Implications for beef, pork, chicken if tariff set on Mexican exports to U.S.

Meatingplace, By Rita Jane Gabbett on 1/27/2017

The White House on Thursday said President Donald Trump is considering a 20 percent tax on imports from Mexico to pay for a southern border wall, a move that could have implications for U.S. and Mexican beef, pork and chicken processors.

The concerns span supply chain disruptions for U.S. packers, the resulting impact on prices and fears of retaliation against U.S. beef, pork and chicken exports to Mexico.

Beef

Two-way beef trade — animals and finished products going both ways across the border — has increased in recent years.

Mexican beef exports to all destinations grew nearly sixfold between 2009 and 2015 to about 161,000 metric tons, with the United States being its largest destination.  In fact, the U.S. share of total Mexican beef exports has increased to 90 percent in 2015 from around 60 percent a few years ago, making Mexico the fourth-largest source of U.S. beef imports since 2010, according to Oklahoma State University extension livestock marketing specialist Derrell Peel.

According to the U.S. Meat Export Federation, strong U.S. demand for middle meats, especially at foodservice level, is supplemented by Mexico. So the U.S. imports a relatively high-value mix of beef from Mexico, especially with the U.S. dollar being so strong versus the peso. With the current exchange rate and an increase in grain-fed production in Mexico, U.S. imports of Mexican beef are on a record pace.

The United States also imports about 1 million live cattle from Mexico each year, which are slaughtered (or fed then slaughtered) in the United States, with some of the resulting beef products exported back to Mexico, according to Kent Bacus, director of international trade and market access for the National Cattlemen’s Beef Association. He noted Mexico has become the second-largest export destination for U.S. beef by volume and the third-largest in value.

The United States exports beef rounds, shoulder clods, chuck rolls, tongues, tripe, lips, tongues, livers, kidneys, hearts and other cuts more popular in Mexico, while Mexico exports muscle cuts like ribeyes and tenderloins to the United States. Ground beef and beef trim trade goes both ways.

Bacus told Meatingplace the big concern would be trade disruptions that would limit U.S. feed yards and packing houses from running at optimum efficiency.

“We’ve seen this before under the five years of COOL (Country-of-Origin Labeling) when purchasing foreign-born cattle was discouraged. Feed yards were not run at optimal levels and neither were packing houses, and some of these had to close,” he said.

SuKarne in the crosshairs

Mexican beef packer SuKarne recently built a large feedlot and packing plant in Tlahualilo, Durango, for its proximity to the U.S. market. SuKarne accounts for roughly 74 percent of Mexico’s beef exports, processing more than 1.2 million head of cattle annually.

Peel visited SuKarne executives in Durango last spring and asked them if they were looking to diversify beyond the United States for export markets. At that time, given U.S. proximity and ease of trade, they were not.

“I’ll bet that’s changed over the past 24 hours,” said Peel, noting that whether the tax comes to pass or not, the mere threat would likely send them in search of more access to other markets, like China.

U.S. exports; pork and chicken

Peel said if the U.S. taxes Mexican beef, increased domestic beef availability in Mexico would drive prices down, possibly driving down U.S. beef exports to Mexico as well (even though the products are different).

Then there is the fear of retaliation. “Mexico is not going to do this without reacting,” said Peel, noting fears of “at least a matching tariff” on U.S. exports to Mexico.

Peel’s biggest concern for the beef industry, however, is the impact if U.S. poultry and pork exports to Mexico are disrupted.

In the January-November period in 2016, while 15.5 percent of U.S. beef exports went to Mexico, 30 percent of U.S. pork exports crossed the border, and more than 21 percent of broiler exports went south, according Peel, citing government data.

“What does it mean to the beef industry if we suddenly have to eat a lot more pork and chicken we are not exporting? That’s the real impact,” said Peel.

Can he do it? 

Yes, he can. According to the Peterson Institute for International Economics (PIIE), there are multiple ways President Trump could implement import tariffs without Congressional approval.

There are legally empowering provisions included in the Trade Expansion Act of 1962, Trade Act of 1974, International Emergency Economic Powers Act of 1977 and even the Trading with the Enemy Act of 1917.

“Any effort to block Trump’s actions through the courts or amend the authorizing statutes in Congress would be difficult and would certainly take time,” authors Marcus Noland, Gary Clyde Hufbauer, Sherman Robinson, and Tyler Moran wrote in a PIIE briefing paper on the subject.