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Thursday, September 04, 2014

Who can take the beef export lead?

By Gregorio Vial  |  Source: Trademap, IPCVA, USDA, MLA, World Bank

Key points

  • Together, China’s and Hong Kong’s beef imports have grown 780,000 tonnes cwt during the last ten years – more than New Zealand’s current production.
  • In contrast, the US market (where beef prices are currently booming) has experienced the largest decrease in imports.
  • India’s exports have soared, becoming the largest beef exporter from being the 7th largest in 2003.
  • Australia in good position in terms of beef exports to its key markets.

2014-09-04 GV Article FIG 1

2014-09-04 GV Article FIG 2

2014-09-04 GV Article FIG 3

Over the last ten years, global beef export trade has increased 44% in volume, while average export prices have grown by a larger 77%. What has fuelled this rise and which suppliers are able to take advantage of it?

While population in the developed world rose only 6% during the period, developing country numbers are 14% higher. And the latter are consumers with rising incomes that are looking to increase their protein intake, especially that of more expensive proteins such as beef (figure 1).

As such, the largest import rises in volumes since 2003 have occurred in these markets, with China and Hong Kong leading the rise as economic growth (and declining domestic beef production) ramps up beef import demand. In contrast, the US, EU, Mexico, Korea and Japan, Australia´s traditional and mature markets, slowly but surely decrease their beef purchases (figure 2).

In contrast to chicken or pork production, beef is characterised by a high degree of differentiation between producing nations. Some produce grainfed beef, others grassfed beef, from Bos Indicus or Bos Taurus cattle, higher and poorer quality. But with a few exceptions, most beef is traded as frozen product with little differentiation.

As such, more than the product itself, it is access that gives a supplying country value. And Australia is well positioned in this regard accessing all major markets with the exception of a current politically-influenced Russian temporary ban (figure 3).

Looking at our competitors, in the US market, Australia supplies similar product (manufacturing beef) in similar amounts as New Zealand and Canada. Both countries do not have the capacity to significantly increase its supplies in the short term despite a slight increase in the herd. And neither Uruguay nor other Central American countries that supply the remaining 20% of US’s imports are able to grow significant amounts.

Together, China and Hong Kong are supplied primarily by Australia, Brazil, US, Uruguay, Canada and New Zealand. While the US is experiencing record beef prices due to tight production, its export supplies are limited. And South American suppliers will be increasingly interested in taking advantage of high prices in Russia as the US, Australia and Canada are currently banned from that market.

Although a declining market, Australia’s main competitors in Japan are the US and New Zealand, with 35% and 6% market share respectively. As in China, expensive US product makes it unlikely to become a threat in the mid-term. And New Zealand is unlikely to increase grainfed beef demand suitable for Japan, as most of its product is processing beef fit for the US market. A similar situation is seen in the Korean market.

What does this mean?

With limited information on production forecasts, it is unlikely that any beef supplier may cover large gaps between global demand and supply needs. And India is the big question mark in the global picture.

Although the world’s largest ‘carabeef’ exporter (a by-product of its dairy industry), India will most probably remain servicing third tier markets (Vietnam, Thailand, Indonesia and other South East Asian, Middle Eastern and African markets) for coming years because of poor market access in other markets.

There are interesting times ahead. Beef supplies can be rapidly culled, but it takes three years to grow them back. This is in contrast to intensive proteins that can be increased at a much faster rate, and the main reason why we see such volatility in beef prices with demand increases.

With sustained demand, and supplies unable to respond to this growth, international beef prices should keep rising or at least remain high, unless something extraordinary happens.

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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