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Differing Preferences for Meats

by 5m Editor
1 October 2003, at 12:00am

By John H. Dyck and Kenneth E. Nelson. This is the third article in the series taken from the Economic Research Service's Structure of the Global Markets for Meat report. To read the other articles in this report, see the Further Sections table below.

Differing Preferences for Meats - By John H. Dyck and Kenneth E. Nelson. This is the third article in the series taken from the Economic Research Service's Structure of the Global Markets for Meat report. To read the other articles in this report, see the Further Sections table below. USDA Economic Research Service
Further Sections
Introduction and Contents

Competitiveness in the Supply Chain

Barriers to Meat Trade

Current Structure of World Meat Trade

Indications of the Future Structure of World Meat Trade

Appendix 1: Feeding Meat Animals - Where Are the Feed Resources?

Some aspects of the meat trade are not explained solely by differences in the resource base or the ability of a supply chain to keep animal product prices low through the use of low-cost inputs. Differences among countries in preferences for meat are important in explaining some major trade flows. Some examples follow.

U.S. Poultry Meat Trade
The largest meat export flow from the United States, in volume, is poultry meat (fig. 5). Poultry production requires less feed per kilogram of meat produced than does pork or grain-fed beef.2 If a country’s meat production is based in part on imported feeds, then less feed needs to be imported to produce broiler meat than to produce an equal amount of pork or grain-fed beef. On the basis of this feed conversion advantage, poultry meat should be more likely to be produced in a feed-deficit country than pork or beef, and should be less likely to be imported. Yet poultry meat trade has grown faster than trade in beef or pork since 1990, and now exceeds both beef and pork in volume traded. A principal reason for the large U.S. poultry exports is that U.S. firms export those parts of the chicken that have a low value in the United States but a higher value elsewhere (while selling parts in the United States that are more highly valued by U.S. consumers).

Figure 5: U.S. meat exports, 1964-2002
Source: USDA Production, Supply, and Distribution database, 11/21/02.

U.S. trade with China provides an example of trade based on differences in tastes. China has its own feed resources, and low labor costs for processing (Tuan et al.). Resource availability favors poultry meat production in China. However, in 2001, the United States sent $370 million in poultry meat and offal to China (including Hong Kong). Beef exports were $52 million, pork $25 million, and red meat offal (variety meats) $59 million (USDA, FAS(a)). Looking at the relative resource bases of the two countries, it is odd that U.S. meat exports to China are dominated by poultry meat.

Part of the answer is revealed by examining the major poultry product flows. The United States exported $135 million worth of poultry paws (feet less the spurs), $70 million worth of poultry wings, $86 million worth of chicken legs, and $41 million in poultry offal to China/Hong Kong in 2001, in addition to $38 million worth of unspecified other frozen cuts (USDA, ERS, DARTS database, using data from the U.S. Bureau of the Census). Chicken paws, rarely used as a food in the United States, are desirable in China, and China’s demand for frozen wings and poultry offal is strong enough to bid these products away from U.S. consumers.

Red Meat Trade
Taiwan’s pork exports to Japan offer another example of the effect of preference variations. In part, the exports occurred because Taiwan had lower labor costs than Japan and was close to Japan, reducing transportation costs relative to other supplying countries. However, the trade also flourished because Taiwan’s consumers placed the highest value on offal, rather than the muscle meat of swine. Japan received the muscle meat and the offal stayed in Taiwan (Huang). The large U.S. export trade in meat offal follows a similar logic, but with a different set of preferences. Edible byproducts of cattle and swine slaughter, such as tongues, livers, intestines, and hearts, are accorded a higher value in markets outside the United States than inside the United States, and net U.S. exports of offal exceed $500 million each year. In 2001, the United States exported 682,000 tons of cattle and swine variety meat or edible offal, worth $953 million, to Japan, Mexico, Korea, China, and other countries. U.S. imports of offal were 63,000 tons, worth $108 million (USDA, FAS(a)).

