Economic Effects of Animal Diseases Linked
to Trade Dependency
Though global meat trade
has not fallen in response to animal disease outbreaks,
a few countries have seen significant changes to
their exports and imports.
Don P. Blayney;
John Dyck;
David Harvey
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Global
levels of meat trade have not declined
despite the last decade’s high-profile
bans on meat trade flows. |
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The
economic effects of disease-related
trade bans on an individual country
depend on the size of its livestock
trade relative to domestic consumption.
The most severe im-pacts have been felt
in a few export-dependent markets and
in those import-dependent markets where
substitutes for banned trade were not
found. |
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The
economic significance of animal disease
outbreaks is also influenced by consumer
response: Fears that the disease can
spread to humans can lead to sharp drops
in consumption. |
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| This
article is drawn from . . . |
| Disease-Related
Trade Restrictions Shaped Animal Product Markets
in 2004 and Stamp Imprints on 2005 Forecasts,
by Don P. Blayney, LDP-M-133-01, USDA, Economic
Research Service, August 2005.
Livestock,
Dairy, and Poultry Outlook, coordinated
by Mildred Haley, LDP-M-140, USDA, Economic
Research Service, February 2006.
Livestock,
Dairy, and Poultry Outlook, coordinated
by Mildred Haley, LDP-M-139, USDA, Economic
Research Service, January 2006.
|
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may also be interested in . . . |
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The importance of livestock and
poultry trade to producers and consumers around
the world increased in the last part of the 20th
century. Producers in major exporting countries
grew to rely on trade as a significant outlet for
their products, and consumers in the importing countries
relied increasingly on trade for a significant contribution
to their diets.
In the last decade, however, a
spate of animal disease outbreaks has repeatedly
disrupted livestock and poultry meat trade and created
uncertainty about future trade disruptions. Two
diseases, avian influenza (AI) and bovine spongiform
encephalopathy (BSE), are at the forefront of today’s
trade disruptions, but a third disease, foot-and-mouth
disease (FMD), has caused havoc in livestock markets
for the past decade and emerged again very recently
in Brazil. Some of the trade disruptions have resulted
in losses for livestock industries, such
as the pork exporters of Taiwan, whose exports
were nearly eliminated from early 1997 to the present
because of FMD. Disease-related interruptions of
trade flows have also affected the food industry
and consumers in the importing countries, when the
meat affected by the ban could not be replaced by
either domestic producers or other exporting countries
or when consumers reduced purchases because of fears
for their health.
The economic costs of these disruptions
vary, and three criteria help explain the extent
of damage done by a disease outbreak. First is the
relative importance of meat exports to producers
in the affected country. Loss of export markets
is much more serious if 40 percent of the country’s
output is exported than if 5 percent is exported.
For example, disease outbreaks among the pork industries
in Denmark and Taiwan and the poultry industry in
Thailand, all heavily dependent on exports, have
inflicted great damage on producers in those countries.
A sudden end to trade leaves an increased supply
of meat that must be sold domestically, reducing
prices. In contrast, a large country like China
has suffered less disruption from AI because it
was less dependent on poultry exports.
Second is the relative importance
of imports from an affected country to consumers
in an importing country. If a country affected by
disease supplies 20 percent of an importing country’s
meat, a sudden end to the imports can lead to a
fall in consumption unless domestic production or
imports from another country can make up the deficit.
For example, after the AI outbreaks in China and
Southeast Asia, Japan was able to partially replace
poultry imports from Asia with imports from Brazil.
In contrast, Japan’s beef imports from the
U.S. were not so easily replaced.
The final factor is whether the
animal disease poses a threat to humans, because
consumers’ fears can reduce consumption. FMD
and highly pathogenic AI are both contagious viral
infections in animals and birds that cannot be contained
easily. BSE is a different kind of disease—it
is not contagious and does not spread rapidly. FMD
does not typically affect humans, but the highly
pathogenic H5N1 strain of AI appears to have been
transmitted to humans through very close contact
with infected birds. Cooking kills the viral agents
of FMD and AI in meat but not the BSE agents. BSE
is thought to cause a fatal brain disease in humans
who eat high-risk tissue from infected animals.
A Decade of FMD Shocks
Brings an End to Taiwanese Pork Exports
FMD is a very contagious viral
infection that can cause death or permanent disability
for cattle and swine and can spread very rapidly
in a number of different ways. Beef and pork trade
flows have long been defined by the identification
of “FMD-free” and “FMD”
zones. For much of the 20th century, the FMD-free
zone was a stable group of countries or territories
including the U.S., Canada, Australia, New Zealand,
Japan, South Korea, Taiwan, and, sometimes, Denmark.
