October 10, 2003
Uruguay Livestock & Products Overview 2002-03; 2004 Projection
SITUATION AND OUTLOOK
Trade
Uruguay's beef exports for 2004 are expected to increase to 330,000 metric tons (MT) due to stronger demand from export markets. Larger production and declining domestic consumption will increase export supplies, which are currently being absorbed by the main beef export destinations led by NAFTA members, the U.S. and Canada. The Uruguayan economy is undergoing its fifth year of recession as a consequence of the Brazilian economic crisis first, followed by the economic and political crisis in Argentina in 2002. After devaluation of the Uruguayan Peso in June 2002 (approximately 85 percent to date), Uruguayan exporters have become more competitive. The agricultural sector, especially beef production, is one of the few sectors that has been successful, given the difficult economic situation.
The Government of Uruguay (GOU) has made strenuous efforts towards the definitive eradication of Foot-and-Mouth Disease (FMD), whose last outbreak was detected in August 2001. To date, around 70 export markets have reopened to Uruguayan fresh boneless beef, beginning with the European Union (EU) and Israel in November 2001. Canada was reopened in January 2003, and the U.S. in June 2003. Mexico is expected to reopen in 2004, and the Asian high-value beef markets, Japan and Korea, are not expected to resume exports while the country continues vaccinating. Uruguayan animal health authorities are planning to vaccinate all cattle again in 2004, and will not discontinue vaccination until FMD is under control throughout the region.
Beef exports for 2003 are estimated at 314,000 MT. Uruguay's beef exports increased from 136,000 MT in January-July 2002 to 152,000 MT for the same period of 2003. This increase was primarily due to the opening of the NAFTA market, and especially the U.S. and Canadian markets. Although after the occurrence of the first case of Bovine Spongiform Encephalopathy (BSE) in Canada, beef exports to that country fell significantly, the almost simultaneous opening of the U.S. market created very favorable conditions for Uruguayan beef. In July 2003, the U.S. became the primary export destination for Uruguayan beef, totalling exports of 9,400 MT compared to 600 MT in July 2002. Beef cuts exported were mainly frozen boneless hind and forequarters, and trimmings. As in the past few years, Uruguay filled completely its 6,300 MT participation in the Hilton beef quota. The GOU's efforts to have the quota increased to 8,600 MT for the period July 2002-June 2003 was not successful.
Cattle exports are expected to fall significantly in 2004, due to a decrease of cattle prices in the region and relatively high domestic prices. In 2003, Jordan has imported over 11,000 head, accounting for almost all Uruguay's cattle exports projected by Post for 2003. Other markets that remain open for Uruguay's cattle are Argentina, Brazil, Peru, Venezuela, and Ecuador.
Uruguay is a traditional beef exporting country. Thus, no significant beef imports are expected to happen either in 2003 or 2004. During 2002, however, taking advantage of more competitive prices, Uruguay imported $850,000 worth of chilled boneless beef from Argentina, $430,000 of frozen boneless beef also from Argentina, and $110,000 of thermo-processed beef from Argentina and Brazil.
Uruguay has a 5.5 percent export rebate for boneless beef: 2.25 percent for bone-in beef, and between 4.5 and 6 percent for thermo-processed beef. As a Mercosur member, Uruguay applies the Common External Mercosur Tariff, which ranges from 3 to 23 percent. In general, intra-Mercosur trade pays no tariff.
The Uruguayan National Meat Institute (INAC) is actively developing beef promotional activities which they expect will serve as a tool to help differentiate Uruguayan beef in international markets. In August 2003, INAC launched the Certified Natural Beef Program, which enlisted the participation of 90 producers who, to date, have exported 94 MT of high-value beef samples, obtaining premiums of 5-7 percent. INAC has two additional promotional programs in progress for Certified Hereford and Angus Beef.
Note: Exports in carcass weight equivalent (CWE) differ from Uruguay's official data/ estimates, since USDA/FAS applies an average conversion ratio of 1.36 to product weight volumes. As a result, CWE exports in the PS&D are lower than those estimated in Uruguay. Application of this different convertion ratio also increases domestic consumption data. INAC's conversion ratios are: 2.4 for thermo-processed beef; 1.02 for frozen/chilled bone-in beef; and 1.6 for frozen/chilled boneless beef.
Production
Cattle stocks in 2004 are forecast to continue to increase, as the calf crop is expected to be larger than the slaughter (plus losses) due to improved herd management, especially temporary and early weaning, and good pasture conditions. Slaughter will continue growing as a consequence of a strong demand from export markets, especially the U.S. and Canada. Imports had been temporarily halted on the upswing, due to the discovery of a case of BSE in May 2003 in the latter country. Calf production decreased in 2003 due to poor investments in pastures made the previous year as a consequence of Uruguay's financial crisis. Thus, the weaning ratio decreased to approximately 63 percent in 2003, compared to 65 percent the previous year.
Beef production is estimated at 500,000 MT for 2004, 16,000 MT higher that in 2003, due to a larger slaughter and improved export conditions. With higher cattle prices in U.S. Dollar terms, similar to prices paid before the FMD crisis, and the reopening of export markets for high-value beef cuts, Uruguayan producers are gradually recovering after the serious financial situation of the past few years.
Uruguayan beef production has been traditionally oriented towards supplying export markets, which account for an average of 70 percent of production. Feedlot production represents only 5-7 percent of the total slaughter. It is expected to increase by 6-7 percent in 2004 due to lower grain prices. High-value beef cuts produced in feedlots are mainly used to supply export markets since, with the economic recession affecting the country, the domestic market, in general, cannot afford them.
Cattle prices have almost reached the values previous to the FMD crisis, i.e. $0.80-0.90/kg, due to the recovery of most of the export markets. Prices are expected to remain relatively stable in 2003, and could drop marginally in 2004.
Consumption
In 2004, beef domestic consumption is expected to remain stable at 170,000 MT as in 2003, as the country is not expected to recover significantly from recession, and consumers' purchasing power will not increase significantly. Annual per capita beef consumption fell from 60 kg to approximately 50 kg in 2003. Beef is mainly consumed in urban areas and lamb in rural areas.
