Credit crunch threatens livestock producers

According to an International Trade Commission (ITC) report, U.S. beef producers lost nearly $11 billion between 2004 and 2007 due to barriers on U.S. beef exports not warranted under the World Animal Health Organization (OIE) guidelines.

That statistic is a big cause for concern, said Sen. Ben Nelson, D-Neb., as livestock producers are facing even bigger woes now. The nation's financial meltdown may impact exports, cause a decline in demand domestically and tighten credit markets for producers.

Nelson wants the Bush administration to increase its efforts to re-open important foreign markets for U.S. beef in light of the report.

"For years, I have called for greater efforts on the part of USDA and USTR to re-open markets for U.S. beef worldwide," Nelson said.

He said trade restrictions based on perceived health risks and not on sound science are unfair trade barriers and have cost Nebraska beef producers billions of dollars.

"While some progress has been made in Korea, more must be done to restore full and fair trade of U.S. beef with that important market," he said. "U.S. beef is the best and safest beef in the world, and our trading partners shouldn't hide behind trumped-up safety concerns to keep our beef off of their consumers' tables."

Darrell Mark, agricultural economist at the University of Nebraska-Lincoln, expects Nebraska's livestock industry to get a hit from the current economic turmoil in more than the grain sector.

"Part of it is the export picture and what our world customers are going to end up buying from us," Mark said. "But a large portion of it is consumers in the United States."

With about 90 percent of the beef produced in the U.S. consumed domestically, Mark said consumers cut back on beef when their incomes begin to decline and their equity situation is on shaky ground.

"When you start tightening your belt, you tighten your belt at the grocery store and other places," he said. "And when you tighten your belt at the grocery store, that means you don't stay in the steak aisle. You move to hamburger or pork or poultry or rice or pasta. In other words, you shift away from some of those high-value products to low-value products."

But the big switch, according to Mark, is in restaurant trade, as consumers are cutting back on dining out and are preparing meals at home.

Mark said sales at restaurants, whether it's fast food or sit-down eateries, are down this year because of the poor economic situation.

"Not as much beef is moving through those chains," he said. "With gas going down, people may afford to drive to a restaurant, but they can't afford to eat there."

And, Mark said, if the dollar continues to strengthen compared to declining currencies worldwide as it has the last several months, that could hurt beef exports.

Also, since the economic downturn is worldwide, consumers throughout the globe may not be able to afford an expensive cut of beef.

To compound the problem, Mark said the credit crunch has hit the livestock sector in terms of financing cattle on feed and other areas where acquiring credit is vital to the operation.

"It used to take a few dollars to have equity in cattle in a feedyard," he said. "Now it might be 50 percent or more, and that credit isn't necessarily going to get any cheaper, either."

Last year, Nebraska agriculture totaled $4.6 billion, with livestock in the form of live animals and meat, animal fats and animal hides and skins totaling almost $1.35 billion.

But with questions remaining about how vigorous beef exports will be in light of the world's financial woes, Nebraska's livestock sector is expected to experience a $750 million reduction in net earnings compared to 2007 due to higher feed costs, according to Bruce Johnson, agriculture economist at the University of Nebraska-Lincoln.

While livestock revenues are expected to be up $500 million in 2008, the increase will be more than offset by higher feed grain costs, which have risen as much as $700 million.

Paul Olson, president of the National Farmers Organization, said livestock producers "must now put down almost twice as much equity in order to finance new animals. With credit tightening, some may choose to leave their barns empty."

Prior to a cow in Washington state testing positive for mad cow disease in December 2003, Nebraska had its best year in meat exports as live animals and meat, hides and skins and animal fats totaled $1.53 billion.

The year after the mad cow incident that closed international markets to U.S. beef, Nebraska's 2004 live animals and meat, hides and skins and animal total exports amounted to $985.6 million, a decline of nearly $550 million.

But meat and livestock product exports last year are on par with similar exports in 2000-02, which averaged $1.366 billion.

Nelson said the ITC report provides an overview of sanitary, animal health and other nontariff trade barriers in seven key markets: Japan, Korea, the European Union, China, Russia, Canada and Mexico.

He said the report focuses on barriers that have been set in place related to mad cow disease, or BSE, and found that BSE-related barriers in Japan and Korea account for $9.5 billion in lost U.S. beef exports.

With the elimination of these restrictive barriers in key markets, U.S. beef producers could expect to gain $9 billion in added revenues, according to the ITC report.

 South Korea and Japan banned U.S. beef after the first North American case of BSE. Nelson has pushed those two countries to lift their bans, arguing that U.S. beef is safe and that keeping it restricted has been based on politics, not sound science.

 "These unfair trade barriers continue to hurt our beef industry at a time when it is already facing higher costs and the fallout from this national economic crisis," Nelson said.