U.S. beef industry products are not distributed evenly across all markets. The United States Meat Export Federation analyzed data on U.S. exports of beef in 2000 and concluded that the three top export parts were the short plate, the liver, and the short rib (United States Meat Export Federation).3 The study estimated that exports took 68 percent of the total U.S. short plate production and 57 percent of short rib production. The leading market, Japan, was focused on the short plate and short rib. Together, these two cuts comprised about 50 percent of Japan’s beef imports from the United States. Over 50 percent of Korea’s imports from the United States were the short rib and the chuck roll. Other cuts, however, are exported much less. The tenderloin, strip loin, and sirloin butt, for example, account for a very small portion of exports. This indicates that it is hard to bid these cuts away from U.S. consumers, who place a relatively high value on them.

The fact that importing countries prefer certain cuts from cattle carcasses may provide an advantage to countries with large domestic markets. The United States and Australia are the chief countries competing to supply Japan and Korea. While the large U.S. market can absorb a great deal of beef, Australia’s meat industry could encounter difficulty in disposing of the remaining cuts (especially from grain-fed animals) if it exports only a subset of them to its Asian trade partners.4 The aggregate value of the carcass could be depressed by the low prices that might have to be offered in order to induce consumption of non-exported cuts by Australia’s relatively small population.

Trade in Cuts
Two main points emerge from these examples. First, meat trade mainly is in cuts or parts, not in the form of live animals or carcasses. The slaughter of a meat animal automatically generates a full set of muscle meat cuts, as well as trimmings, offal, and other byproducts. The value of a carcass is the composite value of the cuts and other products taken from it, and the derived value of a meat animal is the composite value of the carcass and byproducts from the animal, less processing and transaction costs.

According to the Food and Agriculture Organization (FAO), the aggregate value of live animal trade in 2001 was $8.5 billion, while the aggregate value of trade in meat was over $43 billion (FAO).5 In the meat trade, boneless cuts, rather than carcasses or bone-in cuts, dominate. In 2001, only 4 percent of Australia’s meat exports were in whole- or half-carcass form, and only 2 percent were cuts with bones left in. In the same year, only 2 percent of Japan’s meat-related imports were bone-in cuts, and only a fraction of 1 percent were whole-, half-, or quarter-carcasses. U.S. carcass meat exports accounted for 4-6 percent of total U.S. meat export value in 1995-2001.6 These data from the largest meat exporting and importing nations indicate the degree to which trade customers purchase quite narrowly defined meat cuts, separated from the other meat cuts and byproducts (such as bones).

Second, there are differences in preferences for various cuts among countries. The importance in trade of competitive advantage in animal production, processing, and distribution—of a lower cost supply chain—is very great, and is determined by the resource base. But meat trade is complicated by the existence of differentiated demand. Trade in cuts rather than animals or carcasses allows differing preferences to be met and total demand increased.

Differences in preferences partly explain the phenomenon of countries exchanging meat from the same species with each other. This intra-industry trade can be counterintuitive if analysis is based only on supply-side data. Consider a country with a comparative advantage in producing meat: an abundant resource base and relative prices that encourage use of resources in meat production, rather than for other enterprises. Another country has higher costs for producing meat, because of a poorer resource base, but still has some meat production. If we consider just the supply chain, the country with resource advantages will export meat to the other country. But, if the two countries have different tastes, two-way trade (called intra-industry trade) becomes possible. If people in the resource-poor country avoid buying a cut that the resource-rich country finds desirable, that cut may be exported from the resource-poor country to the resource-rich country. The composite value of the meat animal will then rise in the resource poor country, and fall in the resource-rich country.

Consumer preference differences extend beyond demand for particular meat cuts. Increasingly, consumers in some markets focus on productionoriented process traits related to animal welfare (e.g., the use of hormones and antibiotics, or the presence of genetically modified ingredients in feed rations). Sometimes, these preferences are the basis for regulatory barriers to trade (discussed in the following section), but they have also resulted in differentiation of retail meat products according to the production process followed in the supply chain. The market niches for meat from free-range chickens and for organically produced meat are examples.

Source: U.S. Department of Agriculture, Economic Research Service - September, 2003