Why U.S. beef may no longer be what’s for din­ner in Ja­pan

Ranch­ers say Trump trade poli­cies could hurt their busi­ness abroad

The Washington Post Sunday - - BUSINESS - BY ANA SWAN­SON

Nearly two years ago, Brian Levin found him­self in Ja­pan, cov­ered head-to­toe in beef and pos­ing for a pho­to­graph with John F. Kennedy’s daugh­ter.

It was all part of a plan to get his prod­uct, a high-end beef jerky, into the Ja­panese mar­ket. Wear­ing a Vel­cro suit that al­lowed peo­ple to rip pack­ages of beef jerky off it, Levin, the chief ex­ec­u­tive of a brand called Perky Jerky, ap­peared be­side Caro­line Kennedy, the U.S. am­bas­sador to Ja­pan, at a trade show pro­mot­ing U.S. food.

It was a big op­por­tu­nity for the brand, and oth­ers like it. In 2013, Ja­pan fi­nally eased re­stric­tions on Amer­i­can beef im­ports es­tab­lished a decade ear­lier, when fears of mad cow dis­ease chilled de­mand for U.S. meat. In its first year, Levin pro­jected, his com­pany would earn about $3 mil­lion in Ja­pan.

But shortly there­after, the com­pany’s for­tunes there were sud­denly brought to a halt by forces be­yond its con­trol: the shift­ing foun­da­tion of global trade agree­ments.

In the past few months, the fu­ture of global trade has changed dra­mat­i­cally. Pres­i­dent Trump has an­nounced his in­ten­tion to rene­go­ti­ate the North Amer­i­can Free Trade Agree­ment with Canada and Mex­ico, which fa­cil­i­tates more than

$1 tril­lion in trade each year. He also of­fi­cially with­drew the United States from the Trans-Pa­cific Part­ner­ship, a 12na­tion trade pact the Obama ad­min­is­tra­tion had ne­go­ti­ated.

Many Amer­i­can in­dus­tries have cel­e­brated the de­ci­sion to with­draw from the TPP, ar­gu­ing that the deal would sub­ject busi­nesses to un­fair for­eign com­pe­ti­tion. But Amer­ica’s farm­ers and ranch­ers — per­haps the world’s most ad­vanced agri­cul­tural sec­tor and one that ex­ports roughly one-fifth of ev­ery­thing it pro­duces — gen­er­ally do not agree.

“We want a trade treaty,” said Zippy Du­vall, pres­i­dent of the Amer­i­can Farm Bu­reau Fed­er­a­tion. “We’re con­cerned [about Trump’s trade rhetoric], but he’s our pres­i­dent and we’re go­ing to try to sup­port him. We did cer­tainly let him know that we’re ner­vous.”

The United States has ex­ported more farm prod­ucts than it has im­ported since 1960 and is a ma­jor sup­plier to China, Ja­pan, Mex­ico, Canada and else­where. To­day, the in­dus­try faces head­winds. The price of grain has plum­meted be­cause of a global glut, and a strong dol­lar is push­ing up the price of U.S. prod­ucts rel­a­tive to for­eign com­peti­tors. With the United States seem­ingly poised to with­draw from global trade, farm­ers and ranch­ers are wary that they could soon see more dis­rup­tion to their busi­nesses.

The “poster child” for po­ten­tial losses be­cause of chang­ing trade dy­nam­ics, ac­cord­ing to an­a­lysts, is the U.S. beef in­dus­try. The TPP put that in­dus­try on the cusp of a lu­cra­tive agree­ment with Ja­pan, where con­sumers pay a pre­mium for cuts Amer­i­cans don’t pre­fer, in­clud­ing beef tongue, in­testines and short ribs, as well as other prod­ucts.

Kent Ba­cus, the di­rec­tor of in­ter­na­tional trade and mar­ket ac­cess at the Na­tional Cat­tle­men’s Beef As­so­ci­a­tion, which rep­re­sents roughly 180,000 U.S. cat­tle pro­duc­ers through its af­fil­i­ate struc­ture, said the TPP would have been “a big shot in the arm for the U.S. beef in­dus­try.”

