FEED Business Worldwide - August 2012
A meat line in transition: Global beef looks to the south and east
by Eric J. BROOKS
Southern hemisphere cattle productivity and Asian meat demand can transform this elitist, maligned meat line into a mass market protein.
For over half a century, beef has been the agribusiness world's slow, unfortunate cousin. Stuck with far lower feed conversion efficiency than poultry or swine, cattle require not just additional feed but far more land and water.
Consequently beef's popularity fell as populations and feed prices increased. With only a handful of countries possessing sufficient arable land, water and feed for efficient production, governments rarely give cattle the subsidies routinely handed out to poultry, pork or aquaculture farmers.
Long, secular decline bottoms out
Even in a western, red meat eating country like the United States, beef's share of per capita meat consumption fell from 66% in the early 20th century to just under 30% today. In its western home market, both the proportion of meat consumption accounted for by beef falling and the quantity consumed per person are falling. For example, US beef consumption per capita peaked near 40 kilogramme in the late 1970s and has fallen back by 40%, to below 25 kilogramme today.
As the west made up a large majority of world beef consumption, flat US and EU demand kept its output relatively flat for much of the late 20th century.
Beef was also the victim of an unforgivable scientific mistake: Saturated fat was thought to cause heart disease. This was recently disproven, and it turned out that trans fats were to blame.
In the forty years before time this scientific error was discovered, hundreds of millions of westerners had cut back their beef consumption, needlessly fearing its high saturated fat content.
Even as they needlessly feared its health effects, rising feed costs boosted beef's price more than that of competing meats, putting it at a seemingly permanent cost disadvantage. Only Asia's rising demand for red meat kept this protein line from going moribund.
Even so, with the 2008 world recession hitting red meat eating America and Europe particularly hard, the USDA states that world beef production actually fell from 58.3 million tonnes in 2008 to an estimated 57.0 million tonnes this year.
But that is now changing, along with many of underlying assumptions about beef. Fifty years of slow growth in meat production and falling per capita consumption is nearing its end. Indeed, one new trend gives hope that beef may yet reverse its misfortunes and again become a popular (and affordable) mass market meat line.
Asia to the rescue
Over the last two decades, the west's flat beef demand has been counterpointed by the fast growth of developing countries' populations, per capita income and demand for red meat. Along with beef's status symbol status in East Asia, religious restrictions against pork throughout the Middle East North Africa (MENA) region have greatly boosted the proportion of beef consumed outside western countries.
But this time, beef consumption is rising most strongly in places that lack the means to raise their own cattle. That is profoundly boosting both beef's demand fundamentals and the proportion is being internationally traded, with this trend to accelerate in the future.
Scott Hansen, managing director of Meat and Livestock Australia recently stated that, "Putting population growth and improvement in standard of living together, it's impossible not to conclude that there will be appreciable increased demand for beef globally over the next five years." He added that, "When that is lined-up alongside supply capabilities in major beef producing nations, we think there is going to be a significant shortfall between supply and the potential for greater demand. That leads to an optimistic outlook for export and the beef market in general over the next half-decade."
Changing supply, demand and trade
Indeed while output fell 2.2% after 2008, world beef exports rose by a much healthier 14.1% over this same time. Moreover, with faster growing developing economies powering its consumption growth, beef production will cease being stagnant and begin to increase.
Granted, from 2011 to 2020, the UN FAO projects world beef production to rise by 13%, compared to 20% or more for both pork and poultry. But even so, where beef is produced and how it is being consumed is undergoing huge changes. For this reasons, Meat and Livestock Australia expects world beef output to rise by 14.1 million tonnes and by approximately 20% by 2020. Nor is this unrealistic: The world market for beef is not what it once was and sudden market changes may yet boost beef's growth forecast.
Once the world's premier beef exporting superpower, Argentina now exports less beef than it did two decades ago. Accounting for less than 4% of the world's traded beef, it barely warrants being noted in our survey. While it remains blessed with the feed, land and water resources required for its production, populist price controls and export restrictions wrecked Argentina's cattle sector beyond recognition.
On the other hand, no one could have imagined vegetarian India, with the sacred status it gives cows, becoming the world's largest exporter of beef (albeit, from water buffalo). Even a respected institution such as the Food and Agricultural Policy Research Institute (FAPRI) forecast in 2011 that Indian beef exports would amount to 764,000 tonnes, approximately half the 1.525 million tonne volume being exported this year.
When large, reputable institutions make such huge mistakes in their forecasts, it signals that a profound market shift is underway. And indeed, a huge change has quietly occurred: India's low-cost, buffalo-meat based exports could transform beef's consumption demographics. Low cost Indian buffalo meat exports into MENA and more expensive cuts shipped to Asia are transforming old marketing assumptions.
America, commonly stereotyped as a steak eating land, finds itself stuck with too many expensive steaks and not enough manufacturing beef. US supermarkets have been 'downsizing' expensive cuts such as steaks, making portions smaller and more affordable to America's increasingly poor, cost conscious masses. Its meat sector seeks salvation in rising exports of high-value cuts to East Asia, while being forced to import low-cost ground beef preferred by its cash-strapped consumers.
Higher carcass yield = larger market
Ironically, while America was a beef importer for most of the last century, it has become a top four net beef exporter in a sad and most ironic way: Falling per capita consumption of expensive beef cuts has freed them up for export, even as cattle numbers hit their lowest point since the mid-20th century.
In contrast to America's shrinking herd, India and Brazil have contributed 23 million beef cattle to the world inventories over the past 10 years. But this shift in beef cattle production from stagnant, northern hemisphere states to India and southern hemisphere countries such as Brazil and Australia cannot rely on inventory increases alone.
As the least feed-efficient livestock, beef cattle are disadvantaged by high feed costs more than any other meat line. The only way to lower beef's price relative to chicken and pork is by boosting beef cattle productivity. Here, we find considerable scope for improvement.
Compared to carcass yield of 353 kilogramme in the United States, an average cattle carcass yields 103 kilogramme in India and 183 kilogramme in Brazil. With their carcass yields at about 270 kilogramme, even Australia and New Zealand have a considerable way to go in raising their beef yield per animal.
According to MLA's Hansen, for the past two decades, world beef production was increased by India and southern hemisphere countries boosting their cattle numbers. From a marketing point of view, this does nothing to lower cattle farming's unit costs, which are at the heart of the trend away from beef.
On the other hand, raising yield per carcass will lower production costs. With their low cattle productivity, India and South America could double their production while lower beef's unit cost by just raising cattle carcass weights to somewhere between those of European and American cattle. Hansen states that, "A focus on genetics, husbandry and better feed availability could see a lot of production gained in higher carcass weights around the globe."
That would accelerate a trend already started by India: Introducing the world's most expensive meat to some of its poorest people by cutting its selling price. The success of this approach is evidenced in the fact that India, without trying went from being a world beef market non-player to its export king in less than a decade.
India's experience made it obvious that expanding beef's uptake was a matter of boosting supplies and cutting prices. But the momentum of this trend can only be maintained if India, Brazil, Argentina, Australia and New Zealand boost carcass weights and lower feed conversion ratios.
Before feed got expensive, beef was the west's mass# market meat of choice. Boosting southern hemisphere cattle productivity will determine to what extent eating steak remains elitist or becomes a popular, globally ubiquitous meat line.
With beef's market dynamics changing, so do the roles of the handful nations which supply it. We examine the top four in further detail.
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