Japanese Import Demand for U.S. Beef and Pork: Effects on U.S. Red Meat Exports and Livestock Prices
Miljkovic, Dragan, Marsh, John M., Brester, Gary W., Journal of Agricultural and Applied Economics
Japanese import demand for U.S. beef and pork products and the effects on domestic livestock prices are econometrically estimated. Japan is the most important export market for U.S. beef and pork products. Results indicate foreign income, exchange rates, and protectionist measures are statistically significant. The comparative statics quantify the effects of recent economic volatility. For example, the 1995-1998 depreciation in the Japanese yen (39%) reduced U.S. slaughter steer and hog prices by $1.29 per cwt and $0.99 per cwt, respectively, while the 1994-1998 reduction in tariffs (14%) increased slaughter steer and hog prices by $0.49 per cwt and $0.33 per cwt, respectively. Livestock producers will continue to have a vested interest in Asian trade liberalization policies.
Key Words: elasticities, exchange rates, import demand, income, tariffs
JEL Classifications: Q17, F14, C32
Foreign demand for U.S. red meat (beef and pork) products has increased substantially since the mid-1980s and is an important factor affecting U.S. livestock prices (Brester and Wohlgenant; Capps et al.). For example, from 1985 to 1998, U.S. beef exports, as a percentage of domestic beef supplies, increased from 1.3% to 7.5%, and U.S. pork exports, as a percentage of domestic pork supplies, increased from 1.0% to 6.1%. Increases in export demand for U.S. red meats have been attributed to increasing foreign incomes, evolving dietary preferences for animal-source proteins, and reductions in tariff and nontariff trade barriers (Brester and Wohlgenant; Capps et al.).
Japan, Mexico, Canada, and South Korea have consistently been the major export markets for U.S. beef and pork. In 1998, these countries constituted about 90 and 65% of U.S. beef and pork exports, respectively. Japan has been the major single market outlet, representing about 52 and 40%, respectively, of U.S. beef and pork exports in 1998. Japan primarily imports U.S. beef cuts of choice and prime grades, while other importers purchase U.S. cuts of choice, select, and standard grades.
Although U.S. livestock producers benefit from expanding red meat exports, particularly to Japan, export markets also are a source of price risk. The objectives of this article are twofold: (1) to econometrically estimate market factors that affect Japanese import demand for U.S. beef and pork products and (2) to estimate the effects of changes in Japanese demand for U.S. beef and pork on U.S. meat exports and livestock prices. An econometric model is developed that estimates Japanese-derived (import) demands for U.S. wholesale beef and pork. Comparative statics are used to estimate export quantity and livestock price effects by relating import demand shocks to export market shares and livestock price flexibilities. It is hypothesized that Japanese national income, exchange rates and risk, and tariffs and subsidies shift import demands and U.S. meat exports. U.S. beef and pork prices are subsequently affected through changing supplies available for domestic use.
The current study extends previous red meat research on Japanese demand preferences, trade liberalization, and institutional constraints (Capps et al.; Gorman, Mori, and Lin; Hayes, Wahl, and Williams; Wahl, Hayes, and Johnson) by relating Japanese demand factors to the U.S. farm level. The results quantify Japan's impact (as a major customer) on the U.S. livestock industry and the degree to which trade liberalization and internal Japanese policies affect U.S. red meat exports.
Exchange Rate Risk
Economic volatility in the Asia-Pacific regions may result in changes in demand for U.S. agricultural products. A few empirical studies have suggested that increases in exchange rate risk reduce trade (Akhtar and Hilton; Clark; Cushman 1983, 1988; Hooper and Kohlhagen; Kenen and Rodrik; Thursby and Thursby). Strong empirical support is found in Cushman (1988) and Bahmani-Oskooee and Ltaifa. The Asian financial crisis of 1997 exemplified risk as currency depreciation and declining Asian stock market values and incomes may have increased the costs of purchasing U. …