INTEGRATION AND INTERDEPENDENCE IN THE U.S. AND CANADIAN LIVE CATTLE AND BEEF SECTORS

The live cattle and beef markets of Canada and the United States are well integrated and highly interdependent, but in an unequal fashion. This paper assesses the role of trade agreements and domestic policies in increasing market integration and analyses the impact of remaining barriers to integration. In this paper, we use integration in the context of forming or blending markets into a whole. When the Canada-United States Free Trade Agreement (CFTA) was implemented in 1989, tariffs on both live cattle and beef were reduced and within a few years many were eliminated. In 1996, the United States imported 1.5 million head of slaughter and feeder cattle from Canada, nearly a sixfold increase in the number of cattle imported prior to CFTA, which numbered 262,091 in 1987. However, live cattle imports are still extremely small compared to the U.S. market, with imports of live cattle in 1996 (carcass weight equivalent) constituting around 4 percent of U.S. beef consumption. The United States is a much more important market for Canada than vice versa, with 60 percent of Canada's beef exports destined to the United States in 1996, but only 16 percent of U.S. beef exports destined to Canada. As impediments to trade between Canada and the United States were removed, north-south trade increased. As the feedlot and packing industries in Alberta expand, it is anticipated that fewer Canadian slaughter cattle will be exported to the United States. In fact, U.S. feeder cattle may be exported to Alberta. Subsidies for beef producers in Canada have been significantly higher than for the United States, at times twice as high, although the level of support for beef and veal is lower than that for other commodities. Both the United States and Canada protect their domestic industries through tariffs, although this protection will decline moderately with the implementation of the 1994 Uruguay Round Agreement. Both countries subsidize their industries through provision of inspection services, research and advisory programs, and marketing and promotion programs; however, the importance of these government policies varies between countries. Canada has eliminated a number of programs previously used to assist the beef industry, including an insurance program, the National Tripartite Stabilization Program. The United States does not have a regular program of income support for stockgrowers. The United States does have several programs that promote beef exports. To the extent that export promotion programs result in higher U.S. market prices, they may also increase U.S. imports of live cattle and beef from Canada. Due to the large size of the United States market relative to Canada, it is commonly argued that cattle and beef prices are determined in the U.S. market, with Canadian prices reflecting differences in exchange rates and transportation costs. U.S. slaughter prices were found to be an extremely important determinant of Canadian slaughter prices. A weaker relationship was found between U.S. and Canadian barley prices. Mutual recognition of the equivalency of U.S. and Canadian meat grading systems has not occurred and this has ramifications for U.S.-Canadian trade in beef. Canadian packers are forced to sell beef at greatly reduced prices in the United States, resulting in lower boxed beef exports to the United States and higher exports of carcasses than would occur with grade equivalency. The same is true for U.S. packers. Because U.S. beef cannot be sold into the eastern Canadian market without a large reduction in price, the U.S. beef industry is deprived of a lucrative outlet for the lean beef that is preferred in eastern Canada. The increasing level of integration in Canadian and U.S. cattle and beef markets has been accompanied by a corresponding increase in their interdependence. Policymakers in both countries must recognize that domestic and export policies need to account for open borders between the two countries, limiting the choice of policies available to achieve a particular goal. Transportation costs will always limit the choice of packers that producers can sell to. However, within these bounds, a single market means that there are more choices for producers. The beef industries in both the United States and Canada are increasingly dependent on export markets, particularly the Pacific Rim. Both countries have a mutual interest in increasing access to third country markets. Integration of U.S. and Canadian live cattle and beef markets is well advanced, and it is perhaps the most integrated market of the major agricultural commodities. Supply management of the Canadian dairy, egg, and poultry industries and the implementation of high tariffs after the removal of quotas have prevented integration in those markets. For grains, marketing institutions and systems in Canada prevent complete market integration. For cattle and beef, the lack of trade barriers and relative unimportance of government intervention in the sector have facilitated movement toward a single market.


Issue Date:
1998
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/29171
Total Pages:
22
JEL Codes:
F1
Series Statement:
Policy Issues Paper 5




 Record created 2017-04-01, last modified 2017-04-04

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