International Agricultural Trade Research Consortium Annual Meeting December 13-15, 2009 Ft Myers, Florida When Certification Programs to Ensure Compliance with Foreign Standards Enhance Trade: The Case of Brazilian Beef Exports Marinos Tsigas, USITC Constanza Valdes, ERS Jesse Mora, USITC This presentation does not represent in any way the views of ERS/USDA, the USITC or any of its individual Commissioners
Objective To estimate the costs vs. benefits to Brazil s beef export industry of adopting certification (private producer) programs to comply with foreign standards. To quantify the cost of measures to eradicate foot and mouth disease (FMD) in Brazil from Agricultural Ministry data. To quantify the cost of certification programs to have traceability information from firm-level survey data. To quantify the trade impacts of FMD eradication and certification programs.
Outline Brazil s beef sector U.S. and global beef exports before and after 2003 BSE bans GTAP simulations and modeling of FMD eradication in Brazil Quantifying direct effects of removing import restrictions due to FMD Impact of BSE bans on Brazilian beef exports under different FMD and certification conditions in Brazil Conclusions
Brazil is a key player in the global beef market Largest commercial herd: 185.2 million head; produces beef from grass-fed cattle. World s largest beef exporter (in volume) since 2004; 22% of world market. Brazilian beef is exported to virtually every continent: the EU accounts for nearly 60% of Brazil s beef exports; other important markets include the Middle East, Russia, Asia, Chile and the United States (processed beef). The second largest consumer market (7.4 million tons) and the fourth largest in per capita consumption. Mato Grosso do Sul is Brazil s most important beef producing state.
Last Foot and Mouth Disease (FMD) outbreak and major livestock producing areas
Overcoming sanitary and trade barriers in key consumer markets is a priority Brazil s recent efforts focus on FMD eradication and implementation of certification programs. There are marked differences between government eradication and certification programs to comply with foreign private standards. The government program to eradicate FMD in Brazil increases producer costs by 14.2%. Implementation of certification programs adds 10.9% to costs of production.
Cost to Brazilian beef sector of lost exports is about $700 million in 2005-08 Thousand tons 2,500 2,300 2,100 1,900 1,700 1,500 1,300 Historical Baseline Beef Projections 1,100 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Sources: USDA Agricultural Projections to 2015, OCE-2005-1, USDA, Office of the Chief Economist, World Agricultural Outlook Board, February 2006.
FMD Situation in Brazil in 2009 According to OIE. General and targeted surveillance.
Million U.S. dollars U.S. was largest beef exporter in 2003 2003 beef exports 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Argentina Australia Brazil Canada EU15 Mexico New Zealand Exporter USA Uruguay ROW*
Million U.S. dollars But several countries banned U.S. beef following discovery of BSE in Dec 2003 U.S. beef exports before and after BSE bans 1,200 1,000 800 600 400 200 0 Canada China Japan Korea Mexico Russia ROW** Destination Before BSE After BSE
Million U.S. dollars Brazil was not able to expand its exports to markets that banned U.S. beef Beef exports before and after BSE bans 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Argentina Australia Brazil Canada EU15 Mexico New Zealand Exporter USA Uruguay ROW* Before BSE After BSE
GTAP simulations and modeling FMD eradication in Brazil Price 2003 database BSE bans BSE effects Supply with FMD eradicated 2003 database, Brazil: FMD eradicated BSE bans BSE effects in the absence of FMD in Brazil Supply 2003 database, Brazil: FMD eradicated and certification BSE bans BSE effects in the absence of FMD in Brazil and certification Demand with FMD trade restrictions Demand in absence of FMD trade restrictions GTAP simulations Market for Brazilian beef Quantity
Quantifying direct effects of removing import restrictions due to FMD Price Supply Price Demand with FMD trade restrictions for Brazilian beef Supply P M,nB P M,B Demand with FMD trade restrictions Demand in absence of FMD trade restrictions Demand in absence of FMD trade restrictions for Brazilian beef Market for Brazilian beef Quantity Market for non-brazilian beef Quantity
FMD eradication and certification would have allowed expansion of Brazilian exports when BSE was discovered in the United States Actual 2003 FMD eradicated in Brazil FMD eradicated and certification in Brazil 8,000 8,000 8,000 7,000 7,000 7,000 6,000 6,000 6,000 5,000 5,000 5,000 4,000 4,000 4,000 3,000 3,000 3,000 2,000 2,000 2,000 1,000 1,000 1,000 0 Before BSE After BSE 0 Before BSE After BSE 0 Before BSE After BSE Simulations with GTAP model
Million U.S. dollars FMD eradication and implementation of certification programs in Brazil would have dampened impacts of BSE on world beef markets 0 Change in global beef trade and welfare due to BSE bans under different FMD conditions in Brazil Global beef exports Global welfare -500-1,000-1,500-2,000-2,500 Actual 2003 FMD eradicated FMD eradicated, private standards Simulations with GTAP model
Conclusions Despite costly FMD eradication and certification programs to ensure compliance with foreign standards, Brazilian beef exports would expand and global consumers would be better off. If Brazil can sell beef in Pacific and North American markets, Australian and New Zealand exports would decline. Substitution possibilities in the Pacific beef market, both between grass-fed and grain-fed beef and between chilled and frozen beef, could marginally affect U.S. exports.
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