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The bovine meat international market | 23 July 2007 |
Produced nowadays in every continent, bovine meat has been for a long time an expensive and so unaffordable foodstuff. It’s now one of the fundamentals in rich country populations’ food regime. Demand and production are getting bigger and bigger in highly populated emerging economies such as China. Therefore, new market balances are setting up but they have to face sanitary crises (foot-and- mouth disease, mad cow disease) and trade talks that shape the physiognomy of this agricultural market, characterized by a price volatility called to increase with unregulated liberalization of exchange.
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I. Rising production and consumption
Bovine meat is an important source of proteins. Behind pork, it is the mainly consumed meat in the world and represents a fundamental element in the diet of many societies. But it is far from being the most affordable foodstuff since producing one animal calorie requires about ten vegetal calories. That explains relatively high costs of production that not every consumer and producer can assume. Therefore, meat is historically a by-product of the farm on which bovines are used in the first place for milk production, fertilization, or as draught animals…And from the time agriculture began producing surplus, and a solvent demand developed, bovine breeding specialized in meat production: in the 18th century in England, before depending on the Commonwealth members, in the 19th century in the USA, currently in China… Progress made in zootechnics, particularly in developed countries, led to the selection of diverging races for meat production (suckler-cow, as Charolaise, to give a French example) or dairy production (dairy cows as the Prim’Holstein which is the number one dairy breed in the world).
Three main production systems can be distinguished:
> Meat production as a by-product of the farm : in such cases, bovine animals are mainly raised to be milked, then for leather production or for animal draught (in least developed countries, motorization is marginal if present). Thus, in 2000, two thirds of European bovine meat comes from dairy herd. And in India, the meat is originated from a national herd, one of the biggest in the world, initially raised for dairy production.
> Ranching: animals are fed with grass on vast spaces, as in the Argentinean “pampa”. They are characterized by slow growth and produce a red meat, well appreciated by French consumers.
> Meat production from intensive farming : for bovines nourished on high protein concentrates (such as soybean cake), secondary cereals as maize, or cultivated grass, one observes a rapid growth and a light colored meat. This type of production can be found in the USA where “feed-lots” have been developed. These production units are constructed near harbours, and allow the valorisation of surplus grains by fattening young bovines, imported from Canada or Mexico. Most of the meat is then to be sold on the international market.
Of course, lots of interconnections exist between these schematic production systems: for instance, French-called “broutards” (less than a year grass fed young bovines), originally from French dairy herd, are grain fattened in Italy or Spain before being slaughtered in these countries. The main bovine meat producer remains the USA, and so has been for many years. Brazil and China have overtaken the European Union, which has become net importer since 2004, and they maintain their increase. Indeed, whereas in every developed country production has slowed down in the last few years, it has boosted in Brazil and China: + 43 % between 2000 and 2007 for Brazil and + 48 % for China during the same period of time1 .
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These evolutions in the production are driven by growing demand in emerging countries: in fifteen years, the world consumption of meat has risen by nearly 75 %, following the economic growth. If this rise mainly concerns pork and poultry, modifications in food behaviours, as a consequence of urbanization and increasing mean income in emerging economies, should impact the bovine meat as well.
The USA and the European Union stay on the two first steps on the consumption podium, but China (+ 47 % in 7 years!) and Brazil, sustained by growing national production, are about to join them.
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II. The international market : driven by sanitary crisis and dominated by Brazil
Only 10 % of world production is exchanged on the international market. However, bovine meat market represents one of the most important agricultural markets in terms of value. It is a segmented market in regards of the type of meat (to be linked with the production system) and regarding the means of commercialization. If frozen meat is the main mean, living animals (mainly for infra regional exchanges), fresh and shrilled meat, corned beef (well appreciated by Anglo-Saxon cultures), salted meat or even dried meat are other means observed.
Whereas countries such as the United States or the European Union have both been great importers and exporters, others have a clearer role on the international market: countries from Oceania and South America are structurally exporters, while Far East countries, especially Japan and Korea, are structurally importers.
Europe and USA, both importers and exporters
In the 60’s, the intervention price put on milk and meat as part of the Common Agricultural Policy (CAP) led Europe to self-sufficiency. However, in the 80’s, as a result this successful policy, Europe couldn’t sell off its stocks of frozen meat on the world market, despite large export subsidies. The setting up of quotas and a system of premiums (Suckler-cow premiums, Slaughter premiums) permitted to reduce overproduction. Those premiums are still valid but the revision of the system is under debate: the impacts of the 2003 CAP reform are still uncertain. This reform introduced the decoupling of premiums, partial or total depending on which state, in order to reconnect the production to the market. One thing is sure: today, we face a reversal situation compared with the 80’s, as production is setting back and European Union has turned out to be net importer despite Irish production competitiveness. Brazilian and Argentinean bovine meat has become very competitive compared with European production that now focuses on the community market.
