The bovine meat sector perfectly illustrates the specificities and geostrategic dimension of Agriculture and the agri-food industry in general. This sector is undergoing profound structural changes, in terms of both production and consumption, in a context of high volatility affecting prices and agricultural inputs.
Resulting tensions are expected to continue, and even increase, as a result of the active international strategies implemented by leading international producers. Brazil and the United States now largely dominate the global meat market. However other leading agricultural countries are also positioning themselves on the market for exports, for instance India is now the largest exporter of bovine meat.
The position of the EU in this booming sector could be seriously affected, as Viviane Pons and Thierry Pouch point out in an article published in ‘la lettre économique des Chambres d’Agriculture’1
momagri Editorial Board
Globalization, which kicked off in the 80s, does not seem to have spared a single sector of activity. Agriculture and the agri-food industry have eventually been dragged into this open economic market.
After the Marrakech agreement was signed in 1994, this sector entered a phase of mutation which has been lasting ever since. Yesterday’s exporters are now competing with, or have even been supplanted by, new competitors. In a relatively short time, Brazil has become the third largest exporter of agricultural and food commodities, and is now looking to break into the European market.
The most significant changes concern the meat market. Transactions on the global market are largely dominated by the two leading players, Brazil and the United States. During the 2000s, Brazil rose to the position of leading producer and exporter of bovine and poultry meat. This new position encouraged Brazilian businesses to expand their activities abroad, and in this way contributed to integrating emerging countries in the internationalization of productive capital. More recently, the USDA, the U.S. Department of Agriculture, stated that India, the country of the ‘sacred cow’, had become the largest exporter of bovine meat in 2012, which came as quite a startling piece of news. Return on a decade of great change for the global bovine meat market.
The decline of Brazil, the expansion of India
Compared to other animal sectors, the global market for bovine meat is one of the least dynamic.
Approx. 12% of global bovine meat production is exported, namely 8 million tons (Carcass Weight Equivalent) in 2011.
With over 11 million tons CWE produced in 2012, steadily decreasing since the mid 2000s (over 12 million tons CWE produced in 2008), the US remains the largest producer of bovine meat in front of Brazil and Canada, which produced 9.2 and 8.9 million tons CWE respectively in 2012. The EU with its 27 member states is the fourth largest producer with 7.8 million tons CWE. Nevertheless, European bovine meat production continues to follow a downward trend, on the one hand because of high production costs, and on the second hand because of increasing cuts in public subsidies.
Meanwhile India goes on progressing as it has been over the last few years. Indian bovine meat production jumped from 2.5 in 2008 to 3.7 million tons CWE in 2012, and is expected to reach 4.2 million tons CWE in 2013.
These figures demand to be taken into consideration as Indian production has a direct impact on global transactions.
These transactions concern a handful of countries. Indeed, nine countries generate 85% of commercial transactions in the market for bovine meat: Argentina, Australia, Brazil, Canada, United States, India, New Zealand, the European Union and Uruguay. For several years, Brazil asserted a leadership on global transactions in the market for bovine meat. From 2002 to 2010, Brazil was the largest exporter worldwide, outranking Australia, the EU with its 27 members, Argentina and the United States.
Since then, Brazil has lost its position as the largest exporter of bovine meat, giving Australia, and especially India, the opportunity to take over as the new leaders in the market for bovine meat exports. The decline of Brazil is due to several factors. The first of these is a concern about food safety. In 2008, the European Commission implemented a number of restrictions against imported Brazilian beef, as it was agreed that the safety of bovine meat imported from this country was not clearly guaranteed. Later on, when the price of soy and sugar skyrocketed, Brazilian farmers turned to producing these crops, rather than meat. Monetary exchange rates also had a significant impact. The Brazilian currency, the Real, was undervalued from 2005 to 2008, which promoted bovine meat exports. Since the readjustment of the Real exchange rate in 2010, the price competitiveness of Brazilian exports has dropped.
The 27 member countries of the EU seized this opportunity to export European bovine meat to Mediterranean countries (Lebanon, Turkey, Algeria), and to a lesser extent Russia, grabbing a share of the market from Brazil. Furthermore, as an emerging country, the standard of living is going up in Brazil, and as it does, Brazilians are consuming more beef, which means that part of the meat which was once exported is now going to the domestic market.
