Beef farmers take heart as fortunes turn in their favour
Agriculture Minister Coveney’s visit to the USA coincided with the announcement by ABP of a contract with Sysco worth up to €15m.
The general air of positivity around the minister’s visit is best summed up by the sudden realisation that import tariff rate quotas may be actually too restrictive from an Irish point of view.
The traditional beef exporters to the US such as Argentina, Australia, New Zealand, Canada, Mexico and Japan have their own exclusive quota arrangements. Other countries such as Ireland are limited to a group tariff rate quota of 64,000 tons. Imports above that level would be rendered impossible due to prohibitive tariffs. If the success of ABP is replicated by other Irish companies such as Foyle and Dawn, then the question of the shared 64,000-ton quota could become a real problem rather than an academic issue.
Still, that’s not a bad problem when 12 months ago access to the USA seemed unrealistic and most of the discussion around the Transatlantic Trade and Investment Partnership centred on fears that US beef imports to Europe would do untold damage to Irish beef in our key export markets such as the UK.
Of course, the trade partnership is not finalised and the eventual shape of any deal will likely result in increased trade in both directions. Which products go where will depend on a multiplicity of factors but there is little doubt that concerns about US beef imports won’t evaporate.
At present, such concerns are easily allayed by the fact that US beef is significantly dearer at farmgate level than EU beef and currency movements — the weakening euro — are working in favour of EU exports to north America rather than vice-versa.
Nonetheless, record high US beef prices are a historic anomaly. To date in 2015, US steer prices are 25% higher than Irish steer prices (US 2015 average €4.94) compared with 10% higher last year. At the start of the 21st century, Irish beef prices were disastrously low in the aftermath of BSE but were still some 20% better than the US equivalent.
It was generally accepted that US beef prices would always be lower due to vast expanses of cheap land and of course, the significant production advantage of hormones.
Over the past five or six years however, US beef price has been on an upward curve. The principle reason for this seems to be the usual cause — scarcity due to falling beef cow herds. However, the exceptional beef prices now prevailing in the US make it almost inevitable that beef herds will expand again. That raises the spectre of Irish beef losing relative competitiveness and US imports flooding Europe.
However, it seems that, for once, the glass will remain half full rather than half empty. For one thing, current price differentials and a weak euro give us a sporting chance to get established in key US niche outlets.
If we get the marketing right, then Irish beef could get very well established. Clearly Bord Bia, with the help of the Harvard Business school, has put a lot into developing the Irish grass-fed beef image.
There are still technical details around precise use of a grass-fed beef label in the US but it shouldn’t be beyond our capabilities to establish a natural premium brand, especially given increasing recognition of the benefits of grass fed by American nutritionists and keep-fit gurus.
Apart from that, one presumes Irish beef will get a positive response from the millions of Americans with Irish roots. It just doesn’t seem so obvious to me that fastidious European consumers will be quite so receptive to US beef. If American farmers want to export to Europe they will have to give up hormones and it’s not readily apparent that this will be a sound economic proposition.
With the EU economy in the doldrums and a trillion euro in quantitative easing by ECB president Mario Draghi, that seems unlikely for the time being.
While Mr Coveney got it in the neck for being too soft with factories in 2014, he deserves credit for pushing hard on this one.
The real test now will be how much extra factories can return to hard pressed Irish beef farmers.
