U.S. Beef to Japan May Drop on Australia Deal

U.S. beef shipments to Japan may drop after the largest Asian buyer agreed with Australia to begin reducing import tariffs as early as next year, Japan’s agriculture ministry said.

Japan agreed to gradually lower tariffs on imports of frozen beef from Australia to 19.5 percent and cut duties on chilled beef to 23.5 percent in a bilateral accord reached yesterday. The levies are now 38.5 percent and the reductions will take place over 18 years and 15 years, respectively.

The deal will give Australia an advantage over the U.S. in a market worth $2.6 billion last year, according to Marubeni Research Institute in Tokyo. American beef exporters could lose as much as 80 percent of their sales in Japan unless the U.S. government reaches a similar agreement, according to the ministry.

"Japan and Australia reached a general agreement in a satisfactory way for both sides," Economy Minister Akira Amari said. "I hope TPP negotiations with the U.S. will accelerate."

The three countries are also among 12 nations negotiating the Trans-Pacific Partnership, amid wrangling between the U.S. and Japan over farm and car tariffs.

The bilateral agreement is expected to take effect early in 2015 as Japanese Prime Minister Shinzo Abe plans to visit Australia later this year to sign the deal, said Kenji Morita, director at the ministry’s meat and egg division. President Barack Obama will visit Japan this month and discuss plans for the TPP with Abe.

Cattle Indicator
Australia’s Eastern Young Cattle Indicator rose 0.8 percent to $3.28 a kilogram today, the highest since October 2012. Assuming the agreement is implemented next year, preferential tariff rates will boost prices, Australia & New Zealand Banking Group Ltd. analyst Paul Deane said in a note today.

The pact is a "major windfall" for Australian beef, the country’s biggest agricultural export to Japan, currently worth $1.31 billion, Abbott’s office said in a statement.

Japan imported 535,495 tons of beef last year, of which 286,946 tons or 54 percent was from Australia, 186,164 tons were from the U.S., and 29,459 tons were from New Zealand, according to data from the ministry.

Food Retailers
Frozen beef represented 58 percent of the meat from Australia and was used mainly for processed food including hamburgers. Chilled beef is sold at supermarkets and served at restaurants in thin strips. Lower tariffs would help reduce costs for food processors and retailers including Nippon Meat Packers Inc., Aeon Co. and Zensho Holdings Co.

"We welcome the trade agreement as it will help lower costs for us to purchase supplies," said Naoya Hirotani, a spokesman for Tokyo-based Zensho, the operator of restaurant chains including Sukiya, Cocos and Big Boy. "As tariffs on Australian beef come down, our purchases will increase."

JA Group, Japan’s largest farm lobby and the biggest source of opposition to the TPP, acknowledged the agreement with Australia as "the result of tough negotiations by Japanese government officials," according to Chairman Akira Banzai.

Japanese import duties on rice, milling wheat, sugar, butter and milk powder were maintained.

Trade Limits
Under the agreement, Japan can return beef tariffs to 38.5 percent if imports from Australia exceed certain limits. The ceiling for Australian frozen beef was set at 195,000 tons for the initial year of the agreement, which will be raised to 210,000 tons over a decade. The limit for Australian chilled beef was set at 130,000 tons for the initial year, which will be expanded to 145,000 tons.

"We made an accord that won’t undermine domestic agricultural production," Agriculture Minister Yoshimasa Hayashi said. "Australia showed flexibility in the negotiation."

Australian beef typically competes in Japan with locally produced meat from dairy cows and other cattle, which represents 31 percent of total Japanese production, according to the agriculture ministry.

Premium beef from wagyu cattle account for 46 percent of the total Japanese output and won’t be threatened by the trade deal, according to Morita at the ministry’s meat division.

"Australia offered a generous deal to Japan," said Tetsuhide Mikamo, director at Marubeni Research Institute. "They put the focus on regaining beef sales taken over by the U.S. last year following Japan’s relaxation of mad-cow disease restrictions."

Australia expanded beef sales in Japan after the Japanese government imposed a ban on U.S. beef in December 2003, following the discovery of the disease. U.S. beef shipments began recovering after Japan lifted the ban in 2005 and eased some of the remaining restrictions in 2013.