Timeline passes for China HGP change

Timeline passes for China HGP change

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The deal entered force on February 14, and should now mean that China has formally renounced its HGP-free status requirement on imported beef.

The deal entered force on February 14, and should now mean that China has formally renounced its HGP-free status requirement on imported beef.

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Ken Wilcock looks at the ramifications for Australia of the newly implemented China-US trade deal.

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OVERSHADOWED by the impact of coronavirus on world trade, a major milestone passed by quietly on the weekend in regard to China's position on beef imports.

The issue relates to China's abrupt about-face on HGP status of imported beef as a result of the Economic and Trade Agreement between the United States and China (Phase-One Trade Deal) signed in Washington on January 15.

Details of this deal were covered in the January 23 edition of this column but given the significance of the implications it is worth a brief recap.

Chapter 3 of the agreement stated:

"Within one month of the date of entry into force of this Agreement, China shall adopt maximum residue limits (MRLs) for zeranol, trenbolone acetate, and melangesterol acetate for imported beef. For beef tissues for which Codex has established MRLs for these hormones, China shall adopt the Codex MRLs. For beef tissues for which Codex has not established MRLs for these hormones, China shall adopt its MRLs by following Codex standards and guidelines and referring to MRLs established by other countries that have performed science-based risk assessments."

Other aspects of the deal included removal of the 30-month age limit on cattle, recognition of US industry traceability systems (with no individual animal identification required) and blanket recognition of US Department of Agriculture-approved plants for the China trade.

As the deal entered force on February 14, it should now mean that China has formally renounced its HGP-free status requirement on imported beef.

Through a press release from the USDA last Tuesday, Secretary of Agriculture Sonny Perdue confirmed that China was progressing toward its agriculture-related commitments under the deal.

He specifically mentioned that China had conditionally lifted its 30-month age limit requirement and that would point to China being committed to the timelines for the rest of the deal but at time of writing, there is no confirmation of adoption of Codex maximum residue limits.

A processing industry contact confirmed that they were still waiting on that advice but remained reasonably confident that it would happen.

Given the specific relevance of these concessions to the US beef industry and the likelihood of them all coming to fruition, the obvious question is how this may impact Australian beef exports.

In that regard MLA provided a very insightful analysis back in January and it is worth recounting the points they made.

Firstly, Phase-One has not wound back the existing 47 per cent tariff on US beef so Australia retains a significant advantage for the time being.

Next, the widely used (in the US) beta-agonist Ractopamine is still banned from entering China.

The trade deal provides for a risk assessment on the use of Ractopamine and establishment of a joint working group to guide future protocol revisions.

This may induce US users to wait until the risk assessment is concluded before they even consider dropping its usage to gain access to the Chinese market.

In essence and in the shorter term at least, the judgement seems to be that the US will not represent a great threat to Australia's beef trade with China.

But perhaps the most telling point MLA makes is whether the US will even be in a position to displace Australian product in China.

They explain that the US consumes 90pc of what it produces and exports are largely specialty cuts that can't find a buyer or command a premium on the domestic market.

Due to the US obsession with burgers, most trim and hindquarter cuts remain at home while select forequarter cuts are shipped to north Asian markets where they complement the cuisine.

Australia exports a similar selection of cuts to these same markets but is also able to supply hindquarter cuts and manufacturing product.

Most US beef into north Asia is grain-fed choice or prime grade, while Australia supplies a mix of grain-fed and grass-fed product.

MLA concludes that while there will be some overlap, especially in the higher-end foodservice area, the vast majority of Australian beef enters channels in China outside the reach of US product.

If those issues are not enough then there is the question of adequacy of infrastructure in China to receive chilled beef and freezer capacity in the US to ship frozen product.

The processor contact spoken to added the observation that shelf-life of US chilled product would likely result in the need for it to be frozen instead and that there is no great degree of freezer capacity in US plants.

In contrast, Australian processors have invested heavily in plate-freezer capacity in recent years and this decision appears to have been well judged in relation to the way the China market has evolved.

In essence and in the shorter term at least, the judgement seems to be that the US will not represent a great threat to Australia's beef trade with China.

The presumption, of course, is that there will be a resumption of normal play once the coronavirus issue runs its course.

Rates off as numbers build

WITH a couple of cooler mornings heralding the onset of autumn, it is surprising how quickly the outlook for supply of slaughter cattle has improved.

Last week was probably one of the worst on record for lost time, with Australia's largest beef plant, Dinmore, down to just two days.

That has turned around this week and looks even better for next week, which suggests southern Queensland and northern NSW supply areas are getting into their first round of mustering.

Not unexpectedly the first downward price adjustment occurred on Monday, with one major processor in southern Queensland taking 20c/kg off grid rates while another followed suit on Tuesday with a 30c/kg drop.

That brings 4-tooth ox to 620c and heavy cow to 530-540c.

But that may be only a precursor as while things are improving in China, the rest of the world is taking its turn in seeing normal economic activity unravel.

Foodservice is being particularly hard hit in our major markets and with closure and possible failure of overseas businesses, a domino effect can be expected here.

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