Because these countries recognized each other as
free of FMD, sanitary barriers did not ordinarily
inhibit trade among them or affect their exports
to countries that were not FMD-free. Countries not
recognized as FMD-free can export only cooked meats,
such as corned beef or canned hams (cooking kills
the virus), to the FMD-free zone, not chilled or
frozen meat. The strict enforcement of FMD trade
restrictions reflects the efforts that went into
eradicating the disease in places where it was done
successfully. Japan’s eradication in 1907,
and the eradications in Taiwan and the U.S. in the
1920s, required massive campaigns. Reportedly, all
hogs on the island of Taiwan were destroyed, an
action that made the island FMD-free for the next
50 years. The stability of the FMD-free zone ended
in the latter half of the 1990s.
Trade in beef and pork (and live
cattle and swine), both within the disease-free
zones and among countries that had not yet achieved
FMD-free status, was shaken by events beginning
in 1997. FMD began to spread widely around the world,
and Taiwan experienced an outbreak in that year
so severe that more than a third of the island’s
hogs (4 million of the 11 million on the island)
died or were slaughtered and the carcasses destroyed,
not eaten. Dependence on exports was high, with
40 percent of output going to Japan. A decade later,
despite efforts to recover FMD-free status and regain
its once-large export presence, Taiwan has a much
smaller hog population and lower exports. Exports
from Taiwan made up 40 percent of Japan’s
pork imports, but that loss was offset by rising
imports from Canada, Denmark, and the U.S., as well
as greater-than-expected production within Japan
itself. Pork from Taiwan had distinct appeal in
Japan’s market, but was not so differentiated
that it could not be replaced.
Over the next 5 years, smaller
outbreaks occurred in Japan and South Korea (both
FMD-free for many decades) and a large outbreak
swept parts of Western Europe, which had long struggled
to become FMD-free. In South America, Argentina
and Brazil had been working hard to achieve FMD-free
status, but experienced outbreaks after 2000. The
stability of the FMD-free zone from about 1930 to
1997 has given way to volatility caused by the outbreaks
of the last decade, and renewed fear among producers
in all the exporting countries.
In the past, FMD outbreaks typically
resulted in bans on imports from anywhere in affected
countries. However, over the last two decades, in
order to help mitigate the drastic consequences
of whole-country bans, importing countries have
sometimes agreed to restrict their trade bans to
those regions within the country where the outbreak
occurred, allowing imports from other regions that
are disease free, a practice known as regionalization.
BSE Perceptions Affect
Consumers in Japan and Korea More Than U.S. Producers
Unlike FMD, the discoveries of
BSE in cattle have caused widespread concern about
the safety of beef consumption in some markets.
BSE, also called mad cow disease, is a neurological
disease in cattle that was first discovered in Britain
in 1986. It was thought to affect only cattle until
1996, when the British Government announced a possible
link to a new human variant of Creutzfeldt-Jacob
Disease, and BSE was elevated from an animal health
concern to a human health concern. Unlike viral
diseases, such as AI and FMD, scientific research
indicates that cooking does not kill the causal
agent of BSE. But, with measures in place to remove
the significant risk materials from the food system,
human health risks from BSE are minimized.
The Canadian Government announced
the discovery of the first case of BSE in a North
American-born animal, a beef cow in Alberta, in
May 2003. All of the country’s major trading
partners, including the U.S., banned imports of
Canadian beef and live cattle immediately. In August,
the U.S. allowed boneless beef from cattle under
30 months of age, but not live cattle, to be imported
from Canada. Then, in December 2003, discovery of
a BSE-infected cow in Washington State led some
70 countries, including Canada and Mexico, to impose
import bans of varying degrees on U.S. beef and
cattle. U.S. beef exports dropped from a record
2.5 billion pounds in 2003 to 461 million pounds
in 2004, a fall of over 80 percent. The bans on
U.S. beef exports clearly were significant to U.S.
exporters and to the consumers of U.S. high-quality,
grain-fed beef in countries such as Japan, Korea,
and Hong Kong, whose markets were closed to the
U.S. and where beef prices rose. While the U.S.
beef industry depended on exports to take 9-10 percent
of output, the domestic market was strong and absorbed
the increase in supply.
The U.S. ban on Canadian beef imports
in May 2003 came at a time when U.S. beef supplies
were already tight, and the ban led to even tighter
supplies. By October 2003, the supply situation
had generated record-high U.S. cattle and beef prices.
