South America: The world leader in beef exports

South America: The world leader in beef exports

by Erin Daley, Economist – U.S. Meat Export Federation

 

Highlights

In less than a decade, Brazil has improved from the fourth-largest beef exporter in the world to No. 1, increasing exports four-fold.

While Argentina also ranks among the leading beef exporters (fourth in the world), it faces challenges in the forms of a dramatically shrinking cattle herd, governmental limits on beef exports and domestic consumer backlash against rising beef prices.

Brazil is aggressively attempting to increase the efficiency of its beef industry through a number of channels, including genetic improvements, grain feeding and pasture improvements as well as
production plant modernization.

Introduction

Led by Brazil, South America has rapidly emerged as the global leader in beef exports surpassing the $1 billion mark in 2001. Within two years, Brazil moved ahead of Canada to be the third-largest beef exporter, trailing only the United States and Australia. By 2007, Brazil had surpassed Australia as the largest beef exporter in the world on a value basis, with exports reaching $4.4 billion. The following year, Brazil’s exports exceeded $5 billion, doubling in value since 2004. As U.S. exports have been hindered by bovine spongiform encephalopathy-related restrictions since December 2003, likewise Brazil’s exports have been shaped by Foot and Mouth Disease (FMD)-related market access constraints.

While dwarfed by Brazil, South American neighbors Argentina and Uruguay also are major players in the global beef market. Argentina’s beef exports surpassed $1 billion in 2004 and Uruguay reached this mark in 2008.

In 2009, Brazil narrowly maintained its position as the world’s largest beef exporter, closely followed by Australia and the United States. Although Brazil’s beef export value eclipsed $5 billion in 2008, export volume actually peaked at 1.6 million metric tons (3.5 billion pounds) in 2007, then fell to 1.3 million metric tons (2.9 million pounds) in 2008 and shrank another 10 percent to 1.2 million metric tons (2.6 million pounds) in 2009.

The value of Brazil’s 2009 exports fell by 23 percent to $3.9 billion as the global economic recession dampened demand and the depreciation of the Brazilian real led to lower values in U.S. dollar terms. Smaller Brazilian exports also correlate with growth in domestic consumption and restricted access to the European Union (EU). Following Australia ($3.8 billion) and the United States ($3.1 billion), the other top beef exporters in 2009 were Argentina at $1.9 billion (up 8.5%), New Zealand at $1.2 billion (down 19%), Canada at $1.1 billion (down 13%) and Uruguay at just over $1 billion (down 23%).

Discussion

Consumption trends
With a modest $10,200 per capita gross domestic product (GDP), Brazil’s population of nearly 200 million consumes much less beef on a per capita basis than Argentines (nearly 41 million consumers with a per capita GDP of $13,800) and Uruguayans (3.5 million consumers with a per capita GDP of $12,600). However, Brazil has seen steady growth in per capita consumption since 2004, and this trend is expected to continue – contrary to the trend in Argentina and Uruguay. Brazil’s large population and positive GDP growth suggest that the domestic market will continue to be of huge importance to Brazilian beef producers. Currently, more than 80 percent of Brazil’s beef is consumed in its large domestic market – the third-largest beef consuming market following the United States and the EU. Growing domestic demand could mean higher prices for Brazilian beef, with limited supplies available to meet demand around the world and at home.

Beef producers in Brazil, similar to those in the United States, face stiff competition from poultry. Brazilian per capita poultry consumption has grown 10 kilograms (22 pounds) per person over the past 10 years compared to a small increase for beef and pork. In Brazil, poultry surpassed beef in 2007 to become the most widely consumed protein. Per capita consumption estimates for Brazil are as follows: poultry 40 kilograms (88 pounds), beef 37 kilograms (81.4 pounds) and pork 12.5 kilograms (27.5 pounds) per person compared to 43 kilograms (94.6 pounds), 40 kilograms (88 pounds) and 29 kilograms (63.8 pounds) per person, respectively, for the United States (carcass weight equivalent). The Brazilian poultry industry has grown to meet the needs of both domestic and global consumers, surpassing the U.S. as the largest poultry exporter in the world in 2003, on a value basis, largely due to its access to the high value markets of Japan and the EU.

Challenges in Argentina
The situation in Argentina is more eventful. Fueled by drought and government policy against exports, liquidation has been the dominant beef industry trend, especially in 2009 when beef production increased by at least 8 percent. The subsequent drop in beef prices led to a 54 percent increase in beef export volume but a mere 8.5 percent increase in export value to $1.9 billion. Argentina was the only major beef exporter to see an increase in 2009.

