Speer: Cowlandia, Imports, and Don Quixote

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(Hall & Hall)

Some of the feedback stemming from Cowlandia prompts the need to explore international trade in more detail.  My subsequent column followed up by outlining the broader economic principles surrounding both imports and exports.   And starting here, we’ll drill down into more detail with specific emphasis on the beef industry.  

Import Kerfuffle: The kerfuffle in Cowlandia all starts with imports:  “Despite the country’s economic success, there had been some long-standing consternation regarding cattle imports…[Some producers] continually griped about imports hampering Cowlandia’s cattle industry.”  

The description parallels the real world.   Right in lock step, one column hit back against the very premise surrounding the Cowlandia storyline.  The crux of the complaint being imports:    

Why are we importing beef and cattle, collecting the checkoff tax on them, and then spending that much and more to export beef that we imported in the first place? Doesn’t make a lot of sense does it! Cowlandia, the “Free Trade” utopia, is a fairytale that definitely benefits someone; however, I am yet to understand how it benefits me.

With that, let’s focus on the import side of the business - saving exports for a subsequent column. 

Cattle: Starting with live animal imports, there exists three categories of cattle flowing into the United States (from Canada and Mexico): 1) feeder cattle, 2) fed steers and heifers imported for immediate slaughter, and 3) cows and bulls imported for immediate slaughter.   Combined, they totaled 1.62M head in 2022. 

Those cattle surely impact the market – right?  The first graph highlights the annual fed market versus cattle import totals.  Take note of several items: 

1. The trend line is essentially flat.

2.  Less than 4% of the variation in fed prices can be explained by annual variation in cattle imports.  They’re not moving the market.

3. The protectionists often tout 2014 as the year in which the market was working correctly – and then point (incorrectly) to COOL as the driving factor.  However, cattle imports that year exceeded 2.25M head!  Those are hard to reconcile. (For more on this see: Trade Handwringing Barking Up Wrong Tree.) Nevil chart

Beef:  Next, we’ll pivot to the product side.  The second graph details the annual fed market versus beef import totals.   The relationship here is slightly more meaningful – nearly 16% of the variation in the fed market is explained by variation in beef imports.  But wait, the trend isn’t in the direction the protectionists lead us to believe (i.e. negative) – it’s actually positive!

That doesn’t fit the protectionist narrative; they argue imported product simply adds to supply and drives down domestic prices.  However, the bulk of imports consist of lean trimmings; they add value to 50/50 trim that otherwise possesses little stand-alone demand.  

As such, imports aren’t in direct competition with domestic beef production. (For more, see: It Really IS True:  Imports Create Value.)  The data is clear:  beef imports do NOT hamper the fed market.   Nevil chart

Tilting At Windmills:  Most protectionists just want to be mad about trade.  The emotion subsequently drives rent seeking – complaining about imports and lobbying governmental influence such they can be shielded from having to compete in a global market.   But that’s all self-defeating. 

Sure, competition means there’ll be winners and losers along the way.   As such, you’ll never find any reference to “utopia” in Cowlandia.  But as it turns out, in the real world, the U.S. beef industry is wining that competition.  

That said, when it comes to international trade, any reference to fairytales is best captured by Don Quixote.  Given the data, the kerfuffle about imports is the equivalent of tilting at windmills. 

Nevil Speer is an independent consultant based in Bowling Green, KY.  The views and opinions expressed herein do not reflect, nor are associated with in any manner, any client or business relationship.  He can be reached at nevil.speer@turkeytrack.biz 

 

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