“It would have given us the great­est mar­ket ac­cess ever ne­go­ti­ated in Ja­pan,” he said, grad­u­ally re­duc­ing the 38.5 per­cent tar­iff Ja­pan levies on U.S. beef to just 9 per­cent.

Now farm­ers and ranch­ers worry that coun­tries around the globe are forg­ing their own trade pacts that will give com­peti­tors an ad­van­tage and leave U.S. pro­duc­ers be­hind. For the beef in­dus­try, Aus­tralia is a par­tic­u­lar con­cern. On Tues­day, Aus­tralian Trade Min­is­ter Steven Ciobo said the re­main­ing coun­tries in the Pa­cific trade pact would push ahead with a deal with­out the United States.

Aus­tralia has also en­tered into trade agree­ments with China and Ja­pan, both of which went into force in 2015. As a re­sult, Ja­pan has low­ered the tar­iff it charges on Aus­tralian beef im­ports to 27.5 per­cent. In the fu­ture it will be phased down to 20 per­cent — about half the mark-up given to Amer­i­can prod­ucts.

“I think that agri­cul­ture sec­tor in the U.S. is very wor­ried about the ad­min­is­tra­tion, for very good rea­sons,” said Joshua Meltzer, se­nior fel­low at the Brook­ings In­sti­tu­tion. “If you take beef, Aus­tralia’s . . . beef ex­ports have bet­ter ac­cess into Ja­pan now than the U.S. beef in­dus­try does. That was go­ing to be ad­dressed in the TPP, but that’s no longer the case.”

The other coun­tries in the TPP “will be en­ter­ing into other deals among them­selves, or po­ten­tially a col­lec­tive TPP deal with­out the U.S. All these deals would dis­ad­van­tage U.S. com­mer­cial in­ter­ests,” said Wendy Cut­ler, a vice pres­i­dent of the Asia So­ci­ety who worked for decades as a ne­go­tia­tor in the Of­fice of the U.S. Trade Rep­re­sen­ta­tive.

Though they will prob­a­bly take years to fi­nal­ize, China is push­ing for­ward on two ex­pan­sive trade deals, one in­volv­ing the coun­tries of East and South Asia, as well as Aus­tralia and New Zealand, and an­other in­volv­ing coun­tries around the Pa­cific Rim. Mex­ico re­cently met with New Zealand, Malaysia and China about bi­lat­eral deals, and Ja­pan and the Euro­pean Union are close to fi­nal­iz­ing their own pact, Cut­ler said.

Now that the prospect of the TPP has van­ished, Amer­i­can farm­ers and ranch­ers are fo­cus­ing on the prospect for new bi­lat­eral deals. The Trump ad­min­is­tra­tion has pro­fessed a pref­er­ence for ne­go­ti­at­ing with coun­tries one-on-one, say­ing it gives the United States more lever­age at the bar­gain­ing ta­ble.

“We would en­cour­age Pres­i­dent Trump that if the TPP is not the an­swer that he’s look­ing for, that a bi­lat­eral agree­ment with Ja­pan would be our next choice,” said Ba­cus, of the Na­tional Cat­tle­men’s Beef As­so­ci­a­tion.

The in­dus­try’s ma­jor com­peti­tors, in­clud­ing the Euro­pean Union and Canada, are pur­su­ing bi­lat­eral trade agree­ments with Ja­pan, he said: “If we be­come less com­pet­i­tive, we do not have an­other mar­ket that can ab­sorb the vol­ume and the value that Ja­pan pur­chases. And that has a di­rect im­pact on cat­tle prices and, most im­por­tantly, our farm­ers and ranch­ers in ru­ral Amer­ica.”

The prob­lem, Ba­cus and oth­ers say, is that a bi­lat­eral agree­ment with Ja­pan could take years to ne­go­ti­ate — while other com­peti­tors chip away at Amer­ica’s share of the global mar­ket.

