051214 May Take Years to Restore Beef Sales to Japan

(Bloomberg) - U.S. beef producers may take years to recover lost exports to Japan, once their biggest overseas buyer, after the country allows them to resume shipments.

Companies including Tyson Foods Inc. and Swift & Co. may need that much time because cattle supplies are relatively low and Japanese consumers are leery of mad-cow disease, the reason for a two-year prohibition on U.S. beef imports.

The ban, imposed after the disease was found in a cow in Washington state, may be lifted as soon as next week, the Asahi newspaper said on Dec. 6. Japan's Food Safety Commission said yesterday the risk of mad-cow disease from U.S. beef is ``very small'' and concluded the ban can be lifted.

``It's not going to be the panacea,'' said Sam Rovit, chief executive of Greeley, Colorado-based Swift, the third-biggest U.S. producer. ``We have got our work cut out for us.''

Sales will return slowly because U.S. slaughterhouses are unable to quickly find cattle that meet the conditions Japan will impose on imports, Rovit, 47, said in an interview. Japanese consumers also are eating less beef, so producers need to win back that business, he said.

``It may be three to four years before we return to levels seen before the market was closed,'' said Mark Klein, a spokesman for Cargill Meat Solutions in Wayzata, Minnesota. The company, a unit of Cargill Inc., is the second-largest U.S. beef processor after Tyson.

Import Limits

Japan at the end of 2003 halted imports of U.S. beef, valued that year at $1.5 billion, after the case of mad-cow disease, known as bovine spongiform encephalopathy, or BSE.

Sales slumped at processors including Tyson, which reported losses in its beef business in five of the last eight quarters. More than 60 countries banned U.S. beef, and exports plunged to 434 million pounds in 2004 from a record 2.5 billion in 2003.

Japan will probably limit purchases to beef from cattle 20 months old or younger, which have the lowest risk of contracting mad-cow disease, said Gary Mickelson, a spokesman for Tyson. The Springdale, Arkansas-based company has been in talks with Japanese customers, he said.

Most U.S. processors can't yet certify the age of the 35 million cattle they slaughter annually, said Gregg Doud, chief economist with the National Cattlemen's Beef Association, a trade group in Washington. The federal government has yet to approve a system to track the age of cattle, which spend as much as two years in feedlots until reaching their 1,250-pound slaughter weight.

Futures Rise

``It'll be October of 2006 when the majority of our supply will meet their criteria,'' Doud said. Until then, he said, sales to Japan will be limited and the high cost of cattle will squeeze processors' profit margins.

Cattle futures on the Chicago Mercantile Exchange closed yesterday at 95.5 cents a pound, up 8.5 percent from a year ago. Prices rose to their highest level in more than two years on Dec. 1 on speculation that Japan would soon resume buying beef from U.S. producers.

The cost of cattle has climbed because of a shortage caused partly by a U.S. ban on animals from Canada, which had its own cases of mad-cow disease in 2003. The U.S. eased its import restrictions on Canadian cattle in July.

``We're going out there and scouring the countryside and trying to line up cattle, but right now about 5 to 10 percent of the U.S. cattle herd would qualify,'' Swift's Rovit said. ``We've got a low point right now for cattle supplies.''

Awaiting `Green Light'

Smithfield Foods Inc., the fifth-largest U.S. beef packer, expects to have enough cattle to meet export demand. The company, based in Smithfield, Virginia, raises about 1.6 million head annually through a joint venture with New York-based ContiGroup Cos., the largest U.S. supplier of livestock to beef producers.

``While industry officials say that less than 10 percent of U.S. cattle can be verified for processing for Japan, we have access to plenty of cattle,'' spokesman Jerry Hostetter said.

``We are just waiting for the green light,'' Cargill's Klein said. The company has enough age-verified cattle available for now and expects sales to grow over time, he said.

Reluctance on the part of Japanese consumers to buy beef, especially from the U.S., and competition from Australia might mean it will take as long as four years to restore U.S. exports to Japan to 2003 levels, Hostetter said.

More than 75 percent of 1,009 Japanese consumers surveyed by phone last weekend by Kyodo News said they wouldn't eat U.S. beef, and 63 percent said the meat wasn't safe, the news agency said. Japan tests all slaughtered cattle for BSE. The U.S. last year tested about 0.5 percent, mostly animals that appeared ill when delivered to the processor.

Australian Supplies

Japanese consumers have been more wary about beef since 2001, when the first BSE case was found in domestic herds. Since then, 19 more cases have been confirmed. The country used 1.19 million tons of beef last year, down from a peak of 1.534 million metric tons in 2000, U.S. Department of Agriculture figures show.

``Beef consumption in Japan has never recovered from the initial case of mad-cow disease as it has in the U.S.,'' said Derrell Peel, an economist at Oklahoma State University in Stillwater.

U.S. beef exports to Japan were already falling before the mad-cow export ban, dropping 31 percent from 2000 to 555 million pounds in 2002, Peel said.

Processors may find it difficult to regain business from producers in Australia, which increased shipments the past two years. Australia now has an 89 percent share of Japan's market for imported beef, more than double its percentage before U.S. meat was banned.

Also, U.S. beef from animals 20 months and younger will be leaner than beef from older animals. Japanese consumers prefer their beef laced with fat, which increases the flavor.

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