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CME: FMD in S Korea; Consequences in US

by 5m Editor
27 January 2011, at 12:39am

US - For anyone who is wondering what all of the hubbub is about regarding the Grain Inspection, Packers and Stockyards Administration’s (GIPSA’s) proposed rules to enforce the Packers and Stockyards Act, a new resource is available, write Steve Meyer and Len Steiner.

Shannon L. Ferrell, Assistant Professor of Ag Law at Oklahoma State University and Elizabeth Rumley, a Staff Attorney with the National Agricultural Law Center at the University of Arkansas, have written a good overview of the rules and the issues surround them. “The Role of Economic and Legal Analysis in the GIPSA Rules Debate“ appears in the latest (January 2011) edition of Policy Issues, a quarterly publication of the Agricultural and Applied Economics Association (the former American Agricultural Economics Association). The article can be found here. It is neither lengthy nor esoteric. We found it interesting and helpful and we think you might, too.

South Korea announced on Tuesday that it would created a tariff rate quota for imported pork through the end of June. The tariff would got to zero (from a normal rate of 25 per cent) on the first 60,000 metric tons of pork imported during that time period. The South Korean government said it would review the issue and whether further action is necessary as the target date grows near.

South Korea is dealing with a serious outbreak of foot and mouth disease (FMD) that has caused the government to cull (ie. kill) more than 2.38 million pigs. That amounts to, according to a report on xinhuanet.com, 24.1 per cent of the country’s fourth quarter inventory of 9.88 million head. And the disease is spreading with the first case diagnosed in South Gyeongsang Province in the southeast part of the country on Monday. This new case brings the total number of diagnosed cases to 137. South Korean officials have announced that they will change from a “stamping out“ (ie. destroying infected animals) strategy to a vaccination strategy. Stamping out is considered the better strategy for small outbreaks since no infected animals that will test positive for FMD remain. Both vaccinated and infected animals will test positive for FMD, making the process of getting back to a negative FMD status much more difficult if a vaccinations are used. But vaccinations are about the only way to control large outbreaks due to the large number of animals that would have to be destroyed and the decimated industry that such destruction would leave behind.

The FMD outbreak and efforts to control it have limited movement of animals in South Korea. According to one report, about 13,000 pigs were traded each day before the FMD outbreak but that number had fallen to 7,000 to 9,000 as of last week. The limited supply had the predictable impact of driving prices sharply higher. A Korea Times online article quoted wholesale prices last week at 5,859 won per kg, nearly 60 per cent higher than the price of 3,703 won on 29 November when the first case appeared. Retail prices had increased by roughly 15 per cent in just one week. The report cited a retail pork price of 8762 won per 500 grams or 17524 won per kg. At the January 19 exchange rate, that equates to US$7.14 per pound.

Pork is a staple of the Korean diet. USDA’s Foreign Agricultural Service estimates that Koreans, on average, at 64.4 pounds of carcass weight pork per person in 2009, down from 69.2 pounds in 2008. As can be seen below, US exports to Korea have leveled off since the explosive growth of 2005 and 2006 and were sharply lower last year with pork exports declining by 18 per cent and pork variety meat exports declining by 6 per cent. We believe a portion of this decline can be attributed to positioning by the government of Korea regarding the Korea-US Free Trade Agreement which was mired in disagreement here in the US Governments have ways of getting other governments’ attention.

What would happen if the US had an outbreak of foot and mouth disease or some other malady with serious trade consequences? That is a question we hope to never have to answer but today’s mobile societies and open borders will make it difficult to avoid forever. The consequences for US consumers and producers will be quite different than those of Korea simply because we are a large exporter. Where Korea’s major concern is stopping the disease and controlling consumer prices, our major concern in the short run will be what to do with the 20 per cent of US pork production and 9 per cent of US beef production that are exported. The full impact of such a disaster would depend largely on the area and species in which the disease first appears. The US is a big country and a case in an area with a sparse livestock population may be relatively easy to regionalize. Put the “alpha“ case in the Cornbelt’s hog population or the Southern Plains feedlot area and you have an entirely different and more difficult scenario.