In 1998, U.S. trade value fell, affected by low meat prices and economic problems in East Asia. Confidence in the long-term economic health of South Korea and Japan was shaken, dampening expectations for future trade. However, 1999 has seen a fast recovery of growth in South Korea, and the return of a strong yen and some economic growth to Japan. Trade policy changes in South Korea, and economic shocks in both countries, have raised questions about future meat trade.

The long-term outlook for East Asia calls for higher imports than the 1999 baseline, although still somewhat lower than pre-crisis projections. Japan's total meat imports are projected about 6 percent higher than last year, mostly reflecting meat consumption projections that are about 3 percent higher. The production outlook continues to call for a modest decline, so consumption growth implies higher imports, which now supply about half of Japan's meat. Stronger growth in meat demand is tied to faster assumed growth in per capita income, and to lower import prices resulting from stable or declining international prices and the outlook for gradual appreciation of the yen. However, the economic outlook for Japan is key to the projections and is highly uncertain. Private bank and government debt are high, and sustained economic growth based on private consumption growth has yet to emerge. Thus, there is considerable downside uncertainty to the economic assumptions used here.

For South Korea, per capita income projections are also higher than in the 1999 baseline. In addition, the real value of the won is projected to be significantly stronger, lowering the price of imported meats to consumers. As a result, meat consumption is projected 4.5-5.5 percent higher than in last year's projections. South Korean production is also projected about 3 percent higher, but does not match the higher demand. Total meat imports are projected about 20 percent above the 1999 baseline, but still below pre-crisis projections.

Key assumptions and uncertainties involved in the projections include:

• Demographics: Populations in East Asia are aging. Japan's population growth has virtually ended, and the population is projected to decline beginning in 2007. As Japan's people age, somewhat reduced caloric intake and a more stable pattern of food consumption are likely. In South Korea, population growth continues, although more slowly than in the past, and the population is younger than in Japan—factors associated with higher meat consumption.
  
  
• Meat production: Throughout East Asia, farming is undergoing profound, rapid change. The size of farm operations is increasing while the number of farms is decreasing. Between 1991 and 1999, two-thirds of Japan's hog farms disappeared, along with more than 40 percent of beef farms and one-third of broiler operations. Meat output declined only modestly, and the remaining farms are larger and generally more competitive than those that disappeared. In South Korea, most broiler and pork production is now tied into integrated supply chains, and farms have achieved economies of size as they have grown larger.
  
  
• Meat preferences: Strong meat preferences have emerged that differentiate meat both by cut and by quality. The positioning of the Wagyu beef breed as the source of premium, highly-marbled beef in Japan has thus far reserved a valuable niche for Japan's farms. Increasingly, the dairy herd is being used to generate higher-quality beef through cross-breeding with Wagyu. In South Korea, a major effort is being made to position the traditional Hanwoo breed as a premium source of beef. The pronounced Korean preference for beef and pork ribs means that prices of these cuts are high, and lower-cost imports are attractive.

  Both in South Korea and Japan consumers prefer chicken legs and dark meat and assign a low value to chicken breasts. This fosters U.S. exports, since preferences in the United States are for white, rather than dark meat. In Japan, there is a preference for chilled or fresh meat, as opposed to frozen meat, for many uses. While chilled beef and pork imports arrive in large volumes, the shorter shelf life of poultry meat has protected domestic broiler production. Recently, imports of chilled poultry meat have arrived by ship from China. If this trade increases, broiler production in Japan will face new competition. Korea's livestock cooperatives, meat producers, and supermarkets are transforming the delivery of meat to consumers. Chilled meat—wrapped, graded, and differentiated by cut—is replacing the old system of retail sales of frozen undifferentiated meat.
  

• Trade barriers: Japan lowered its poultry meat and beef trade barriers in the 1980's. Broiler production has been protected only by tariffs since 1985, with tariffs falling to 8.5 or 11.9 percent, depending on the cut. Beef imports have only faced tariffs since 1991. The tariff rate cut on beef (to 38.5 percent) and the gate price reduction for pork (to 524 yen, or about $4.65, per kg) in 2000 represent the final implementation of the Uruguay Round Agreement. After 2000, no further reductions are scheduled under existing agreements.
  

for more information, contact: John Dyck
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page updated: April 24, 2002