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November 15, 2017

India's beef cattle sector: Peaking, with incremental growth ahead
The number of eligible male cattle eligible for slaughter is peaking but dairy herd expansion cannot sustain large increases.
By Eric J. Brooks
An eFeedLink Hot Topic

Indian beef's worst fears turned out to be unfounded, but the industry's days of rapid production and export growth are over.
Early May's attempted nation-wide ban on cattle slaughter turned out to be an inconsequential irritant. Within six weeks, India's court system had suspended the law, pending a review of its legality, thereby allowing business to resume as usual. Even so, while 2017's production of a USDA estimated 4.25 million tonnes and exports of 1.85 million tonnes came in as expected, Indian beef is no longer rapidly expanding the way it did earlier.
Far from the heady 10% to 15% expansion rate of the previous decade, 2017 output is only rising 1.2% (to 4.25 million tonnes) -and this is due to factors that go far beyond the attempted ban on cattle slaughter.
Exports rose a sharper 4.9% to 1.85 million tonnes -but only because of how the overturned cattle slaughtering law boosted domestic beef prices. That restricted consumption to a 1.6% increase, from 2016's 2.36 to 2.40 million tonnes this year. It however, will not be the case in 2018, when consumption rises 2.1%, to a USDA estimated 2.45 million tonnes.
Going forward, 2018 production is expected to expand by only 1.2% (to 4.3 million tonnes), with exports staying unchanged at 1.85 million tonnes. These figures are down from their 2014 record volume when India exported 2.08 million tonnes of beef.
This is partly due to the depreciation of Brazil's currency, which enabled its higher quality beef to recapture some Middle Eastern markets. It is also due to China, which was formerly a large but invisible market for Indian beef: Prior to 2015, up to 250,000 tonnes of the 928,000 tonnes of beef that India exported to Vietnam was smuggled into China.
When China cracked down on the illegal smuggling of Indian beef over its land border with Vietnam, exports to the latter fell 14.8%, to 791,000 tonnes. Exports to Vietnam have since partly recovered and will total around 900,000 tonnes this year. Even so, the total number of beef exports lost to China's crackdown and Brazil's export surge amounts to around 300,000 tonnes annually.
Moreover, Indian beef exports, while sizable, suffer from certain structural weaknesses. First and foremost, most Indian beef is derived from buffaloes, rather than beef or dairy cattle. While the taste difference is not great in recipes where it is cooked for hours (eg. Indonesian rendang curries, Vietnamese braised beef), it keeps Indian beef out of many large, high-end markets such as the EU or Japan.
Second, whereas rivals like Brazil, Australia or America only export 15% to 25% of their beef to their leading market, India is dangerously dependent on one destination: Vietnam single-handily buys 48% of Indian beef exports in 2016, up from 42% two years earlier. Nor is its dependence on Vietnam expected to decrease much over the medium term.
Third and most importantly, after rising from 1.52 million tonnes in 2000 to 3.13 million tonnes in 2010 and 4.25 million tonnes this year, rapid output expansion is no longer possible. Exports jumped six-fold, rising a whopping 505% from 0.34 million tonnes in 2000 to a peak of 2.08 million tonnes in 2015, before falling back to slightly over 1.8 million tonnes in recent years.
From 2011 through 2015, beef production expanded 24%, exports by 42% while domestic consumption rose 12.5% --but India's cattle herd increased a measly 0.9%, from 300 million in 2011 to 302.6 million in 2016. In the previous ten years, beef production had doubled but its cattle inventory rose a mere 7.4% over eight years, from 284.8 million head in 2000 to 306 million in 2008, before falling back to 302.6 million by 2010.
For religious reasons, Indian beef is from aging water buffaloes or bulls, whose slaughter is allowed. Because the supply of cattle eligible for slaughter is detached from market demand, the surges in beef output and exports were not based on rising inventories.
Cattle inventories entered 2017 at a USDA estimated 303.6 million head. Due to the high dairy demand, a rising number of dairy cattle will push inventories to 306.5 million head by the end of 2018. That is only 1.3% above their 2010 level, but beef production will have risen 30% over these eight years.
Hemmed in by restrictions on the slaughter of female bovines, rising male slaughter rates have been used to meet booming export demand. Consequently, male bovine inventories have fallen 4% over the proceeding decade.
Going forward, the industry faces a declining quantity of males eligible for slaughter amid numerous restrictions on female slaughter. Thus, a projected, dairy-demand driven increase in bovine female inventories (due to rising dairy demand) will result in slower growth in the supply of beef available increase.
Moreover, ever since the Hindu fundamentalist Bharatiya Janata Party (BJP) and Narendra Modi were elected in 2014, the industry has been subjected to increasingly draconian civil and criminal laws. Already banned in most of India, an additional six states have banned cow slaughter since 2014.
Other Indian states have broadened their cattle slaughtering bans to include bulls and bullocks. Several states now punish anyone caught eating beef or even transporting beef or cattle with multi-year jail sentences, heavy fines, or both. 
Even before these restrictions on cattle producers took hold, the attached graph shows that since 2000, the total number of animals slaughtered rose far faster than inventories. Modi was elected just as the quantity of male cattle types suitable for slaughter started to dwindle, amid a leveling out of overall inventories.
Going forward, slaughter rates can only be increased in proportion with India's dairy cattle herd. With cow productivity rising, the total number of dairy cattle will increase at only a fraction of the 4% annual increase in dairy production -and so will India's beef output and trade.
With beef exports totaling 1.8 million tonnes, India will remain an important player in the world market. Even so, with the supply of animals available for slaughter topping out, we can expect Brazil and Australia to overtake it in exports over the next decade.

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