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Wednesday, June 11, 2014

IN-DEPTH REPORT: Is China still promising for Aussie red meat?

By Gregorio Vial  |  Source: DAFF, MLA, Trademap, USDA

Key points

  • China's share of total Australian meat exports remain high at 13% of the total in 2014.
  • Official reports highlight China’s long term meat supply deficit.
  • Australian beef exports remain concentrated on secondary mid and low value cuts.
  • Structural factors support China as long term market for Australia.


2014-06-10 China Report FIG 1

2014-06-10 China Report FIG 2

2014-06-10 China Report FIG 3

2014-06-10 China Report FIG 4

2014-06-10 China Report FIG 5

The figures are certainly astounding: China took 17% of Australia´s total beef and sheepmeat exports in 2013 compared with just 3% in 2011 (figure 1). It is now ranked as Australia’s third largest export market. What’s the source of this blowout, and is it sustainable?

Much has been speculated that the crackdown on imports via the ‘grey channel’ was the driver behind the surge. However, Australian beef and sheepmeat exports to key ‘grey channel´ destination Vietnam have, in fact, increased since 2011 and beef exports to Hong Kong decreased by only 1,270 tonnes swt in 2013.

On the demand side, a mix of rapid urbanisation as rural workers move to industrial cities, diversifying culinary tastes and an emerging middle class with higher disposable incomes and increasing concerns about food safety are among the main drivers that have fuelled the increase in red meat imports (figure 2).

On the supply side, the fall in domestic herd numbers and the decrease in agricultural land area have restrained domestic production from keeping up with demand. This contrasts with production increases in other proteins such as pork (the most consumed meat at 41kg/person per annum) and poultry, where government support has largely been focused.

Other suppliers have enjoyed the pull as well. Chinese beef imports from Uruguay jumped 385% to 70,300 tonnes swt in 2013 year-on-year, while imports from New Zealand rose 374% to 35,400 tonnes swt during the period. All in all, China directly imported an extra 233,000 tonnes swt of beef, compared to 2012’s 61,000 tonnes swt (figure 3).

Brazil and the US, potential large beef suppliers to China, have missed out on China’s direct demand because of BSE restrictions. That said, Hong Kong’s imports of Brazilian beef jumped 105% to 170,000 tonnes in 2013, while US beef imports were up 137% to 116,000 tonnes swt.

Chinese sheepmeat imports experienced a similar rise as beef in 2013, increasing 110% on 2012 to 260,000 tonnes swt. Imports of other proteins, on the other hand, remained relatively stable, with pork imports rising 12% to 583,000 tonnes swt, poultry imports increasing 12% to 584,000 tonnes and offal imports decreasing 1% to 836,000 tonnes swt (figure 4).

At 4.6kg/person per annum, beef consumption in China is relatively low - especially when compared to Australia’s 32kg/person. However, demand for beef has continuously grown from only 1kg/person consumed in the early 1990s. Beef’s quality image status makes it an attractive item to purchase despite being priced around three times higher than pork and chicken.

China’s average wages have increased by 15% annually during the last decade and have allowed a booming urban middle class to try beef and include it in China’s traditional cooking methods: hot pot, slow cooking, thin slicing and braising. Not surprisingly, the main cut groups exported from Australia to China in 2013 were brisket (20%), shin/shank (19%), outside (11%) and carcase (11%), as importers take advantage of lower processing costs and bone-out carcases in China.

It is interesting to highlight the diversity of cuts exported, even in the higher end segments. While in 2013 total chilled exports were up 500% to 12,200 tonnes swt, chilled grainfed beef rose 167% to 2,000 tonnes swt. The main cuts shipped were brisket, chuck roll, striploin, blade, knuckle and shin shank, followed by almost all of the carcase’s other components (figure 5).

What does this mean?

China’s performance as a red meat market is reminiscent of the Russian surge in 2008, when Australian beef exports jumped from 5,000 to nearly 70,000 tonnes swt. In the case of Russia, exports then fell back in 2009 and have varied within the 30,000 to 60,000 tonne range since.

A factor that may suggest China is a temporary market is the current drought-driven surplus in cattle and beef availability, especially in the lower to middle range specifications.

However, it is important to highlight that despite the net increase in total exports, there has been a redirection of exports of certain cuts to China as result of higher prices on offer for those product categories. Such is the case with brisket where product was largely redirected from Japan, shin/shank from the US market, and outside, mostly redirected from Russia.

But most importantly, there are other structural factors which support China as a long term market for Australia. The Chinese government recognition of a future continuous gap between demand and supply of red meat for coming years, an ever growing urbanised middle class and a modernising foodservice industry regardless of China’s economic woes.

Despite a stabilisation of shipments this year, a noticeable decrease in shipments in May to 8,500 tonnes swt (35% less than May last year) and occasional government-influenced non-tariff market access tightening, China is set to become a long term important market for Australia’s low and middle range cuts.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 

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