Central/South America: Targeted for growth
by Jessica Julca, South American Representative, Peru & Erin Borror, Economist – U.S. Meat Export Federation
Highlights
The U.S. has some built-in advantages over many of its competitors. By virtue of its proximity and production practices, the U.S. is able to deliver high quality and quantity in a timely fashion. This cannot be matched by most regional competitors, which creates opportunities to expand our market share.
Argentina and Paraguay are two of the larger competitors in the region, and currently both have problems supplying the market – Argentina for its inconsistent export policies and Paraguay for limitations related to its FMD outbreak.
U.S. products, particularly U.S. beef, are highly regarded in South America.
Free trade agreements will create new opportunities. Even with the existing 80 percent import duty, U.S. beef has found a niche market in Colombia where there is demand for high quality beef for hotels and restaurants.
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Introduction
Beef exporters are always looking for the next Japan, the next Mexico or the next South Korea – a market that is going to single-handedly tip the scales and increase the competition for U.S. beef cuts.
Some countries offer that potential. If and when access to China is restored, it is estimated that it will buy more than $300 million of U.S. beef in the first year alone. Russia is another record-breaking market. High oil prices, stimulating Russia’s economy, combined with greater access for U.S. beef, have made Russia an avid buyer of high-quality American beef.
The region of Central and South America typically doesn’t make headlines for beef imports, as most people think first of Brazil as a beef export powerhouse along with Uruguay, Argentina and Paraguay. But other countries in the region are quietly showing the kind of potential that excites U.S. exporters who benefit from being able to provide a year-round supply of high-quality, affordable grain-fed beef.
Perhaps more importantly, the development of the region as a trading partner can help diversify U.S. beef exports and reduce dependence on any one country in the event of a market interruption. At the same time, two of the main competitors, Argentina and Paraguay, are currently having problems supplying the market – Argentina for its inconsistent export policies and Paraguay for limitations related to its foot-and-mouth (FMD) disease outbreak.
Discussion
Rapid growth
Currently ranked 12th among the key regions for U.S. beef export growth, Central and South America gained attention in 2011 when the region exploded with 53 percent growth in imports by volume and 81 percent by value – reaching 25,823 metric tons (56.9 million pounds) valued at $85.5 million.
While Peru has been the top regional destination for American beef (10,922 metric tons in 2011), Chile is an up-and-comer with 172 percent growth in imports by volume and 262 percent growth by value. Chile purchased 4,225 metric tons of U.S. beef last year, but the value hit $22.6 million – more than the value of the beef shipped to Peru.
Beef exports to Peru grew 97 percent in 2011 versus 2010, although all but about 9 percent (991 metric tons) was offals (mainly tripe and liver). Bovine hearts also are highly regarded in Peru, but it can be challenging to find cap-off hearts for the Peruvian market – a niche that Brazil is filling.
Chile is the leading market for beef muscle cuts in the region. Chuck roll was the major beef cut exported there, but now USMEF and U.S. exporters are working to increase the variety of products supplied from the United States. In Chile, U.S. beef is beginning to penetrate the hotel, restaurant and institutional (HRI), market, and a promotional campaign at supermarkets is helping to enhance demand in that channel.
Free trade agreements
American free trade agreements (FTA) made the news at the end of 2011, with the South Korean FTA grabbing most of the headlines. However, the Central/South America region secured two of the three agreements, with Colombia and Panama inking deals that will fast-track growth of U.S. beef to the region.
Beef exports to Colombia stood at $3.9 million in 2011, double the 2010 export value and upon implementation, the FTA with that country will eliminate the prohibitive 80 percent duty on many items. Importantly, the FTA will create duty-free access for high quality (Choice and Prime) beef and a duty-free tariff rate quota for standard beef and beef offals. In addition, over-quota duties will immediately fall from 80 percent to 50 percent, then to zero over 10 years. Colombia has a population of nearly 48 million and the FTA will provide these consumers with growing opportunities to try U.S. beef. The net result is expected to boost U.S. beef exports to more than $30 million by the end of the 10 years.
The FTA with Panama will allow duty-free access for high-quality beef and phase out 30 percent duties over 15 years for other muscle cuts. In addition, the phase-out of variety meat duties should help boost U.S. beef exports to Panama from $5.17 million in 2011 to more than $9 million over the period of implementing the FTA. Although Panama’s population is less than 4 million, its high-end market and booming business travel offer great opportunities for high quality U.S. beef.
Conclusions
While there is an educational process for working with many importers in Central and South America – such as learning the names of beef cuts and the differences between U.S. and domestic cuts – there is much potential for exports to the region. U.S. exporters will need to account for special requirements, ranging from Chile’s labeling requirements to Peru’s preference for cleaned hearts, but the region is beginning to develop an appreciation for U.S. beef that should only continue to grow, and it may evolve into one of those difference-making markets.
