade

U.S. Beef Imports, 2002 & 2004

Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade

Australia38.3%

Canada38.7%

New Zeal20.3%

C. Amer2.3%

Other0.4%

Australia33.7%

Canada32.1%

New Zeal19.2%

Uruguay11.6%

C.l Amer2.8%

Other0.5%

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

CNAS

U.S. Cattle Imports, 1989 - 2004

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

1989 1994 1999 20040

500

1,000

1,500

2,000

Thousand Head

Canada Mexico

Composition of U.S. Beef Importsby 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 21.824.2

298.0

5.6 5.4 7.90.1 0.7 0.0

99.0

0.01.1

32.6

0.5 9.2 0.1

Australia Canada New Zealand Uruguay C. Amer0.0

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

Other Frozen Boneless

Other

Canadian Beef Exports

Source: Agriculture and Food Canada, USDA/FAS

189

247 29

2 3 29

4 01

4 85

4 45 4 8

9

2 96

4 54

1995 1996 1997 1998 1999 2000 2001 2002 2003 20040

100

200

300

400

500

600

1,000 MT

U.S. Japan Korea Mexico Others

Mexico Beef Imports

Source: FAS/USDA attache reports

30

60

110

150

180

220 24

0

280

225

205

1995 1996 1997 1998 1999 2000 2001 2002 2003 20040

50

100

150

200

250

300

350

1,000 MT

U.S. Canada Others

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

600.0Thousand Metric Tons

Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade

BSE in CANADA

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

CNAS

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 CNAS

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 20040.0

500.0

1,000.0

1,500.0

2,000.0

Thousand Metric Tons

NAFTA ROW

U.S. Swine Imports from Canada1989 - 2004

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

1.1 0.9 1.10.7 0.8 0.9

1.7

2.83.2

4.1 4.1 4.4

5.35.7

7.4

8.5

1989 1994 1999 20040.0

2.0

4.0

6.0

8.0

10.0

Million Head

Feeder Pigs Slaughter Hogs

U.S. Pork Imports, 2003 & 2004

Canada87.2%

Denmark11.4% Other

1.4%

Canada85.1%

Denmark12.4%

Other2.5%

Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade

2003 Total: 400.9 TMT 2004 Total: 376.3 TMT

CNAS

Canadian Pork Exports

Source: Agriculture and Food Canada, USDA/FAS

309

331 36

8 4 23 4 9

3

6 18 6 8

1 7 48 7 8

8

7 78

1995 1996 1997 1998 1999 2000 2001 2002 2003 20040

200

400

600

800

1000

1,000 MT

U.S. Japan Mexico Korea Other

Mexico Pork Imports

Source: FAS/USDA attache reports

49 54

63

91

114

166 18

1

235

269

257

1995 1996 1997 1998 1999 2000 2001 2002 2003 20040

50

100

150

200

250

300

1,000 MT

U.S. Canada Other

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

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 CNAS

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. or Canada/Mexico – and This Will Continue CNAS

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

CNAS

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

Source: Alberta Agriculture, Food and Rural Development, www.agric.gov.ab.ca2001 are monthly averages, source CANFAX, calculated by LMIC

JanFeb

Mar

AprM

ayJun

JulAug

SepO

ctNov

Dec

$20

$40

$60

$80

$100

$120CN$/CWT

2001 2002 2003 2004 2005

SummaryNorth American Beef and Pork Industries

are Integrated - Almost One Supply ChainMarkets React Immediately to ‘News,’ But

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

Unique Market Conditions Likely to ChangeU.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 CNAS

ImplicationsImplications 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 CNAS

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.

CNAS

Center for North American StudiesCenter for North American Studies

Flynn Adcock or Parr RossonFlynn Adcock or Parr Rosson

Ph: 979-845-8694 or 845-3070Ph: 979-845-8694 or 845-3070

E-mail: [email protected] or [email protected]: [email protected] or [email protected]

“Informed Decisions for Global Change”

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