Sector News

Brazil’s tainted beef scandal looks to be almost over with China lifting its import ban, but a new meat agreement between China and Australia offers Australian beef exporters a chance to reclaim market share lost to the South American country last year.

Australia gave ground in the lucrative Chinese high-quality meat market in 2016 under pressure from aggressive Brazilian beef exporters, whose cheaper currency gave them a competitive edge, allowing Brazil to become the biggest supplier with 29% of Chinese beef imports.

A brief but intense health scare in recent days put Brazil’s meat exports at risk and dented the country’s reputation as a safe supplier. China temporarily suspended Brazilian meat imports on March 20, following investigations by police in Brazil of alleged inspection collusion over shipments of expired beef, pork and poultry products.

After a flurry of diplomatic activity by Brazil, China lifted the suspension on March 25, as did Egypt and Chile, which had also imposed restrictions.

Brazil welcomed the Chinese decision, while noting that its own ban on exports from 21 processing plants named in the police investigation remained in place.

While this was going on, Chinese Premier Li Keqiang and Australian Prime Minister Malcolm Turnbull struck a new meat trade arrangement on March 24, expanding on the landmark December 2015 free trade deal between Australia and China.

The new agreement gives more Australian chilled-meat processors the opportunity to ship to China where Australia has a reputation for safe, high-value food produce. The estimated eventual boost to Australia’s annual meat trade with China is about 400 million Australian dollars ($305.4 million), with the National Farmers’ Federation predicting meat exports to China could soar.

Fiona Simson, president of the federation, said that thanks to the new agreement, “it is now a reality that Australia’s red meat exports to China could soon reach more than A$1 billion a year.”

More live animals also are included in the new arrangement, building on the first shipment of 1,200 live beef cattle for slaughter which arrived in China from Australia on Feb. 21.

Whether Australian producers will be able to capitalize on the China market opportunity provided by Brazil’s reputational setback depends on individual decisions about the best way to preserve and grow the Australian beef herd. At about 26.5 million head of cattle, Australia’s stock is near its lowest in three years after severe drought conditions in 2014-15. Good rains in 2016 broke the drought, but many beef producers want to concentrate first on rebuilding their stock, rather than sending their best cattle to meat processors.

Restocking

Australian iron ore and agribusiness billionaire Gina Rinehart, for example, is pouring money into her vast Kidman group of cattle properties, which she bought for A$386 million in December 2016 through her Hancock Prospecting group. Her partner in the venture is Chinese property developer Gui Guojie, whose Shanghai CRED company has a 33% stake. The Kidman properties now run about 150,000 cattle but Rinehart’s goal is to lift their carrying capacity back to 185,000 and eventually to more than 200,000 head, through investment in technology.

Separately, Rinehart runs a herd of about 8,000 full-blood wagyu cattle, from which she has begun supplying China with her “2GR” brand of high-value wagyu beef. Marbled wagyu beef can sell for A$250 a kilogram or more in China. Chinese supermarket operator Dashang Group bought one of Australia’s oldest wagyu herds, Kuro Kin, in the Hunter Valley region of New South Wales in 2016, and another Chinese company, Zhejiang’s Rifa Salutary, has spent about A$150 million over the last three years to build a beef cattle business across 40,000 hectares in Victoria and New South Wales.

Tobin Gorey, Sydney-based director of agri-strategy for Commonwealth Bank of Australia, noted on Feb. 20 that Australian pastoralists had begun to rebuild their herds, so 2017 was likely to be “the low point” for both production and exports.

“Australia couldn’t continue to export the same volumes of 2014 and 2015 and still continue to export in 2020,” he wrote.

The U.S. Department of Agriculture came to a similar conclusion in its 2017 global beef outlook late last year. It said production would fall “by the greatest margin” in Australia as a rainy 2016 had revived drought-stricken pastures and encouraged producers to retain stock for breeding.

Brazil’s brief fall from grace in China may test that scenario, given the opportunity it presents for some Australian exporters trying to reclaim or build up their share of what is a growing high-value market.

China is already Australia’s fourth most important beef market, behind the U.S., Japan and South Korea, with exports valued at about A$670 million in 2016, up from just A$100 million five years ago. The live cattle trade is worth about another A$240 million, and sheep meat sales to China account for another A$100 million.

While this reflects growing demand among Chinese consumers for better-quality meat in their diet, Australia has faced tough competition in the beef market from lower-cost producers such as Brazil. Helped by a relatively cheap currency, the South American nation became China’s biggest beef supplier in 2016, following the ending of restrictions in 2015 on meat imports from Brazil, introduced in 2012 in response to a scare over “mad cow” disease.

Brazil shares with India the mantle of the world’s biggest beef exporter, with both countries estimated to have shipped about 1,850,000 metric tons each in 2016, according to the U.S. Department of Agriculture.

Beef substitute

But India does not export cattle beef; its product is carabeef — water buffalo meat — with its main markets being lower-cost consumers in the Middle East and Asia. For example, its single biggest market is Vietnam, which takes about 400,000 metric tons. Some of this meat finds its way across the border into China, or is sent on to other Asian markets.

Brazil competes in high-value beef markets with third-ranked Australia (1.39 million metric tons in 2016), the U.S. (1.12 million metric tons) and New Zealand (580,000 metric tons). Other significant exporters are Canada, Paraguay, Uruguay and the EU.

Brazil’s government acted quickly after reports first emerged on March 17 that investigators found health inspectors had been bribed to pass outdated meat, and that the appearance and smell of expired meat products had been manipulated.

Three of Brazil’s 4,300-plus meat packing plants have been closed and another 18 are under investigation. Exports from all 21 plants have been suspended. Police have issued 38 arrest warrants in connection with the scandal.

In addition to China, Egypt and Chile, a number of other countries including the U.S., Japan, Switzerland, EU nations, Saudi Arabia, Mexico and Canada, imposed full or partial restrictions on meat imports from Brazil. South Korea earlier lifted a ban on Brazilian chicken imports, but some supermarkets cleared their shelves of Brazilian meat products anyway because of customer concerns over food safety.

Under the Australian beef industry’s 2020 strategic plan, one export aim is to concentrate on market segments “where there is capacity and willingness to pay a premium for Australian beef.” The U.S., Japan, South Korea, the EU and more recently, China, fit that category.

By Geoff Hiscock

Source: Nikkei Asian Review