Chinese Beef Smuggling: The Newest Black Market

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The word "smuggle" derives from the German word smuggelen, meaning "of an unknown or unfamiliar origin."  It's a name that applies perfectly to black-market products, after all, since when you deal with smugglers you can never be certain just what you will end up receiving.  Smuggled goods constitute the lifeblood of the two-trillion-dollar global black market, with products ranging from heroin to fake antiques, creating an uneasy relationship for everyday citizens who may pay for illicit goods on the one hand, then pay the taxes on the other for the authorities who put a stop to smuggling.  Nowhere in the world do smuggled products get a better return on investment than China, where famous stories of authorities capturing millions of dollars of smuggled gold suggest just how much passes through unnoticed.  A new report out of China has caused a sensation on the agriculture commodities market, as the Chinese have turned to illicit imports in order to get a beef fix.

The More Things Change

Smuggling and illegal consumption reflect part of the national Chinese culture.  During the Yuan Dynasty of the 1200s to 1300s, the saying "the mountains are high and the Emperor far away" became a popular truism about the open nature of corruption, a saying that survives and thrives with today's proto-capitalist Chinese black markets.  Tourists who visit a major city in China will encounter offers of illicit watches, purses, and jewelry on any street, sometimes within arm's length of a police officer who collects a take of the sale.  While there's no way to accurately determine the quantity of smuggling relative to China's economy, the Chinese State Council estimates that about a quarter of a trillion dollars of narcotics enter into the country each year through illegal channels, or about half the amount of US consumption.  They're a continuation of the opium smuggling criminal syndicates that pumped the nation with so much drugs during the 1800s than an estimated one in four Chinese used opium regularly.

Domestic Consumption

Beef on the surface seems to represent a very different commodity than drugs, but in the Chinese economy where strict quotas determine the importation of beef from foreign countries, they may as well be one and the same.  Most beef consumed in China comes from Brazil, the second-largest beef producer in the world after our own US of A, but the Chinese put limitations on meat imports in order to keep domestic beef consumption high.  Indeed, China refuses outright to buy beef from a number of US producers, citing fears of mad cow disease.  The amount of duties and fees slapped on foreign beef makes it difficult for middle-class Chinese to enjoy steaks and hamburgers at the same time that their consumption of pork alone has sextupled in just the past generation.  Smuggled beef represents a very favorable alternative, running at about half the total price of beef purchased at the market despite the fact that questionable handling practices and "zombie beef" -- years or even decades old -- represent a very real health risk.

The Authorities Push Back

While the Chinese officials often have more important tasks to deal with than illegal meat, that hasn't stopped some of the authorities from creating token displays of force to crack down on smuggling.  A June raid in the southern Hunan province revealed a twenty-ton truck filled to the brim with (mostly-rotting) beef with a sale value of about two million dollars.  A Chinese smuggler can reputedly earn about fifty dollars per day running beef, about twice the daily earnings of the average citizen.  There's no way to be certain, furthermore, just how all this meat comes into the country.  The Ka Long river separating Vietnam from China represents the most likely funneling point, since border towns running up and down the length of the river make it possible to evade authorities and customs on each side.  Smugglers, however, don't exactly keep elaborate records, making it nearly impossible to stamp out smuggling at the source.

The Chinese Hunger For Beef

The tale of smuggling should indicate how badly the average Chinese consumer desires beef, and meat on a broader level, in their diet.  Animal protein consumption has doubled since 1990 and quadrupled since 1985, with one billion and change mouths requiring three square meals per day.  The Chinese Food and Drug Administration -- it takes both the name and the bureaucratic structure directly from our own FDA -- has been plagued with scandals of late, including approving the sale of vermin meat under another name.  Higher-end consumers may have the choice of purchasing beef directly from overseas, but those who want cheaper beef must gamble on meat brought into the country illegally.  They lead the world demand for beef overall, narrowly outpacing American demand for beef due to the influx of vegetarianism in our own borders, likely for many, and certainly will many years to come, since only India has as large a consumer base as China but with only two in three Indians consuming any meat in their diet.

Beef On The Market

Investors haven't had much to cheer in regards to beef over the past year.  After hitting an historic high at $2.79 per pound, beef now trades on the commodities market for just over $2 per pound.  The Chinese situation will influence the price of beef going forward more than any other nation and an ease on their import restrictions will signal a huge swell of demand for cattle.  Bord Bia reports that the Chinese beef deficit will continue through at least 2018, making it a good point to buy in to the commodity and watch as a billion persons clamoring for a billion meals drive the price of rump roast and chuck ever higher.

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