In formal comments submitted to the House Ways and Means Committee for its March 24 hearing on China’s undervalued currency, R-CALF USA solidly pointed out that if the goal of Congress and the Obama Administration is to increase exports of beef and other U.S. agricultural products to China, then China’s currency undervaluation must be neutralized.

“Even though China is viewed by some to be a potential customer of U.S. beef, the estimated per-capita income was only $6,500 in 2009, making it quite apparent that the Chinese population is not likely to consume significant volumes of U.S. beef at the price U.S. cattle producers must receive to maintain feasible economic returns,” said R-CALF USA CEO Bill Bullard. “We estimate that China’s currency is undervalued by 35 percent, meaning China’s exports to the U.S. are 35 percent cheaper in the U.S. market than a competitive market would establish, and any U.S. exports to China are 35 percent higher than a competitive market would establish in the Chinese market.”

In 2003, China initiated a national strategic “Beef Advantageous Development Area Program” that is intended to shift its marketing focus to higher quality beef production.

“It’s also important to remember that although China currently does not export beef to the U.S., it has a cattle herd of approximately 82.6 million head, giving China the potential to significantly increase beef production, particularly if it attempts to emulate the United States’ cattle production and beef processing practices,” Bullard pointed out. “This appears to be China’s intention, and China’s currency policy could facilitate this transformation by subsidizing exports and deterring imports of beef, just as it has already done for corn, apples and apple concentrate, and countless other products.”

The U.S. International Trade Commission has determined that “each 1 percent increase in fed cattle numbers would be expected to decrease fed cattle prices by 2 percent,” and by extension, increases in the supply of beef that is derived from fed cattle likewise would depress fed cattle prices in the same manner.

“The introduction of increased supplies of lower-cost beef resulting from China’s undervalued currency would have a tremendous, negative impact on the viability of the U.S. cattle industry, which is extremely price-sensitive to increased supplies due to the industry’s farm elasticity of demand, and because China produced more beef than it consumed in 2009, China’s prospects of soon becoming a significant purchaser of U.S. beef – particularly at prices necessary to sustain a U.S. cattle industry – do not appear promising, particularly if the United States does not address China’s devalued currency,” Bullard said.