The United States has been for a long time important bovine meat producers. This country can indeed make use of large plains by ranching. Nevertheless, successive agricultural policies have promoted grain crops and intensive meat production in feed lots instead. And the bilateral agreements that the United States have negotiated with its main customers, Japan and South Korea, offer a privileged access to the Asian market in regards to its increasing demand for this type of light colored meat.
Oceania and South America: mainly export regions
Oceania is a region in the world that shows numerous comparative advantages for cattle breeding.
Australia, second exporter behind Brazil, has vast weakly populated spaces, characterized by a low opportunity cost, and where extensive breeding is thus the main economic use. This country is however frequently submitted to climate events, mainly droughts that affect pasturelands yields and therefore meat production. To be noted that Australia also has to deal with serious problems due to overgrazing and soil destructuration: soils are thin and fragile and consequently inadequate to the hard feet of the ruminants.
New Zealand, fourth exporter behind India, benefits from other advantages: an oceanic climate, much like the Irish climate, allows the production of an important quantity of grass all year long. However, farms are smaller than in Australia, because of the topography that represents the main limiting factor. New Zealand has favored its milk production by promoting it for export through the state commercial enterprise Fonterra and it sells off its meat, from retired dairy cows nourished on grass, at very competitive prices towards the United States.
South American countries, in particular Brazil, Argentina and Paraguay, are equally structurally exporters. They indeed dispose of real comparative advantages for bovine grass-based production. Latifundio farms, inherited from the colonial era, are tailored to extensive breeding which is very rentable for the landowners. Argentina and Paraguay have longer experience than Brazil whose production has boomed these last years due to the Amazonian deforestation and important investments. This country is today the biggest exporter. Its main clients are, among others, the United States, Russia (second importer worldwide), and the European Union. Commercial agreements between the Mercosur (grouping Argentina, Brazil, Uruguay, Paraguay and Venezuela) and the European Union, indeed guarantee a privileged access of South American bovine meat on the European market.
| | The Far East, a big importer
Japan and South Korea have become unavoidable actors of the international market because of the strength of their imports: they import more than half of the meat consumed on their territory, mainly clear meat produced form cereals. The United States have signed trade agreements with these countries and USA is traditionally dominant on these markets where the local production is insufficient and can no longer be competitive.
The sanitary crises trouble the physiognomy of the international market.
History shows that the balances described here above are largely troubled by the sanitary crises started off by epizooties. Mouth and foot disease and mad cow disease are the principal animal epidemics that affect international trade. The mouth-and-foot disease is due to the transmission of a very contagious virus common to bovine, ovine, porcine and caprine animals. The bovine meat market has thus been divided into two zones: the “Pacific zone” (North America, Asia and Oceania) and the “Atlantic zone” (South America, Europe, Africa) respectively free-of-mouth-and-foot-disease zone and zone infected by it. This disease persists today especially in South America.
First discovered in England in 1986, the mad cow disease is a more recent sickness that covers many contaminated foyers in Europe, North America and Japan. This sickness caused by the accumulation of a pathogenic form of protein, the prion, has had a particularly strong impact on world trade due to the fear of transmission to human kind. It baffles the precedent division given by the mouth-and-foot disease as it hits both Atlantic and Pacific zones. This sickness led to a great number of sanitary embargos such as the one dwelling on English meat from 1989, which was then extended to the whole European Union, or again on Canadian meat towards USA in 2003…
The International Office of Epizooties, based in Paris, recently declared that the BSE risk was under control for Canada and USA: such a classification allows a renewal of exports under the cover of undemanding certificates, of bovine animal meat of all ages, boneless or not. It thus constitutes a major argument in negotiations with other countries that maintain sanitary barriers to which American and Canadian exporters still confront themselves to. The embargo that South Korea imposed on USA has thus been in the centre of recent debate around free trade agreements between these two countries. Such as Japan, Korea is going to have to gradually open its frontiers. This embargo that caused the division by 10 of American exports between 2003 and 2004 had profited to Australia: Australia had been able to develop in a very opportunistic manner its cereal-based meat chain of production. Up to then, its outcomes had been restrained due to the agreements between the USA and these Far East countries. But with the progressive withdrawal of these restrictions, the USA hopes to regain their position of leader on the Asian market and their place on the world podium of bovine meat exporters.
|  Source : USDA | The recent BSE crisis in the USA put forward the weakness of the animal identification system and traceability. Thus, the COOL regulation (Country-of-Origin-Labeling), charged to reinforce the identification and the geographic origins of animals, has simply been ignored since its creation in 2002. The European Union wasn’t really concerned by this new debate as American beef bred on growth hormones is already under an embargo. Despite a definite condemning by the WTO in 1998, Europe has refused to open its frontiers and has preferred to pay the commercial sanctions. Today, legislation has been changed regarding consumption in order to forbid these importations and cause caducity on WTO fines.
