TRIGGERING the Korean beef import safeguard is becoming something of a final-quarter ritual for Australian beef exporters with the tariff-impacting mechanism looking likely to occur any time now for the 2018 year.
The casual observer might wonder how that could be when this year’s safeguard is set at 167,327 tonnes and DAWR’s (Department of Agriculture and Water Resources) progressive statistics for the calendar year to August show 109,000t exported.
The first point is that the figures that matter are those compiled by the Korean authorities on cleared product entering the country. In that regard product shipped from Australia late in the year would show up in the following year’s count.
Then there is the cumulative effect of out-of-safeguard product also being taken up in the following year. With Australia triggering safeguard each year since KAFTA (Korea-Australia FTA) came into effect, the addition of this out-of-safeguard product together with increasingly strong trading volumes has caused the trigger date to creep forward despite a 2 per cent increase each year in the safeguard volume.
In 2015 safeguard was triggered in November and in 2016 and 2017 it was mid-October.
The problem for Australia is that once triggered, the current- year 26.6pc tariff reverts to 40pc. That is a 13.4pc price hike which importers either must accommodate in their downstream trading or pass back to Australian exporters.
But what complicates matters is that Australia does not enjoy the Korean market in isolation. Major competitor the United States has a 5.3pc tariff advantage because they got their FTA into place two years earlier than Australia and negotiated a much higher safeguard volume which means they are never likely to trigger.
Therefore when Australia does trigger, the relative disadvantage is even greater taking it to 18.7pc this year.
MLA noted recently that this may restrict Australia’s access to Korea at a time when drought-induced female slaughter and record numbers of cattle on feed will keep beef production in Australia at an elevated level.
As well, with beef production at the same time in the US forecast to be 4.8pc higher year-on-year, competitive pressure can be expected to be intense.
Some slowing therefore in trade through October/November would not surprise. We saw this last year when volume dropped from 14,000t in September to a little over 11,000t in October.
But as MLA also observed, ability to divert to other markets is limited by market brands and loyalty to long-standing customers. However it was noticeable last year that exporters were able to find alternative markets for lower-value product, to China in particular.
Naturally the US industry with its increased production levels from a herd that is nearing the peak of its rebuild cycle is looking for every opportunity to place product.
USMEF (US Meat Export Federation) recently described their growth performance in the Korean market as remarkable.
July alone saw volume up 51pc on year-ago levels and calendar-year progressive to July up by 38pc. They make the point that over the same period the US has grown its share of total Korean chilled and frozen beef imports from 47pc to 53pc.
In the USMEF market commentary, Australia’s pending tariff rate increase has not gone unnoticed and they quietly expect a strengthening in momentum for US chilled beef to Korea through to the end of the year.
There is however some good news for 2019.
The out-of-safeguard tariff will drop from 40pc to 30pc and the 2pc increase in safeguard will add 3300t and take the volume to 170,673t.
In the same year Australia’s within-safeguard tariff for beef under the FTA falls to 24pc so the snapback difference for that year at least narrows to just 6pc.
However with the out-of-safeguard tariff remaining fixed at 30pc until 2024 that 6pc difference will increase as the within-safeguard tariff falls each year under the FTA.
For example in 2023, the within-safeguard tariff will be 13.3pc while the out-of-safeguard will still be 30pc creating a snapback difference of 16.7pc.
While these machinations play out for the Australian industry, the US will have no such concerns due to their generous safeguard volume.
Little wonder then that MLA in their 2017 Korean beef market insights and prospects publication concluded that “Australia may not be able to grow its share of the imported beef market in Korea in the short term. If Australia is able to defend existing market share, this will place beef exports to Korea at 180,000-200,000 tonnes swt over the next decade but with prospects of 230,000tonnes swt by 2030.”
Numbers and prices steady
SEPTEMBER can often be an unsettling month in the meat business for both producers and processors alike and this year is a good example. Many producers are anxiously looking for an early start to the storm season and stretching their hold/sell decisions for a few more weeks while processors have been on edge over continuity of supply.
A couple of weeks ago September was looking tight for cattle after August’s dry-induced run eased off. But as one major Queensland processor said to me this week the month has ended up being covered with a reasonably steady flow of numbers and no time lost so far. Accordingly there has been no change to last week’s grid rates in southern Queensland with indicator 4-tooth ox at 510c/kg and heavy cow at 440.
Looking forward he thought the likelihood of another run of cattle in 2-3 weeks’ time was increasing with each passing week of no rain or sign of storms.
Meanwhile the extreme rates for cows seen in saleyards over the past couple of weeks seem to be settling down as they did after a similar hot run in July.
At Wagga on Monday a good yarding of heavy cows got cheaper as the sale progressed. Score 3 and 4 types dropped 10-16c and found an average across those descriptions of 218c.
