AFF Sentinel Vol. 2, #16

How Puzzle Pieces Fit

This is the second part of an edited version of an economic study of beef imports and the American cattle industry. Thomas E. Elam, Ph.D., Adjunct Fellow, with the Center for Global Food Issues, Hudson Institute, first published the full study in 2003. It has been updated for 2005.

In Part I, Elam noted that the U.S. beef industry is significantly different and has major advantages over any other country in producing high quality grain- fed beef. The high quality beef is worth much more and consumer demand for ground beef has outstripped our ability to supply it at prices consumers will pay.

Cow/calf producers
The producers who own the beef cows should understand the importance of the calves they raise compared to the cows. Some 81 percent of the income to a cow-calf enterprise comes from sales of calves. Only 19 percent of producer income comes from sales of cull cows.

If we take this one step further, and calculate the revenue to the entire cattle value chain, including the feedlot that buys the steers and heifers, the contribution of cow sales has dropped from 19 percent to 13 percent.

If we look at the final step, the retail value of the beef produced from these 100 cows, we would see that the contribution of cow beef to the total U.S. beef industry is only 9 percent of total retail sales.

Though only 9 percent of the total value, the beef from cull cows is important to supermarket sales and is the lifeblood of the U.S. fast food industry. Production of ground beef would be terribly expensive without the low cost U.S. cow beef that makes up a significant fraction of the total supply and without a significant portion of the 90 percent lean supply that comes from imported beef.

A surprising bonus
Some cattlemen believe that U.S. lean beef imports are harmful to their industry and should be sharply restricted. The thought process is that if imports were lower, the prices of beef would be higher due to a lower total supply. This may be true, but only in the short term. In the long term, the supply of lean meat would rise domestically by cutting the more profitable sales of high-quality beef - or consumers would shift even further to poultry and pork. We do restrict beef imports from all countries except Canada and Mexico via a tariff rate quota system. This effectively limits the quantity of beef that we can import in any given year, and also raises its cost. The quota system, though highly modified over time, has been in place for decades. (To be fair to U.S. producers, similar restrictions are also in place in most well developed beef markets.)

The U.S. supply of fed beef will grow as the consumer market expands. But the U.S. lean beef supply will probably shrink slightly over time, not expand. Both products must be available to make up the ground beef supply consumers want. In that light, we should ensure an expanded supply of 90 percent lean beef by increasing our import quotas over time. In fact, this may be the only way the beef industry can continue to give consumers what they want in the way of lean ground beef in the future.

For the full test of Elam's entire report, click here.

Next time: The Long Term and What Import Restrictions Would Do

Major portions of the above were first published in the Dec. 2003 issue of CALF News Cattle Feeder.

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