Bovine epizooties are not the only ones to drive international trade on bovine meat market. The recent bird flue that has affected the poultry of many region s of the world, in particular Asia, has caused consumers to move towards other meat such as bovine meat. Indeed, one can observe strong substitution effects between meats due to the importance given to animal calories in diet. Bovine meat consumption in EU, consequently to bird flue, increased by 2% in 2006.
III. Volatile international prices
The prices on the world market are extremely different regarding the quality of bovine meat: pieces, means of production and commercialization, species… are among factors to be taken into accounts in the structure of the prices. From there we have a multiplication of international prices.
Global trends emerge nevertheless:
Seasonal variations of grass availability have a particular influence on extensive breeding (in Australia and New Zealand for example). The succession of capitalization (bringing forth the herd, delay before production) and decapitalization (slaughter, sells to fattening units) processes participates to cyclical variations of prices at medium term. These have been troubled and made less clear by climatic events that shorten up or lengthen out these periods. The sanitary crises also increase price volatility due to mass slaughtering and profound modifications in trade between states that they provoke and whose effects are called on to be more important with the concentration in areas of production within the more “advantaged” zones.
In the long run, one can observe a true drop in prices, which, as on other agricultural markets, is caused by gains of productivity and the liberalization of trade. The modification of the eating habits in favor of meat in emerging economies with large population and the recent competition between animal feeding and agro-fuel production are also to be taken into account in the price follow up.
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IV. Regulation removals put in peril the security of supplies
In 2006, sanitary issues were once again the key element to explain the bovine meat market evolution. After being troubled by epizooties for a few years, the market is expected to recover in 2007. According to FAO, embargo withdrawals on North American meat as well as Brazil’s one (declared after cases of foot-and-mouth disease discovered in October 2005) should induce a 9% trade expansion in 2007: the two countries are responsible for 40% of world exports. Partial suppling up on export restrictions in Argentina, instated in 2006 in order to restrain inflation in the country, should sustain this expansion. Under previsions, beef imports, after having decreased in 2006, will reach 7.2 million tons in 2007, pushed by fast growing demand from Asia, in particular China, Japan and South Korea. These markets are far from being saturated: if China is the second bovine meat consumer at a State level, its low consumption per capita (only 5.5 kg per inhabitant per year to be compared to the near 20 kg in Belgium or the 68.2 kg of Argentina!) give a huge development potential.
The bovine meat international market is therefore a complex and segmented market, called to develop. Commercial barriers, sanitary measures or tariffs, have a huge impact on trade and show how strategic this market is. Because, through trade agreements and successive embargos, it’s food sovereignty and security which are at stake.
In the context, liberalization of exchanges promoted by the WTO, systematic reconsideration of these commercial barriers can represent a real danger and raise questions: “What is this Europe that wants to take meat from where people are starving?” declared president of the National Bovine Federation (FNB), Pierre Chevalier2 . He fears that an even more European market opening, allowed by the Doha Round and renegotiations of trade agreements with Mercosur, will trigger the French bovine production collapse in favour of imports from Brazil and Argentina, countries where an important part of the population still suffers from hunger. The European Union already faces a structural production deficit that should reach 377 millions tons in 2007 according to the Institut de l’Elevage [French Breeding Institute]. What are the reasons for such a phenomenon? A constant decrease, for 20 years, in milk cow numbers due to productivity progresses in a contingent market and a number of suckler-cows relatively stable that the premiums decoupling shouldn’t help to maintain or relaunch. Competition with South American meat is harsh: in Europe, the cost of production is 3 Euros per kg whereas it is only 1 Euro in Brazil and Argentina!
But shouldn’t Europe defend its food independence more intensely in such a strategic market as bovine meat? Europe already depends on the American continent for proteins in animal feed (soybean cake for instance), as a consequence of commercial policies that have privileged, since the Kennedy round in the 60’s, grain production instead of legumes or grass. To be noted that agro-fuel development, in particular ethanol on the West side of the Atlantic Ocean, is already changing the situation and pushes animal feed costs higher.
If tomorrow, production is concentrated in regions of the world which benefit from the biggest comparative advantages and thus encourages true environmental and sanitary dumping, supply breakage is to be feared : “A sanitary crisis or a social explosion, and the whole of Europe will be starving” the director of FNB, Thierry Rapin, warns3.
The sanitary quality of food, the respect of animal welfare and of the environment, maintaining an agricultural activity in blighted areas, these are issues that steer consumers choices. These values are unfortunately not sufficiently guaranteed during international negotiations that focus principally on the commercial aspects of exchanges.
On this complex market, a strategic sector for many countries in the world, as producers as well as consumers, one can measure how the reinstatement of international regulations is necessary. WOAgri will use the instruments for international guidance (the NAR economic model and the NAR international rating agency) to bring into focus and stir up the adequate decisions.
WoAgri Editorial department
| 1 According to the United Stated Department of Agriculture (USDA)
2 Source : Agrapresse Hebdo, February 5, 2007
3 Source : Agrapresse Hebdo, February 5, 2007
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