These changes have enabled India, whose production of bovine meat is increasing, to supplant Brazil as leading exporter on the global market. In 2000, the volume of exported Indian beef was only 300,000 Tons CWE. This volume had more than doubled by 2008 (672,000 Tons CWE), and exceeded 1 million tons CWE in 2011. In 2012, exported beef reached 1.7 million Tons CWE, and is expected to reach 2.2 million in 2013, according to the projections of the USDA. By the end of 2013, India will be generating 25% of global transactions for bovine meat. This country has the highest number of heads of beef cattle worldwide, in front of China, Brazil and the United States. The boom in Indian beef exports is also tied to the fact that global production no longer meets demand, and so there is room for India to break into the market.
How is it that India has become the largest exporter of bovine meat, when cows are considered a sacred animal, and the slaughter of cattle is banned?
In reality slaughtered animals are mainly buffaloes, which represent 35 % of cattle. In fact this is the main type of bovine meat exported by India.
Furthermore, as this type of meat is not widely consumed by Indian households, excess production is chiefly exported as frozen meat, and these exported volumes are steadily increasing in spite of strict restrictions.
A global demand spurred by Asia
To understand the mutations in the market for bovine meat, one must take global demand into consideration.
Since the early 2000s, over a third of bovine meat on the market is captured by three countries alone: United States, Japan (over 60 % of meat exported to Asia) and Russia. These three countries are the main importing countries of bovine meat, followed by South Korea, the EU (and its 27 members), Egypt and more recently China. There is also a growing demand from other countries in Asia (Vietnam, Hong Kong, Malaya, Philippines…), Latin America and the Middle-East. In Asia, the demand for bovine meat increased 3% a year over the last decade 2003-2012.
This increase in global demand is triggered by a higher standard of living worldwide which means that consumers are now eating more red meat, and the fact that production in certain cases is too low to meet domestic demand. Since the crisis, this demand is essentially focused on low-cost products, which explains why Indian production is doing so well on the global market. The main countries to which India exports buffalo meat include North Africa and the Middle East (whereby India showed its capacity to meet the demand for Halal meat), as well as Vietnam, Malaya and the Philippines.
Brazil on the other hand mainly exports to Russia, Iran, Egypt and China.
As long as projections for global demand of bovine meat sustain an upward trend (+1.8% year between 2012 and 2021, according to the FAO and the OCDE), global transactions will go on increasing in the long term (1.8 % year between 2012 and 2021). Accessing domestic markets which are the most dynamic, facilitated by lower custom duties (commercial agreements), and the least exposed to sanitary problems (for instance foot-and-mouth disease), will become the main challenge for major producers and exporters. There will no doubt be a hard competition between the United States, Brazil, Australia and India. These four beef producing countries – two industrialized economies, and two emerging economies – will be competing for the position of leader in the global market for bovine meat.
Production of bovine meat in the European Union has been following a downward trend since the early 2000s (13% of global production in 2011), and imports of bovine meat from Brazil doubled between 2000 and 2006. After this date, imports dropped due to concerns about the safety of Brazilian beef. Imported bovine meat from Argentina and Uruguay only partially compensated for imported Brazilian beef. Supply of beef meat relies on imports from countries in the South Pacific and the United States. This imported meat, which is sold in the European Market as ‘meat and tinned meat’, has significantly decreased in volume since 2006, and further dropped by 10 % in 2011.
In this context of growing demand, the evolution of Brazil demands to be closely watched, as the downward trend of Brazilian exports since 2008 could well be reversed if domestic beef production picks up again in the years to come. However this will depend on sanitary parameters, the dynamics of the domestic market, the evolution of prices for crops, and the exchange rate of the Real. In the meanwhile, the firm demand from the global market is a real opportunity for European beef. The intensity of international transactions for bovine meat remains nevertheless strongly tied to outbreaks of epizootic diseases (foot-and-mouth disease, BSE…), as these can dissuade consumers from buying beef, and disrupt commercial transactions – the global market remains very segmented, especially where diseases concern a major producer and/or exporter.
This situation, where offer fails to meet demand, has caused prices to soar, and has even encouraged certain beef-producing countries to implement dynamic recapitalization policies.
One last aspect which needs to be carefully considered is the production and consumption of bovine meat in China. The steady progression of Chinese production has slowed down since 2010, namely as a result of the loss of interest of farmers in beef meat and the cut in public subsidies. If domestic demand goes on growing, imports are expected to increase in a significant way. Based on imported volumes in 2012, China could be setting a new trend, this time as an importing country.
In the short term, and in a context where global demand could be less vigorous due to a sluggish economy, the key factor for the commercial performance of exporting countries will essentially depend on currency rates. For producers in the Eurozone, the higher exchange rate of the Euro over the last few months could be detrimental to exports if it were to last.