With the media coverage recently of the breakdown in the negotiation of a free trade agreement with the European Union, there has been some confusion when reporting on Australia's "status quo" EU beef and sheepmeat access, even from some of the industry websites.
The reality is that Australia's access to the EU Customs Union for beef and sheepmeat is the lowest it has been since 2012. The status quo is that we are losing access each year and that will continue, until at least 2026.
Australia has three main points of quota access.
Since Brexit the EU high quality beef quota of 7150t has been split with the UK. Only 3389t has been retained for the EU - less than half.
Similarly with the EU sheepmeat quota, the UK took 13,335 of the 19,186t quota leaving only 5851t, or 30 per cent, for the EU.
In 2012 Australia had access to all of the 45,000t EU grainfed beef quota, competing with five other countries including the US. The US has subsequently negotiated to quarantine an increasing percentage of the quota for themselves such that in 2023/24, Australia will only compete for 17,200t of the quota. That access will fall further to just 10,000t by 2026.
Without a trade agreement, current access to the EU is decreasing and will continue to decrease until at least 2026. But any EU offer for red meat must deliver equitable and reasonable increases in access that as a minimum equals if not exceeds recent offers to Canada and NZ.
The EU will be back.
There has been sharp criticism from within the EU,especially Germany's automotive and engineering sector. They have argued that it is ridiculous that agriculture, which makes up just 1.7pc of the EU's gross domestic product, should railroad a deal that the manufacturing sector strongly supported. And that's before we get to their interest in "critical minerals".
US potential in perspective
The Meat Importers Council of America, known as MICA, held their annual general meeting and conference last week in Scottsdale, Arizona attracting beef processors and exporters from North and South America, Europe, Asia and of course Australia and New Zealand.
A total of 17 countries have access to the US beef market, soon to be 18 with Paraguay.
The attraction is arguably the most dependable import market for beef globally, but as long as you have negotiated preferential tariff and quota access and you meet the strict health and hygiene requirements.
For South America, having largely overcome the barrier of foot and mouth disease, quota-based preferential tariff access is now the challenge.
Argentina and Uruguay have small 20,000t quotas. Brazil, however, has no individual country quota and must fight it out in the "Other Country" quota of 65,805t with a range of other country suppliers in a similar position.
One of those is the United Kingdom, who had a large contingent at the MICA conference. Part of the new UK global strategy post Brexit is to develop new export markets for their beef and sheepmeat industries.
For beef to the US however they are restricted to the "Other Country "quota until they can fnalise a free trade agreement with the US.
Brazil has been swamping the "Other Country "quota over recent years, often using it all in the first few months of the year, essentially eliminating the UK and anyone else for the rest of the year.
Another casualty has been Japan who have had a 200t beef quota to the US. Now with a renewed export strategy for their Wagyu beef in place, they chose to forgo the 200t quota to access the much larger "Other Country" quota. They now find Brazil using it all.
For Australia, however, the US beef import market has been the cornerstone of our beef export sector for over six decades.
It drove the modernisation of the beef processing sector in the 1960s, after being tied to the frozen quarter beef trade to the UK.
When the international beef market collapsed in 1974 as part of the oil crisis, the quota-controlled US beef market was the only market that maintained some form of price stability for Australia's beef industry.
Japan , Korea and China have since emerged as important diversified destinations for our beef exports but as the US beef herd falls to the lowest level in decades, it coincides with an increasing exportable beef surplus in Australia.
The US for the moment has returned to become our largest beef export market. In August it took 25,760t, in September 24,397t and in October 27,527t, exceeding any other destination.
Tariff and quota free access for Australia to the US is fundamental to this market flexibility. That access was the result of lengthy negotiations over many decades, the benefits of which are now clear all these years later.
Only neighbours Canada and Mexico have the same access and flexibility.
Global markets are dynamic and parameters can change quickly. Australia pays zero duty on beef shipments to the US.
Most "in quota" shipments by other countries incur 4.4 cents per kilogram and out-of-quota shipments 27.6pc.
Movements in exchange rates and higher margins between US import prices and lower export prices, especially in South America, can work to negate the impact of the 26.7pc out-of-quota duty faced by Brazil, Uruguay and Argentina.
For that reason alone it is important not to over emphasise current US market opportunities but rather maximise our advantageous US market access position as part of a diversified global market strategy.
