Brazilian beef: The China of Latin America?

Within the Brazilian agricultural industry, the livestock sector accounts for almost 27% of the GDP. The beef industry has transformed itself over the last 20 years, and since 2004 Brazil has been the largest exporter of beef in the world. Expansion can be directly related to the growing demand from international markets, as well as its own domestic market. Brazilian beef is highly cost-competitive in international markets, but like the rest of the world, in more recent years, it has been subject to rising costs of production, processing and distribution, as well as the need to invest in new systems of food safety and traceability.

Brazil has, however, exerted huge influence on the international beef market in the way that China has for products such as pork and poultry. It is being predicted that that by 2020, Brazil will be able to supply around 45% of the world's market and the even more optimistic of these estimates say this figure could be as much as 60%.

Over the past 50 years, Brazilian beef production has increased from just 1.3 million tonnes (mt) to over 9mt. It is now the second largest producer (behind the US at some 11.4mt) in the world.  The last 20 years in particular have  seen the greatest rise in production. Whilst this has been growing rapidly for most of this time, 2011 proved to be a more challenging year. This saw intensive cow culling after problems with FMD and a decreased supply of finished cattle for slaughter. Predictions for the current year are however that production will resume growth by 3%, with USDA estimating a total production of 9.2mt.

The industry in Brazil has achieved strong growth over the past decade particularly due to investments in herd rebuilding through genetics, changing of production systems to feedlot systems, as well as other infrastructural developments. The implementation of feedlot systems, which are also in common practice in North America, has become widespread. Up to 50% of cattle are now finished in this way, but only in 2002, this figure stood at just 4%.

Growth in the export market has however been the main driving force to date. In 2002, just 13% of beef produced in Brazil was exported, but by 2007 this had reached 28%.  While Brazil is still the largest exporter in the world, levels have actually decreased since 2008. In 2010, only 20% of beef produced was exported.  The fall in exports can be attributed partly to the fall in cow numbers due to the intensive culling programme. Cow numbers in Brazil are still recovering from this fall, and the Government has committed to investing significant sums of money into the industry, including up to R750,000 (US$380,000) of subsidised interest rate loans for investment in pasture renovation and herd rebuilding.

With the Brazilian domestic market for beef growing rapidly the extra production will mostly be absorbed there and may not necessarily go for exports, as in the past. The domestic market has increased with Brazilian per capita consumption of beef increasing steadily, from 35kg in 2001 to 41.5kg in 2011.

The Brazilian meat sector has also developed some seriously big players in their own right, all of whom are capable of playing in key international markets. As an example, the world’s largest beef processor is now a Brazilian-based operation – JBS. Until a decade ago, JBS largely concentrated on its domestic market, but today it is a very different story. Though still a family company, it has since acquired US firms such as Swift and Pilgram’s Pride, boosting its turnover from a US$1bn to a US$40bn. It exports to some 150 countries, making it the world’s largest supplier of meat.

Whereas historically Brazil’s export sector has seen year-on-year growth, the fall in production and the global economic crisis has adversely impacted upon it in the last 18 months. Total exports in 2011 hit some 1.09mt. This however is a fall of almost 11% on the previous year. This can be explained by decreased supply, an unfavourable exchange rate between the Brazilian real and the US dollar and falling demand due to the economic crisis in key export markets, such as the EU.

In the past, the EU market was the largest export market for Brazilian beef, though recently this has changed, with the Russian and Middle Eastern markets taking over as the largest importers of Brazilian products. The EU market is however still acknowledged as a very important market with Brazilian packing plants regulating the use of antibiotics after concerns over food safety and in particular growth promoters.

2012 outlook​

Forecasts for 2012 show that export markets should return to growth by some 10% in volume and 20% in revenue, as as a result of increasing supply, weakening currency and strengthening demand from Middle Eastern countries. According to industry association ABIEC, Russia remains as the largest export market.

Asian and Middle Eastern markets have also grown, particularly Hong Kong and Egypt, but Iran is now the second largest market at 130,500t. Brazil voluntarily closed its exports to the US in May 2010 due to problems with residue of an anti-parasitic medicine in imported beef.  As such, the re-opening of this market along with the Chinese market are seen as somewhat opportunistic markets for future growth.

Brazil hopes to change its formal status to “BSE-free”, along with an aim to also make the country FMD-free. With new international markets opening up, and a strengthening domestic market the Brazilian industry looks set to have a more successful 2012.  Mid to long term, the industry also looks set to continue its growth with further consolidation of key producers and processors likely. The road to this growth will continue to see potential areas of difficulty though, with well organised NGOs campaigning around the subject of deforestation to make way for grazing land.

 
This could potentially help drive a change of direction from Brazil’s big slaughterhouses, with a shift from producing prominently lower value products to an increased focus on achieving a higher added value from its exports. This is a trend already underway. At potentially somewhere between 45 – 60% of  global trade in the not too distant future, the impact of the Brazilian beef sector on international markets and other competitors in the US, Australia and the EU is clear to see.

Lizzie Bonsall is a research analyst with Promar International, the market research and consulting subsidiary of Genus plc and can be contacted at the following email address: ​Ryvmnorgu.obafnyy@trahfcyp.pbz​