Domestic beef production was declining because producers
had been reducing inventories since 1996, while
the demand for high-quality, grain-fed beef remained
high. With the domestic market fetching high prices,
the beef industry was better able to absorb losses
in export revenue. In addition, U.S. meat consumers
did not abandon eating beef after the BSE discoveries
as consumers in Europe and Japan had done, at least
for limited periods. Japan’s annual consumption
of beef dropped by about 15 percent in 2001, when
BSE was discovered in Japan.
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Japanese and Korean consumption
of beef fell even more when U.S. beef was cut off.
The two Asian markets depended heavily on North
American, especially U.S., beef. North American
beef constituted one-fourth of total Japanese consumption
in 2002. Furthermore, beef
trade was concentrated on a few cuts of beef,
particularly short plate and short ribs. Japanese
and Korean restaurants had developed a strong demand
for dishes made with these cuts. No other BSE-free
beef supply in the world was big enough to replace
the U.S. supply of these cuts. Japanese and Korean
consumers also liked the taste of grain-fed beef
from North America. Beef from Australia and New
Zealand has traditionally been grass fed, and attempts
to feed grain to the degree that it is fed in North
America have not been viable on a large scale. Most
North American beef has not been replaced in the
two Asian markets. Japan’s beef consumption
in 2004 was 25 percent below 2000 levels because
of the combined effect of drops in demand and reduced
supply.
Asian Poultry Markets Disrupted
by Avian Influenza
Well-publicized outbreaks of the
highly pathogenic H5N1 strain of AI began in Asia
in 1998. The strain was first identified in Hong
Kong, where it killed several people. In response,
the entire poultry population in Hong Kong—millions
of birds—was slaughtered to eradicate the
disease. However, in 2001, H5N1 reappeared in China,
and in 2003 and 2004, it affected several poultry
populations in Southeast Asia. In 2005, it spread
across Asia and reached Europe; cases were reported
in Europe and Africa in early 2006. Highly pathogenic
strains of AI are very dangerous to birds, spreading
quickly and often killing the birds. The H5N1 strain
has also spread from birds to people when people
have been in close contact with diseased birds.
Like FMD, AI viruses in meat are
killed by cooking. Unlike FMD, however, H5N1 can
infect and kill humans from bird-to-human contact.
Medical experts worry about a possible human pandemic
if the H5N1 variant mutates in ways that make transmission
of the virus directly between people easier. This
worry has led to extra efforts to eradicate AI,
such as killing or banning all live chickens and
other birds in major Asian cities—examples
include Hong Kong and cities in Vietnam—and
to campaigns to vaccinate entire populations of
various species of birds against H5N1 AI.
Trade disruptions from H5N1 AI
affected two of the world’s major exporters
of chicken meat, Thailand and China. Thailand’s
broiler industry depends heavily on exports and
was hard-hit by the bans. China’s exports
are a small share of its chicken meat output, and
the impact of bans on its exports was less significant
nationally, although severe for producers focused
primarily on the Japanese market.
Consumer concerns about the safety of poultry in
certain markets—e.g., Japan, China, Vietnam,
and Thailand—led to sudden drops in consumption,
although cooked chicken meat and egg products are
safe to eat. But even though Japan is dependent
on imports for a large share of consumption, the
AI outbreaks in China and Thailand have not negatively
affected supplies in Japan. Brazil has greatly expanded
its exports to Japan, and China and Thailand have
transformed their exports into heat-treated products
that to some extent replace earlier frozen exports
(see “Asian Markets Restructured
by AI”).
Animal Diseases Are a Continuing
Threat
Meat sectors in a number of countries
have suffered serious damage from disease outbreaks.
On a global scale, however, trade disruption by
and consumer reaction to fears of infectious animal
diseases are not readily apparent (see “Effects
of AI on U.S. Poultry Industry So Far Are Minimal”).
Global production, consumption, and trade of pork
and broiler meat have continued to grow through
the animal disease episodes of the last decade,
and global beef production and consumption have
stayed relatively constant since 1990. In most cases,
disease-related import bans have been mitigated
by increasing supplies from domestic or alternative
foreign sources of meat. Similarly, global feed
use of corn has continued to rise, despite drops
in annual corn use as high as 25 percent in certain
countries (Thailand from 2001 to 2003, Taiwan from
1996 to 1998).
Meat trade increasingly requires
that a supply chain for meat can be identified that
both the importing and exporting countries agree
poses low risk of disease transmission. Elements
of this risk-based decisionmaking have been adopted
by the World Organization for Animal Health for
BSE and AI and in recent agreements among countries
affected by BSE (e.g., Japan, Canada, and the U.S.).