The large increase in export volume with a 30 percent drop in unit values reflected the unsustainable increase in cattle slaughter. Russia was the No. 1 destination for Argentine beef, with volume doubling from 2008 levels. The EU was the second-largest destination, where chilled beef exports accounted for 56 percent of the nearly 100,000 metric tons (220.5 million pounds) total. Hong Kong and Chile were the other top growth markets for Argentina.

The drought and the government’s intervention in exports have meant a decline in Argentina’s cattle numbers, from a herd of more than 60 million head to around 50 million head in just a couple of years. In a continued effort to make beef affordable on the domestic market, Argentina’s exports are currently limited by customs restrictions and a recently announced 2010 export quota of 350,000 metric tons (771.6 million pounds) which is down nearly 40 percent from 2009 exports but more in line with 2008 export volume. The Argentine government also increased the minimum slaughter weight to 364 pounds effective May 1, 2010, up from 340 pounds, in an effort to increase beef supplies. In the first quarter of 2010, Argentine consumers reportedly tried to organize beef boycotts in reaction to the 40 percent to 50 percent price increase since December 2009. Argentine per capita beef consumption is expected to fall from 2009’s 69 kilograms (151.8 pounds) per capita to less than 60 kilograms (132 pounds) in 2010 due to reduced supplies and higher prices. This shortage of beef for the world’s largest per capita consumers and the world’s fourth-largest beef exporting nation will impact global beef trade flows.

The Brazilian beef industry faces many challenges as well, including a shortage of finished slaughter cattle (and growing live cattle exports), depressed global markets and a limited number of Brazilian farms approved for export to the EU. Further, the controversial Greenpeace report, "Slaughtering the Amazon," has caused increased scrutiny around the world and at home. For example, an agreement between Brazilian beef packers and the Brazilian Supermarket Association will suspend contracts with beef suppliers found to be involved in deforestation. The National Bank for Economic and Social Development also released new rules requiring packer borrowers to present an environmentally sustainable project for their operations in the Amazon region.

Improving efficiency
A model of efficiency, the United States remains the largest beef producer in the world with just 37.4 million beef cows (total cattle herd of 93.7 million) compared to Brazil’s 52 million cows (total cattle herd estimated at 185.3 million head). As the second-largest global beef producer, Brazil will look to continued efficiency gains as the key to growth. Analysts point to competition for land – mainly from increases in soybean and sugar cane production – as one driving force for change in beef production in Brazil. Besides their migration to the north (and sometimes into the Amazon region), Brazilian beef producers have worked to improve pastures, assisted by government loans through the Agriculture and Livestock Plan. Each year, government money is allocated to various programs including: 

  • Rural credit;
  • Pasture improvement and seeds;
  • Investment in silos, warehouses and machinery;
  • Breeding programs; and
  • Modernization of packing houses.

In addition, many state and municipal programs provide incentives such as lower state sales taxes, genetic programs, tax rebates for slaughtering younger animals and overall phytosanitary assistance.

In the drive for efficiency, there also has been a somewhat limited increase in feedlot utilization. About 950,000 head of cattle were fed in 1994, gradually growing to just under 2 million head in 2009. Fluctuating feed costs are one deterrent to establishing a larger feeding industry. While Brazil is a major soybean producer and exporter (trailing only the United States), its corn production is only a fraction of the United States’ and its feed use is only about one-quarter of that in the United States.

In Argentina, grasslands converted to soybean production have stimulated the establishment and expansion of a cattle feeding industry. Aided by government subsidies, more than one-third of Argentine beef now comes from cattle spending at least some time in feedlots. Ironically, some grain export taxes are transferred back to feedlot operators to help incentivize beef production, especially for the domestic market. Government support to feedlots has been estimated at more than $250 million per year, with 6 million head of cattle coming out of feedlots in 2009. Total 2009 cattle slaughter is estimated at 15.7 million head.

Brazil’s efficiency gains (beef production per cow has increased nearly 50% since 1990) also are attributed to cross-breeding programs, often through artificial insemination, where Red Angus, Limousin and Simmental genetics are incorporated to help decrease the slaughter age of the late-maturing but hardy Nelore breed. The Brazilian Agricultural Research Company under the Ministry of Agriculture and Food Supply (MAA) coordinates a national program to improve the productivity of the Nelore breed. By 2000, slaughter ages were estimated around 32 to 40 months, down from an average of 42 to 48 months. Brazil’s beef and dairy cow numbers have each increased 24 percent since 1990, but beef production has increased by an impressive 86 percent. This was achieved without growth promotants, which were prohibited in 1991 in an effort to maintain the lucrative EU market.

