Is red meat market access more than removing tariffs?

Global shipments allow economies of scale to operate in Australia that benefit the whole supply chain. Those economies wouldn't exist if we only supplied the domestic market but being an export processor rather than a domestic one brings with it a range of new and different competitive factors. Market access to the Australian domestic red meat market is clear and consistent and let's not forget, is still arguably our largest single red meat market in volume and value terms. However once a processor embarks on an international diversification strategy, market access is not always so clear and therefore FTAs become important negotiations seeking to add some higher level of stability.

For the red meat industry, most FTAs are about tariffs and quotas. Their reduction or removal over the years through FTAs has delivered real benefits. There are, however, often other factors to overcome before we can begin to call it free trade. Look no further than China where our FTA with the second largest economy in the world in 2015 promised tariff and quota free access by 2024 for both beef and sheepmeat. It has delivered on the tariff front but we are still not near what we would call free trade with China. Volume safeguards still apply on beef and the sanitary and phytosanitary or SPS (technical) issues which includes individual processing plant accreditation for China, still impacts market access.

Australia now has 16 FTAs, most of which have delivered real benefits to the sector but the very existence of quotas or tariffs in import markets suggests the importing country has something to protect. As import tariffs fall with the growth in FTAs, the importance of non tariff trade barriers in the same market rise and these can come to the surface in many forms.

Most FTAs have chapters that deal with SPS issues but usually only on the process for addressing them in a macro sense. This leaves much of the leverage on individual SPS matters with the import authority. Australia has its own strict SPS requirements on red meat imports so it can be hard to object to other countries doing the same unless they are policed unfairly. Technical barriers can be put in place for a range of reasons, some for bona fide health and safety concerns, but sometimes with commercial or political outcomes. The Australian government can play a very important role here in resolving these "technical" issues but it needs to increasingly invest in the experience and capability to do so. These are medium and long term matters and very important to the red meat industry. The processing and export sector before the last budget argued that this area of market access needed greater investment by the government.

The interim Economic Cooperation and Trade Agreement with India recently announced by the government presents some real opportunities for the sheep meat industry with the removal of the 30pc import duty. India also has a history of some fairly draconian SPS issues that have been a major limitation to import growth in the past as reflected in only around 110 tonnes of sheepmeat exported to India over the past five years. It is unlikely these specific SPS issues will be part of the final trade agreement that they hope to sign by the end of the year, but you can expect that they will be carefully negotiated as a side issue otherwise the proposed tariff changes may not be able to deliver the benefits they should.

The FTA with the UK is now in the final ratification process in both the UK and Australian Houses of Parliament. It appears at face value to be an excellent outcome for the Australian red meat sector after 40 years of very tightly controlled quota and tariff restrictions on red meat while the UK was part of the EU. Here again, however, SPS issues will be an important part of a separate discussion including HGP freedom but a more liberal UK is looking to move away over time from the often tight and costly restrictions that EU membership imposed.

The "Other Beef Quota" in the US of 64,508 tonnes that allows preferential tariff treatment for beef of just 4.4US cents/kg for Ireland, Brazil, Lithuania, Costa Rica and the UK along with selected Central American countries has been filled in just the first three months of 2022. Any shipments outside the quota will now have to pay 26.4pc ad valorem tariff effectively eliminating them from the market. The reason - Brazil has shipped close to 50,000 tonnes of beef to the US in the first three months of 2022 using this quota, far more than Australia has shipped to the US over the same period. It appears to have been a deliberate attempt by Brazil to use the preferential access for themselves while it was available but now means that shipments from Ireland, Lithuania and the UK in particular who share the quota will have to pay the 26.4pc tariff. Not happy I'm sure. Brazil regained access to China in late December after a three-month suspension for BSE concerns and has now shifted its focus from the US.

The FAO World Food Price Index soared in March with the meat price index up 19pc from last year, and beef up 33pc. China's COVID-19 prevention policies have seen the country's supply chains starting to grind to a halt in parts with thousands of truck drivers caught up in a quarantine web and workers stood down. The disruption occurring at the port at Shanghai, the largest container port in the world, is starting to ripple through global supply chains. Closer to home MLA's weekly national cattle slaughter report has settled at around 95,000 head with most processors seemingly already covered for the two short processing weeks ahead. Urner Barry reported on April 12 that US East Coast Spot prices for Australian 90cl Blended Cow were 300--304 US cents/lb, a 15 cent premium to similar product from Argentina and Uruguay.