### United States

Department of Agriculture

Animal and
Plant Health Inspection
Service

July 2014 Analysis in Support of Certification that the

Rule will not have a Significant Economic Impact on a Substantial Number of Small

Entities

Proposed Rule

APHIS 2014

- 0032

RIN 0579

- AD92

Importation of Fresh (Chilled or Frozen) Beef from a Region in Northern Argentina

Policy & Program Development

Policy Analysis & Developmenti



### Summary

APHIS is proposing to allow fresh (chilled or frozen) beef to be imported from a region

in northern Argentina under conditions that will ensure the meat does not harbor foot

- and

- mouth

disease

. Potential economic impacts of the proposed rule are examined using a partial

equilib rium model that maps linkages among the grain, livestock, and livestock product sectors

.

The import quantities modeled are 16,000 metric tons ( MT ) , 20,000 MT, and 24,000 MT.

These quantities were based on the potential production in the northern Argentina region and the

country’s historical exports.

The model indicates that economic effects of fresh beef imports from Argentina would

not be significant. For example, i f the United States were to import 20,000 MT of beef from

Argentina (less than 10 percent of which we expect would displace imports from current

sources), total U.S. b eef imports would increase by less than 2 percent

, the domestic supply of

beef (production plus imports minus exports) would increase by less than 0.2 percent , and the

wholesale p rice of beef would decrease by about 0.2 percent.

The primary entities that may be affected by the proposed rule are cattle producers,

feedlots, and slaughter facilities. Based on data from the 2012 Census of Agriculture and Small

Business Administratio n small

- entity standards, the ma jority of these operations are small.

Al though most entities that may be affected are small, the economic effects would be

minimal

. T he APHIS Administrator certifies that the proposed rule, if promulgated, will not

have a significant economic impact on a substantial number of small entities.ii



### Table of Contents

Summary

................................ ................................ ................................ .............................. i

Introduction

................................ ................................ ................................ ......................... 1

U.S. Beef Production and Trade

................................ ................................ ......................... 1

Potential Impact on Small Entities

................................ ................................ ...................... 3

References

................................ ................................ ................................ ........................... 61



### Introduction

APHIS is proposing to allow fresh (chilled or frozen) beef to be imported from a region

in northern Argentina 1 under conditions that will ensure the meat does not harbor foot

- and

mouth disease (FMD) . If an FMD outbreak were to occur, APHIS would not accept regulated

commodities from this region

. Currently, APHIS does not recognize Argentina as free of this

disease and only thermo

- processed Argentine beef is allowed entry. 2 This analysis provides t he

basis, as required by the Regulatory Flexibility Act, for certification by the APHIS Administrator

that the proposed rule, if promulgated, will not have a significant economic impact on a

substantial number of small entities.



### U.S. Beef Production and Tr ade

The United States is the largest beef producer in the world and produces primarily a

higher grade beef from grain

- fed cattle for domestic and export markets. U.S. beef exports

declined sharply in 2004 due to the discovery of bovine spongiform enceph alopathy (BSE) in

December 2003, but have since rebounded to pre

- BSE levels (table 1). From 1999 through 2013,

U.S. beef exports averaged 0.9 million metric tons (MT) , or about 7.5 percent of production

.

Excluding the years 2004 through 2009, U.S. beef e xports averaged over 1. 1 million MT , or

about 9.3 percent of production

.

1 The region in northern Argentina comprises the Provinces of Buenos Aires, Catamarca, Chaco, Córdoba, Corrientes, Entre Ríos, Formosa, Jujuy, Mendoza, Misiones, La Pampa, La Rioja, Salta, San Juan, San Luis, Santa Fe, Santiago del Estero, and Tucumán

.

2 Before 2007, annual U.S. imports of thermo

- processed beef from Argentina ranged from 85 million to 131 million pounds (38,555 to 59,421 metric tons) (ERS 2007). More recently, because of Argentina’s domestic beef consumption policies, beef exports to the United Stated dipped to 1,000 MT in 2012, down from 20,000 MT four years prior. (ERS 2013: http://www.ers.usda.gov/topics/animal

- products/cattle

- beef/trade.aspx ).2

Despite the large quantity produced, the United States has until recently been a net

importer of beef. From 1999 through 2013, U.S. beef im ports averaged 1.3 million MT ;

e xcluding t he years 2004 through 2009, annual beef imports averaged over 1.2 million MT.