It may lead to a reduction in the extent and duration
of trade bans. Technological advances in identifying
disease strains and in tracing the origin of meats
and the increasing use of risk analysis offer hope
that outbreaks may be avoided or contained more
quickly. Animal diseases, however, remain volatile
threats to global trade in meats.
| Asian
Markets Restructured by AI
In the 1990s, the principal
driver of Asia’s poultry meat trade
was Japanese demand for imports supplied by
China and Thailand. Because fresh poultry
meat does not keep as long as beef and pork,
the trade focused mainly on frozen cuts, primarily
from broilers. The Japanese place a higher
value on chicken legs than on white meat,
a factor exploited by the Asian exporters
that supplied such products as de-boned legs.
These de-boned products competed successfully
against the bone-in legs long supplied by
the U.S. Thailand also successfully developed
a large export market to the European Union.
In addition to supplying
frozen products, Thailand and China also supplied
Japan with further processed broiler meat,
often seasoned, cooked, cut, packaged, and
ready for restaurants or consumers to use,
once reheated. Shipments of further processed
products had a considerably higher value than
did frozen cuts, reflecting the greater convenience
they offered to customers and the higher costs
of inputs needed to manufacture them. By 2000,
Japan was importing over 150,000 tons of prepared
and preserved broiler meat, valued at over
$500 million. China, because of the relatively
short sea passage between its Shandong Province
and Japan, was also able to ship chilled broiler
meat to Japan that could compete with the
fresh and chilled Japanese meat in supermarkets.
The discovery of the high-pathogenic
H5N1 strain of AI in Hong Kong in 1998 brought
new uncertainty to Asia’s poultry meat
trade. China’s chilled and frozen exports
to Japan were halted for 3 months (July-September)
in 2001 after an H5N1 outbreak in China. Late
in 2003 and early in 2004, H5N1 AI appeared
in all of Japan’s large Asian suppliers,
and their exports of chilled and frozen broiler
meat ceased. South Korea, an emerging importer,
also banned chilled and frozen poultry product
imports from all major Asian suppliers.
A direct result of the outbreak
was a large increase in Japanese imports from
Brazil. Brazil had not experienced any AI
outbreaks and, except for the U.S. bone-in
legs, faced almost no competition for the
frozen cut markets in Japan and smaller Asian
importing countries. Brazil’s exports
of frozen broiler meat to Japan shot up from
109,000 tons in 2000 to 403,000 tons in 2005.
In another shift, Chinese
and Thai poultry-exporting firms refocused
on increasing production of prepared and preserved
broiler cuts. The heat treatment for such
further processed cuts kills the AI virus
if it is present. The share of further processed
cuts in Thai poultry exports rose from 28
percent in 2000 to 88 percent in 2004 and
to 98 percent in 2005. The share of China’s
exports of further processed cuts of poultry
went from 20 percent in 2000 to 58 percent
in 2005 (China still ships chilled/frozen
poultry meat to its Hong Kong Special Autonomous
Region). Poultry meat exports from major Asian
suppliers to Japan and South Korea are now
almost 100 percent prepared and preserved
meat. In contrast, Brazil ships almost entirely
frozen, unprocessed chicken meat to Asia.
The AI outbreaks have helped
depress Asia’s poultry meat trade since
2000. However, trade is recovering—Japan’s
import volume in 2005 exceeded 2000 levels,
and the unit value of its imports is higher,
reflecting the value added from processing
in China and Thailand. The AI outbreaks in
Asia thus accelerated a transition to production
and export of higher valued products that
was already underway in several countries. |
| Effects
of AI on U.S. Poultry Industry So Far Are
Minimal
So far, the U.S. has been
spared from major disruptions of its poultry
trade. AI outbreaks in the U.S. have been
mostly of the less dangerous low-pathogenic
varieties. U.S. poultry producers and processors
enjoy a healthy domestic market situation
partly supported by slowly growing retail
prices relative to other meat prices and steady
per capita consumption. (See “Chicken
Consumption Continues Longrun Rise”)
Most of the bans on U.S. poultry product exports
due to AI or other poultry diseases have been
regionalized quickly. For example, in 2002,
U.S. trading partners banned poultry product
imports from selected States including, at
various times, Maine, North Carolina, Pennsylvania,
Texas, Virginia, and West Virginia, after
outbreaks of the low-pathogenic AI. If such
regionalization does not affect areas that
are primary sources of poultry product exports,
national exports may not be seriously affected.
Of the five largest broiler-producing States—Georgia,
Arkansas, Alabama, Mississippi, and North
Carolina—only North Carolina has been
included in trade bans. However, the U.S.
is the second largest exporter of poultry
products in the world. That position in international
markets makes AI-related trade issues a key
concern for the U.S. poultry industry. |
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