This article has been taken from the Canadian Transportation & Logistics May 31, 2004

EXPORT TRADE SPECIAL: Mad Cow, one year after

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by Stephen S. Poloz, Senior Vice-President and Chief Economist

It's about a year since the BSE crisis struck Canada, and nearly five months after a case was discovered in the U.S. Global trade in beef has been altered dramatically, and the outlook may be getting murkier, rather than clearer, with the passage of time. In March of 2003, Canada's producers of beef, lamb, goat and various other bovine meat products were exporting at a rate of over $300 million per month. By summer, exports had fallen to about $1 million monthly. A recovery began during the autumn, after the U.S. allowed imports of Canadian boneless beef from animals younger than 30 months. Exports are now running at about $150-160 million per month, about half the value before the crisis struck. Canada's exports of boneless beef to the U.S. have recovered almost completely, and similar exports to Mexico are now nearly double what they were a year ago.

Nevertheless, that still left beef exports for 2003, at $2.1 billion, 50% below 2002 levels. Since beef and related exports are about 1.1% of Canada's total merchandise exports, the BSE crisis knocked 0.6% off Canada's total exports in 2003, or nearly 0.2% of GDP.

The partial recovery in exports leaves Canadian farmers with a herd of 15 million animals, more than 1 million higher than last year. Stocks of frozen or chilled beef are also up by about 50% compared to a year earlier. Ironically, this accumulation of inventory contributed about 0.1 percentage points to Canada's GDP growth of 1.7% in 2003. Cutting these inventories down to size this year will take around 0.1% from Canada's GDP growth.

The outlook for Canadian beef exporters remains murky, but a further partial recovery in shipments appears likely. In part, this will be facilitated by a move toward more sales of processed beef rather than live animals, but of course the most important factor will be the eventual relaxation of import bans on live animals. We are forecasting growth in beef export volumes of about 20% in 2004, but with prices likely to weaken significantly due to oversupply, export revenues are projected to increase a paltry 2%. Live cattle exports will probably decline further in 2004 compared to 2003, even if the ban is lifted by mid-year; all to suggest that the sector's export revenues in 2004 might still be only about half of what they were in 2002.

Meanwhile, the rest of the beef-producing world is not standing still as Canada and the U.S. struggle with BSE. Brazil and Uruguay have boosted their beef sales to the U.S. significantly, along with Mexico, Australia and New Zealand. Brazil is slated to become the world's largest exporter of beef this year, with exports almost three times their 2000 levels and just surpassing the previous leader, Australia. Given this, and the oversupply situation in the U.S., Canadian exporters may need to break into new foreign markets if they are to restore their business.

The bottom line? Even if all the lights turn green soon, and no new BSE cases emerge, the Canadian beef industry will be adjusting to last year's trauma for a long time. Exports will continue to recover, but increased competition in the global marketplace will make it an uphill battle.

Stephen S. Poloz can be reached at [email protected]