Argentine beef tops China’s export sources, but for how long?

In June alone, Argentina exported 5,058t of beef to China, worth roughly US$26.5 million, according to Chinese state news agency Xinhua.

Chinese consumers have driven steady growth in demand for beef products over the last decade, despite retaining a traditional preference for pork and poultry. And with per capita beef consumption in China less than 6 kilogrammes (kg) per capita in 2014, compared to 40kg and 13kg of pork and poultry, respectively, according to a June report from Rabobank, there is room for more sales.

This consumption growth has also taken place against the backdrop of increasing prices. With average prices of US$10/kg, beef prices in China are among the highest globally, according to the Rabobank report, authored by senior industry analyst Chenjun Pan.

In his note, Pan estimates that demand for beef will continue to grow despite the overall slowdown in the Chinese economy, putting the figure at 2.2% CAGR over the next decade. Furthermore, China’s domestic production alone will not be able to meet this demand. Imports will play “an important role”​ in filling the additional 2.2 million tonnes needed by 2025, Pan wrote.

In July of last year (2014), Chinese President Xi Jinping said China was willing to strengthen agricultural trade with Argentina, during a visit to an Argentine cattle ranch 70km from Buenos Aires.

China needs the natural resources to feed a growing middle class, now numbering a fifth of its 1.36 billion population, and is increasing its Argentine beef purchases in part thanks to “very good”​ bilateral relations, Carlos Vuegen, general manager of the Argentine Beef Promotion Institute, told GlobalMeatNews​. “The ceiling for growth is very high,”​ he said.

China, for example, is buying large quantities of lower-priced cuts like ‘heel of round’, and the rising demand has pushed prices higher. Also, five-star hotel chains and corporate dining services are also stepping up purchases, he said, and additional sales opportunities are particularly high in the north where beef consumption is higher, Vuegen added.

With Russia now in recession, “a lot of the product that was going to Russia is now going to China,”​ led by ground beef, salamis and sausages, he said.

There are challenges. Argentina still cannot sell bone-in cuts and offal to China, even though neighbouring Uruguay can. “We are seeking equal treatment,”​ Vuegen said, adding that steady offal demand has made prices attractive in China.

A more immediate concern is China’s decision to cut its currency’s value, which could make Argentine exports to China more expensive and hence less attractive.

However, Esteban Fernandez Medrano, chief economist at MacroVision Consulting in Buenos Aires, said that while the devaluation’s impact is negative, it is not likely to sharply depress exports because China “cannot easily substitute its food imports domestically”​.

Commenting to GlobalMeatNews, however, Pan warned that, in the longer term, Argentina “may have difficulty… becoming a major exporter to China”​ going forward, due to its “unstable political situation [elections are due in October] and non-competitive beef prices”​. He warned this could lead to Chinese importers favouring other exporting countries in future.