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If you consider only domestic
consumption and current beef exports, the future of the U.S.
cattle business can seem downright gloomy.
American cattle producers are
churning out about all the beef U.S. customers want, with fewer
cows (see Ante Up page 28). Despite strong U.S. demand, even as
the grocery bill climbs higher, there’s not much use in hoping
domestic demand will eat the industry into broad expansion.
Paradoxically, the international
forces conspiring to ratchet up commodity input costs at such a
heady pace (see Costs Up-Margins Down page 24) are the same ones
that could carve out unimagined new growth opportunities for
U.S. producers. Namely, population and growing economic wealth.
So Few with So Much
By now, you understand how small the U.S. is in terms of
global population—about 304 million folks in the U.S.
today—which is only 4.5% of the global population of 6.7
billion.
You also understand how vast domestic wealth in the U.S. is
compared to the rest of the world. According to the
International Monetary Fund (IMF), the U.S. accounted for 21.36%
of the world’s Gross Domestic Product (GDP) in 2007. That’s in
terms of what’s called Purchasing Power Parity (see table 1 page
30). In simplistic terms, Purchasing Power Parity equates the
purchasing power of different currencies to a common one. Unlike
converting currency to a common exchange rate, PPP considers
currency of equivalent value relative to how much of a common
basket of goods it can purchase.
By way of comparison with the
same measure, the IMF estimates China accounted for 10.83% of
global GDP in 2007, skyrocketing up from 3.57% in 1990 . That’s
right at half of U.S. output, though Chinese population is
currently about 1.3 billion, more than three times that of the
U.S.
By the way, South Korea accounted
for 1.86% of global GDP and Japan for 6.61% in 2007; combined
that’s 2.36% less than China. Together, the population of South
Korea and Japan stands at about 176.5 million.
Japan and South Korea are
obviously important to the U.S. beef business, to the tune of
about $363 million last year. But, beef and beef variety meat
exports to those two countries tallied about $2.2 billion in
2003, or about 56% of the total beef export ticket that year.
That’s why it’s important for the U.S. to work toward
restoration of beef trade at levels that existed prior to the
discovery of Bovine Spongiform Encephalopathy in 2003, even
though it continues to be a frustrating journey.
The Shape of Beef Export Trade Today
South Korea reached a deal with the U.S. in April to resume
importing U.S. beef from cattle younger than 30 months of age.
Based upon U.S. compliance with further enhancements to the U.S.
ban on feeding mammalian protein to livestock, that announcement
indicated South Korea would ultimately accept beef from cattle
of all ages.
At the time, Philip M. Seng,
president and CEO of the U.S. Meat Export Federation (USMEF)
explained, “This is outstanding news for the U.S. beef industry
and for South Korean consumers. Our industry has lost between
$3.5 billion and $4 billion in beef exports to South Korea since
the end of 2003 (when the U.S. identified its first case of
Bovine Spongiform Encephalopathy). And we know that there is a
significant demand there for quality U.S. beef that has not been
satisfied for more than four years.”
Until the end of 2003 South Korea
was this nation’s third largest export customer in terms of
revenue, according to USMEF.
But, as of the middle of June,
internal politics in South Korea and worries by consumers there
over the safety of U.S. beef still had the deal on hold.
Even so, U.S. beef exports are
projected by USDA to end 2008 about 6% over last year.
Relative Wealth Multiplied by the Masses
Keep in mind that even pre-BSE beef exports pale in
comparison to the potential offered with emerging economies,
especially when you consider growth is slowing in the most
advanced economies.
Using IMF data again, Gross
Domestic Product based on PPP for the major advanced G7
economies (Canada, France, Germany, Italy, Japan, United
Kingdom, United States) as a share of the world total was 51.14%
in 1990. In 2007 it was 43.50%; it’s projected at 39.16% in
2012.
For the sake of comparison,
Purchase Power Parity for the European Union, as a share of the
world total, was 27.39% in 1990. It was 22.57% last year;
projected to be 20.66% in 2012.
At the same time, GDP based on
PPP for developing Asia—including China and India—was 9.99% in
1990. It was 23.53% last year and is projected at 24.48% in
2012.
Imagine that. Little of the world
has yet had a chance to make U.S. beef a part of their diet, and
consumers in some of the most populous nations suddenly have
lots more buying power than they’ve ever had, and they’re
gaining it quickly . Plus, world population is to grow by about
another billion folks during the next 10 years.
The future of the U.S. business
becomes much sunnier when you take that reality into account. |