Traceability and animal disease
In 2002, the SISBOV (Brazilian System of Identification and Certification of Bovine and Buffalo Origin) traceability program was established, largely for the EU market. The cost per animal was estimated at $2.50 (U.S.), which implied a total implementation cost of around $400 million to put into action by 2007. Meeting EU requirements has not been easy. In 2007, following complaints from Irish farmers, a European Commission investigation found shortcomings in Brazil’s traceability system. This resulted in a farmlevel approval process and still less than 2,000 farms are eligible to produce cattle for export to the EU. Many analysts assume it will take close to 6,000 approved farms to recover pre-2008 export volumes. At their peak in 2006, Brazil’s beef and variety meat exports to the EU neared 400,000 metric tons (881.8 million pounds) valued at $1.4 billion, but exports were just 122,000 metric tons (269 million pounds) valued at $595 million in 2009.

Exports to the EU accounted for only 15 percent of Brazil's export value in 2009, down from 36 percent in 2006. More than 60 percent of Brazil's export value was derived from the European market in 2000, but growing exports to Russia, the Middle East and Hong Kong have helped Brazil diversify its beef markets. Strong domestic demand also cushioned the blow from the 2008 EU restrictions, and Brazilian cattle and beef prices hit record highs before the global economy began to unravel in September 2008.

Of course animal disease-related restrictions (specifically FMD) continue to limit beef exports from South America mainly to Russia, the EU, the Middle East and Hong Kong. Uruguay does have coveted access to the United States for chilled/frozen beef due to its FMD-free (with vaccination) World Organization for Animal Health (OIE) status. But, in general, South America (with the exception of Chile, also FMD-free) does not have access to either North American markets or Japan and Korea for beef or pork.

The FMD-free status of Santa Catarina, accounting for 25 percent of Brazil’s pork production, has given Brazil more momentum in pressuring for market access to Japan, Korea, the United States, the Philippines and China, but those countries’ acceptance of regionalization for FMD is still pending. On April 6, 2009, the U.S. and Brazil reached an agreement on the World Trade Organization cotton case, with the U.S. government announcing potential access for beef and pork from Santa Catarina. This has been a long process, underway before and separate from the cotton case, and there are likely many more conditions and steps that must occur before Brazil begins exporting chilled/frozen beef and pork to the United States.

Marketing
Interestingly, Brazilian beef exporters lagged broiler and pork exporters in their receipt of government funds (through APEX, the Brazilian Trade and Investment Promotion Agency) for export promotions. To start, the beef program had $500,000 for private companies to utilize (mostly in Asia) plus $1 million to the Brazilian Farm Bureau (CAN) for supporting the activities of the 13th World Meat Congress in Minas Gerais in September 2000. The Brazilian Beef Exporters Association (ABIEC) and APEX, with the support of MAA, officially announced the first Market Promotion Program for Brazilian beef, valued at $2.1 million, in 2001. The program closely followed that of U.S. Department of Agriculture's Market Access Program with the goal of establishing a "Brazilian beef " brand. In 2002 ABIEC's budget was about $2.2 million (of which APEX funded 50%). That year, Brazil's exports hit $1.1 billion. Market promotion funds specific to beef were estimated at $5 million in 2008 when exports passed the $5 billion mark.

Given the critical role of Brazil, Argentina, Uruguay and others in the global beef community, it seems appropriate that the September 2010 World Meat Congress will be held in Buenos Aires.

Conclusions

South America's emergence as the world’s beef industry pacesetter, led by Brazil, has not been without its issues. On the positive side, Brazil has realized 50 percent efficiency gains since 1990 without the use of growth promotants. On the other hand, the traceability program Brazil established in 2002 has been challenged, and exports to the EU remain substantially lower than they were several years ago.

Another South American beef powerhouse, Argentina has seen its cattle heard shrink from 60 million head to about 50 million in just a few years, and is struggling with domestic issues that limit its current impact on the export market.

With the exception of Chile, all South American nations remain barred from shipping beef to the key export markets of North America, Japan and South Korea because of FMD restrictions.

While Brazil, Argentina, Uruguay and other nations of South America certainly exert a powerful influence on the global beef scene, they continue to face challenges that limit their ability to capture a bigger share of the market in key beef-consuming countries.

Additional Resources

Statistics are from the Global Trade Atlas and U.S. Department of Agriculture Foreign Agricultural Service at http://www.fas.usda. gov/.

Tags: Beef Issues Quarterly, Issues Updates, Spring 2010

June 30, 2010