Table 1: U.S. beef production, exports, and imports, 1999 to 20 13

Production Exports Imports

1,000 Metric Tons

1999 12,017 1,075 1,302

2000 12,196 1,103 1,375

2001 11,889 1,029 1,434

2002 12,334 1,110 1,459

2003 11,947 1,142 1,363

2004 11,181 208 1,668

2005 11,243 316 1,632

2006 11,909 519 1,399

2007 12,030 650 1,384

2008 12,095 856 1,151

2009 11,891 878 1,191

2010 12,046 1,043 1,042

2011 11,983 1,263 933

2012 11,849 1,113 1,007

2013 11,702 1,115 1,02 0

Source: USDA data retrieved from FAS. Quantities include some processed beef.

Most import ed beef is from grass

- fed cattle and is processed together with higher grade

trimmings to produce ground beef. Australia, Canada, and New Zealand are the largest sources

of U.S. beef imports , supplying over 78 percent over the five years, 2009

- 2013 (table 2). Beef

imports from Australia and Canada have trended downward during this period, while supply by

Mexico ha s expanded significantly. Fresh grass

- fed beef imports from Argentina would compete

against these current foreign suppliers

.3

Table 2: U.S. beef imports from principal supply countries, 2009 to 2013 (1,000 metric tons)

2009 20 10 2011 2012 2013 5

- year Average

1,000 Metric Tons, Carcass Weight Equivalent

Canada 368.44 390.40 312.51 243.76 244.08 311.84

Australia 359.09 256.91 205.01 296.84 282.94 280.16

New Zealand 234.63 214.50 207.16 224.64 238.64 223.91

Mexico 29.87 48.68 70.25 109.88 114.05 74.55

Nicaragua 40.35 45.41 56.82 45.63 41.43 45.93

Brazil 90.01 27.33 19.69 34.28 44.27 43.12

Uruguay 34.57 24.58 23.52 32.72 37.39 30.56

Argentina 19.85 19.51 19.02 1.00 1.95 12.27

Costa Rica 10.44 10.70 8.91 9.13 9.66 9.77

Honduras 2.15 2.05 8.34 8.60 5.55 5.34

Other Countries 1.60 2.07 1.44 0.19 0.48 1.16

Total 1,191.00 1,042.14 932.66 1,006.68 1,020.44 1,038. 61

Source: USDA ERS carcass weight equivalent calculations using data from U.S. Department of Commerce, Bureau of the Census

. Quantities include some processed beef.



### Potential Impact on Small Entities

Potential impacts of the proposed rule are examined using a partial equilibrium model of

the U.S. agricultural sector developed by Paarlberg et al. (2008) . The model maps linkages

among the grain, livestock, and livestock product sectors and impacts are estimated based on the

linkages. 3

3 The model accounts for substitution among livestock products in response to relative price changes and incorporates foreign trade. Consumption levels for fina l goods (beef, pork, poultry meat, lamb and sheep meat, eggs, milk, wheat, coarse grains, rice and soybean oil) are based upon current population and per capita consumption. Production of meats, eggs, and milk is assumed to occur during the current quarter , while production of animals and crops is lagged according to biological limitations. Market

- clearing identities are kept consistent across time, given the biological lags. The model uses marketing margins to link farm prices for crops and livestock, whol esale prices for meats, milk and eggs, and retail prices for all final goods. Beef is modeled as a single commodity (as are the other agricultural products). The model does not distinguish between types of beef by grade or cut, or whether it is
chilled or frozen. The price elasticities of supply and demand for beef that are used are 0.34 and

- 1.521, respectively (Paarlberg et al. (2008).4

Th r e e import quantities are modeled , as shown in table 3 : 16,000 MT, 20,000 MT, and

24,000 MT

. These quantities were based on the potential produc tion in the northern Argentina

region and the country’s historical exports.

The model indicates that economic effects of fresh beef imports from Argentina would

not be significant. If the United States were to import 20,000 MT of beef from Argentina (less

than 10 percent of which we expect would displace imports from current sources) , total U.S. beef

imports would increase by about 1.3 percent. W holesale beef, retail beef, and cattle (steer)

prices would decrease by about 0.2, 0.1, and 0.2 percent, respect ively. U.S beef production

would decline by 0.01 percent while U.S. beef consumption and exports would increase by 0.1

and 0.2 percent, respectively. The modeled 16,000 MT and 24,000 MT scenarios show similar

quantity and price effects.