“Trade is more im­por­tant than all the U.S. farm pro­grams put to­gether to the U.S. agri­cul­tural sec­tor. So any­thing that can be done to ex­pand op­por­tu­ni­ties to do busi­ness in other mar­kets will be re­ally im­por­tant,” said Bryan Ri­ley, se­nior an­a­lyst for the Her­itage Foun­da­tion and free-trade ad­vo­cate.

“The hope is now, to bor­row a phrase, that we could have even big­ger, bet­ter agree­ments, and I think that’s the chal­lenge for the new ad­min­is­tra­tion,” Ri­ley said. “If we sit on the side­lines while other coun­tries ne­go­ti­ate agree­ments, it will be to the detri­ment of our farm­ers and ranch­ers and all the com­pet­i­tive in­dus­tries in the U.S.”

Farm­ers and ranch­ers are also closely watch­ing Trump’s prom­ises to rene­go­ti­ate NAFTA, a pact that gives them un­fet­tered, duty-free ac­cess to Cana­dian and Mex­i­can mar­kets.

In a de­bate in Oc­to­ber at the Tax Pol­icy Cen­ter, a Wash­ing­ton-based think tank, Wil­bur Ross, who is now Trump’s nom­i­nee for com­merce sec­re­tary, used Mex­ico’s de­pen­dence on Amer­i­can food ex­ports to ar­gue that the coun­try was un­likely to re­tal­i­ate against a more ag­gres­sive trade stance and trig­ger a trade war. Among other rea­sons, Mex­ico needs Amer­i­can farm­ers to keep its peo­ple fed, he said.

“They couldn’t func­tion as an econ­omy in a trade war,” Ross said. “Their farm­ers are no­to­ri­ously in­ef­fi­cient. Farm­ing has ac­tu­ally shrunk as a re­sult of NAFTA . . . . With­out the cheap U.S. agri­cul­tural ex­ports to Mex­ico, they would have to ei­ther raise the prices a lot on the food com­modi­ties their peo­ple con­sume, or not feed them.”

But Amer­i­can ranch­ers may view the re­la­tion­ship more cau­tiously. Ac­cord­ing to Ba­cus, any dis­rup­tion of the North Amer­i­can sup­ply chain could have a dev­as­tat­ing im­pact on the U.S. beef in­dus­try.

“If we walk away from NAFTA, if we with­draw com­pletely, or even if we jeop­ar­dize the ac­cess we have now, we could face pre-NAFTA tar­iff lev­els up­wards of 25 per­cent,” he said. “And it would be hard to re­place the loss in mar­ket share.”

For now, the death of the TPP and the un­cer­tainty of fur­ther agree­ments has been a step back for busi­nesses that were po­si­tion­ing them­selves to take ad­van­tage of new terms of trade — like Levin’s Perky Jerky.

Levin, who pre­vi­ously helped to build the vot­ing sys­tem for “Amer­i­can Idol” and said he found in­spi­ra­tion for his jerky brand when he “spilled a Red Bull into a bag of jerky while skiing,” de­scribed with­draw­ing from the TPP as “a kick in the face for all the work that we put in.”

“It’s go­ing to put China in the driver’s seat, and we’ll be left out,” Levin said. “Glob­al­iza­tion is hap­pen­ing. You can put the brakes on it, but slow­ing it down from our side with pro­tec­tion­ist poli­cies is just go­ing to pave the way for oth­ers to pass us by.”

“Mr. Pres­i­dent, he likes to use case stud­ies and ex­am­ples. I wish he would see one from the other per­spec­tive, of some­body who is be­ing hurt by the very pol­icy that is try­ing to pro­tect us. That said, I prob­a­bly don’t want to piss him off,” Levin said, with a laugh.


Perky Jerky Pres­i­dent Brian Levin wears packs of jerky to pro­mote his brand at the annual “Foodex” food ex­hi­bi­tion in Tokyo. He now wor­ries that changes in trade pol­icy could hurt his grow­ing busi­ness in Ja­pan.

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