The market for high quality beef in the European Union

The European Union (EU) beef market is the highest value market, on a per tonne basis, for many countries that export to the EU, including Australia, Uruguay, Argentina and the United States (US). Brazil remains the largest beef supplier to the EU in terms of volume.

There are two tariff quotas for high quality beef (HQB) that provide countries with preferential access to the EU market:

  1. The HQB “Hilton quota”, with a preferential tariff of 20% ad valorem duty; and
  2. The “EU High Quality Beef Grain Fed quota” (HQB Grain Fed Quota) with a 0% ad valorem duty limited to 48,200 tonnes on a first come first served basis.

Currently, Australia is eligible to export to the EU under both of these quotas.

Despite its appeal as a high value market for beef, exporting beef to the EU is not an easy task and doesn’t come without costs:

  • The EU’s sanitary standards are normally more stringent than those applied in other countries that export to the EU.
  • European consumers have become more aware of the source of origin of meat products.
  • There is a strong demand for quality meat products which have been manufactured using safe production systems and sourced from producers committed to sustainability and animal welfare.

Significantly increased access to the EU market provided by Australia’s participation in the HQB Grain Fed Quota

It was Australia’s eligibility to export to the EU under the HQB Grain Fed Quota (granted in December 2009) that provided Australian beef producers with the increased access to the EU market. According to Meat & Livestock Australia, the EU is the highest value market for Australian beef on a per tonne basis, averaging A$10,550/tonne in 2014. Australia’s access to the Hilton Quota and HQB Grain Fed Quota ensure that the majority of cuts exported to the EU are of high quality and accordingly of high value. Total beef exports from Australia to the EU were valued at A$285 million in 2014/15, an increase of 17% year-on-year.

However, the future success of Australia’s beef exports to the EU is not assured. The legal certainty of the HQB Grain Fed Quota is always being put into question and its continuation is not guaranteed.

Background of the HQB Grain Fed Quota

The HQB Grain Fed Quota is part of the agreement reached by the EU and US (and also Canada) in relation to their dispute on the EU’s prohibition on imports of beef treated with hormones. The US and EU had engaged in a long-standing and acrimonious trade dispute over the EU’s decision to ban hormone-treated meat, dating back to the early 1980s.

Despite an ongoing series of dispute settlement proceedings and decisions by the WTO, there is continued disagreement between the US and EU on a range of related legal and procedural issues, as well as scientific evidence on the safety of hormone-treated beef. Many perceived the EU’s ban as an example of how sanitary and phytosanitary (SPS) measures and non-tariff barriers can be used as disguised protectionism, primarily intended to restrict imports from other countries.

The quota was tailor-made for the US and Canada to compensate for the fact that hormone treated beef cannot be exported to the EU. However, to comply with rules of the World Trade Organisation (WTO), the quota need to be erga onmes and therefore open to all exporter countries that apply for and meet the requirements to produce beef according to the specified conditions.

When this quota was created in 2009 only the US met all the requirements to be eligible for this quota. Nowadays, Australia, Canada, New Zealand, Uruguay and Argentina are entitled to export under the HQB Grain Fed Quota. Australia is ranked number 2 in the use of this quota followed by the USA and Uruguay. Canada is not using the quota as its cattle producers use ractopamine, a feed additive prohibited by the EU.

Uncertainties relating to the HQB Grain Fed Quota

Argentina’s eligibility to benefit from the HQB Grain Fed Quota (since late 2014), together with the strong performance of Australian and Uruguayan beef exports, is upsetting US exporters who believe that they are not being compensated enough through this quota, which was designed to provide them with preferential market access. Consequently, US exporters are lobbying their Government to:

  1. renegotiate a Memorandum of Understanding with the EU regarding this quota; or
  2. request that the European Commission allocate the quota among participating countries, granting a high proportion of the quota to the US.

None of these requests have been supported by the US Government so far, but the reality is that the European Commission has always stated that this is an autonomous quota that was agreed with the US as a result of the initial WTO dispute. If this quota no longer achieves its purpose, it may eventually be removed. This leads to uncertainty about the continued existence of the HQB Grain Fed Quota.

Another threat to the continuity of the HQB Grain Fed Quota is the negotiation of a comprehensive trade agreement between the EU and US, the Transatlantic Trade and Investment Partnership. Ongoing negotiations are complex and at this stage we do not know if the EU will grant preferential access to US beef or when these negotiations will be concluded. If an agreement as to preferential access is reached between the EU and US, the HQB Grain Fed Quota will be eliminated. In fact, after the EU and Canada ratify their Comprehensive Economic and Trade Agreement, which absorbs the 3,200 tonnes of the HQB Grain Fed Quota which was included due to Canada’s WTO hormones dispute, the quota will be reduced to 45,000 tonnes per year.

Uncertain future for Australian beef exports to the EU

The lack of legal certainty around the existence of the HQB Grain Fed Quota, which is very important to Australian beef exports to the EU, has always been criticised. The legal question to be answered is whether Australia’s historical performance under this quota creates an acquired right for Australian beef exporters regardless of the EU’s trade negotiation and disputes with the US.

Another way of providing Australia beef exporters with continued preferential access to the EU market is a trade agreement between the EU and Australia. The leaders of the EU and Australia, in their meeting on 15 November 2015, agreed to commence works towards the launch of negotiations for a free trade agreement. More recently, Australia’s Trade Minister Steven Ciobo visited Europe during the week starting 25 April 2016 to hold preliminary talks with EU officials, ahead of official negotiations scheduled to start next year. However, the outcome and duration of negotiations are uncertain. Officials close to the process expect agriculture to be a highly contentious area. 

Currently, agriculture in the EU is heavily subsidised and it is likely that European farmers will oppose any substantial relaxation of protection measures for beef imports (along with sheep and dairy imports). The EU has signalled that any free trade deal would need account for “agricultural sensitivities” in the EU. For example, amidst ongoing discussions between the EU and Mercosur (which includes Argentina, Brazil and Uruguay, the three largest meat exporting countries), France and other large EU Member States have requested the European Commission to carry out an impact study on agriculture in the EU before submitting a trade offer to Mercosur. The exchange of offers was expected to take place in April, but will be delayed for several months.