This article was first published Sept. 13, 2021 by ‘In the Cattle Markets.’
Last week the Brazilian government announced the discovery of several atypical cases of bovine spongiform encephalopathy (BSE), commonly referred to as “mad-cow” disease. The potential trade impacts due to this announcement remain to be seen. The US and Canada have experienced the impact that such an announcement can have on beef exports. Pre-BSE, the U.S. exported 0.9 million tons to 112 countries. Post-BSE beef exports were 0.3 million tons. It was not until the mid-2010s that beef export volume equaled pre-BSE levels.
Atypical vs. Classical
Brazil is not the first country to identify an atypical case of BSE. As of 2017, the U.S. had detected six BSE cases – one classical case from a cow imported from Canada in 2003 and five other “atypical” cases. So, defining the case as “atypical BSE” has important market distinctions relative to a “classical BSE” case. BSE is classified as either classical or atypical. Atypical BSE is thought to arise spontaneously in all cattle populations, particularly cattle greater than six years old. Most importantly, there are no known human health diseases associated with “atypical BSE”. Classical BSE is primarily the result of contaminated feed, such as meat-and-bone meal containing protein derived from rendered infected cattle, and is linked to the variant Creutzfeldt-Jakob disease (vCJD) in people. As such, human health precautions prescribe the limiting of exported/imported until classical BSE cases can be identified and resolved.
Brazilian Traceability Program
If the Brazilian beef export market does shut down, their animal ID and traceability program could impact the length of the shutdown (Murphy et al. 2008). Systems that can accurately identify and isolate problematic cases and verify that cases have not spread throughout the system can reduce the long-run impacts and restore confidence in the export system. Brazil has an animal traceability system, first introduced in 2002, that is mandatory for all export animals and provides national individual animal ID, can trace animals back to their origin, tracks animal movements, verifies age and diet, and tracks animal health records (Schroder and Tonsor 2012). While the system was originally designed as a better way to monitor and control food-and-month disease, a major issue in some parts of Brazil, cases such as these and overall better food safety are also benefits.
The location of the “Atypical BSE” case matters
Where the “atypical BSE” case occurred is also of importance because it could directly explain why China chose to temporarily stop imports from Brazil. Figure 1 shows the origin of live cattle, source of processing, and the Brazilian state beef was exported from. Most of the beef imports into China from Brazil come from the Sao Paulo and Minas Gerais area and nearly all of its leaves through the port of Santos, SP (Erasmus 2020). The “atypical BSE” cases were found in Minas Gerais and Mato Grosso. Given that the beef exports to Mainland China are much more consolidated in these areas relative to beef exports to Hong Kong, there is some explanation on why China temporarily discontinued beef exports from Brazil.
Resulting Impacts on U.S. Beef Complex
As noted in the OIE guidelines for determining disease-free status, an “atypical BSE” case does not impact its official BSE risk status since recognition as this form of the disease is believed to occur spontaneously in all cattle populations at a very low rate. Thus, while there are current trade stops between Brazil and China, it is unlikely to become a major trade issue in the coming weeks. As such, additional pounds of beef would not leave the U.S., thus not significantly benefiting the U.S. beef complex in either the short- or long run.
Chinese Beef Imports vs. Brazilian Beef Exports
This situation has elevated the discussion on how sensitive China beef imports are to trade distributions. The Herfindahl-Hirschman Index (HHI) is one way we can measure the market concentration or how much another country relies on another. The lower the value, the less concentrated an industry segment is whereas higher values indicate more concentration. A value of 1 reflects that a country solely relies upon another country. While a heavy reliance on another country is in some cases acceptable, it does expose the relying country to increased risks due to market shocks.
In the case of beef exports between China and Brazil, it is important to appreciate how Brazil and China have grown to rely upon each other over time – China through beef imports from Brazil and Brazil through exports to China. The HHI for Brazilian beef exports is derived here by squaring the market share of each country importing Brazilian fresh, chilled, or frozen beef and summing the squares. The HHI for Chinese beef imports is derived here by squaring the market share of each country exporting fresh, chilled, or frozen beef to China and summing the squares. Figure 2 illustrates the HHI for both Brazilian beef exports and Chinese (Mainland China excluding Hong Kong) beef imports since 1990. It indicates that Brazil has been increasing its reliance on China. However, China has been steadily increasing its diversity of countries it trades with while exponentially increasing the amount of fresh, chilled, or frozen beef it imports. For example, in 2005 China had an HHI of 0.95 to import 1,142,916 kg. of beef whereas in 2020 they had an HHI of 0.25 to import 2,118,293,343 kg. of beef.
Since 2014, China has exponentially increased the amount of beef it imports and at the same time, Brazil has increased the beef it exports. Figure 3 shows Brazil's share of China imports HHI and China’s share of Brazil’s export HHI. This shows that Brazil relies more on exporting its beef to China than China relies on importing beef from Brazil suggesting that Brazil has a greater incentive to keep the export relationship going after an “atypical BSE” announcement.
Figure 1. The origin of Brazilian beef exports to Mainland China and Hong Kong.
Notes: Slaughterhouses are shown as points scaled by the volumes exported, with the percentage of exports originating per municipality in the background. (B) The state of origin of cattle supplying each market
Figure 2. HHI of Brazilian fresh, chilled, or frozen beef exports and Chinese fresh, chilled, or frozen beef imports, 1990-2020.
Source: UN Comtrade (2021), authors calculationst
Figure 3. Brazilian share of China fresh, chilled, or frozen beef imports HHI and Chinese share of fresh, chilled, or frozen beef Brazilian exports, 1990-2020.
Source: UN Comtrade (2021), authors calculationst
Source: Erasmus et al. (2020)
Zu Ermgassen, Erasmus KHJ, Javier Godar, Michael J. Lathuillière, Pernilla Löfgren, Toby Gardner, André Vasconcelos, and Patrick Meyfroidt. 2020. The origin, supply chain, and deforestation risk of Brazil’s beef exports. Proceedings of the National Academy of Sciences, 117(50): 31770-31779.
Murphy R., Pendell D., Morris, D., Scanga, J., Belk, K., and Smith G. 2008. A review of animal identification systems in North America. The Professional Animal Scientist, 24(4): 277-286
Pendell, D., Tonsor, G., Dhuyvetter, K., Brester, G. and Schroeder, T. 2013. Evolving beef export market access requirements for age and source verification. Food Policy, 43(December 2013):332-340.
Schroeder, T and Tonsor, G. 2012. International cattle ID and traceability: Competitive implications for the US. Food Policy, 37(1): 31-40.
Tonsor, G. 2018. The concentration of U.S. Red Meat Exports (Accessed 9/13/2021 at https://www.agmanager.info/sites/default/files/pdf/Concentration_US-Beef-%20Pork-Exports_03-26-18.pdf)