Table 3: Baseline levels of average annual beef production, consumption, imports, exports, and prices, 2014

- 2018, and estimated quantities, prices, and percentage changes resulting from fresh beef imports from Argentina , for import scenarios of 16,000, 20,000, and 24,000 me tric tons
( quantities in 1,000 MT, beef prices in dollars per MT, and cattle prices in dollars per hundredweight )

Baseline
2014

- 2018 16,000 MT Scenario 20,000 MT Scenario 24,000 MT Scenario

Quantity or
Price Quantity or

Price Percentage

Change Quantity or

Price Percentage

Change Quantity or

Price Percentage

Change
Beef
Production 11,628 11,627

- 0.009 11,626

- 0.010 11,626

- 0.014

Beef Consumption 11,724 11,737 0.109 11,739 0.123 11,743 0.164

Beef Imports 1,373 1,38 8 1.125 1,391 1.348 1,39 6 1.709 Beef Exports 1,273 1,275 0.195 1,276 0.223 1,277 0.293

Beef Prices
Wholesale 4,272.23 4,263.95

- 0.194 4,262.77

- 0.225 4259.76

- 0.292
Retail 12,938.07 12,928.21

- 0.076 12,926.80

- 0.087 12,923.21

- 0.115

Cattle Prices (steer) 114.53 114.28

- 0.213 114.25

- 0.245 114.25

- 0.2465

The primary e ntities that may be affected by the proposed rule are cattle producers,

feedlots

, and slaughter facilities. Based on data from the 2012 Census of Agriculture and Small

Business Administration (SBA) standards, the majority of these entities are small.

Entities in the categories beef cattle ranching and farming (NAICS 112111) and dairy

cattle and milk production (NAICS 112120) are consider ed small if their total annual sales do

not exceed $750,000. O f the 6 19,172 farms classified under the beef cattle ranching and

farming category, 99 percent had annual sales of less than $ 750,000 . Of the 46,005 dairy

operations, 73 percent are classified as small. Entities in the category cattle feedlots (NAICS

112112) are considered small if they have total annual sales of not more than $ 7 million. Of the

13,734 operations classified under this category, 11,099 ( 80 percent) had annual sales totaling

le ss than $1 million, which is well below the SBA threshold. Entities classified as animal

(except poultry) slaughtering (NAICS 311611) with not more than 500 employees are considered

small by SBA standards. The 20 12 Economic Census reports 1, 494 establish ments in this

category. Of this number, 1, 4 20 establishments (9 5 percent) had fewer than 500 employees.

Thus, the majority of slaughter establishments are considered small by SBA standards.

While most entities that may be affected by this proposed rule are small, we expect the

economic effects to be minimal. For the quantity of fresh beef expected to be imported from

Argentina, total U.S. imports would increase by less than 2 percent

, the do mestic supply of beef

(production plus imports minus exports) would increase by less than 0.2 percent , and the

wholesale price of beef would decrease by about 0.2 percent

. T he APHIS Administrator has

determined that this action , if promulgated, will not have a significant economic impact on a

substantial number of small entities.6



### References

Census of Agriculture, 20 12

, http://www.agc ensus.usda.gov/Publications/2012/Full_Report/Volume_1,_Chapter_1_US/

Economic Census, 20 12

, http://www.census.gov/econ/census/ Economic Research Service. Beef Production, Markets, and Trade in Argentina and Uruguay

. LDP

- M

- 159

- 01, September, 2007. www.ers.usda.gov

Economic Research Service , 2013 Cattle and Beef Trade. http://www.ers.usda.gov/topics/animal

- products/cattle

- beef/trade.aspx ).

Foreign Agricultural Service. http://www.fas.usda.gov/gats/ExpressQuery1.aspx

Paarlberg, Philip L., Ann Hillberg Seitz inger, John G. Lee, and Kenneth H. Mathews, Jr. Economic Impacts of Foreign Animal Disease. Economic Research Report Number 57. USDA ERS, May 2008.

Small Business Administration. A Guide for Government Agencies How to Comply with the Regulatory Flexibilit

y Act. http://www.sba.gov/advo/laws/regflex.html

Small Business Administration. Small Business Standard Match to North American Industry Classification System http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf

USDA OCE. USDA Agricultural Projections to 2022. Long

- term Projections Report OCE

2010

- 1, February 2010. http://www.usda.gov/oce/commodity/archive_projections/USDAAgriculturalProjections2022.pd f