FBA Issue 32: May / June 2010
Beef's changing supply, demand and export dynamics
In the world of meat, beef is both an aristocrat and a poor laggard. On one hand, it is the world's most expensive meat line and synonymous with wealthy countries. On the other hand, its expensive price and global popular opinion mythologized it as 'unhealthy'. These factors, along with outbreaks of BSE made the 1990s and 2000s beef's lost decade.
Demand dynamics are changing
Hence, since 1990, while other meats raced ahead, beef output barely moved. Indeed, over the last two decades, no red meat line's output or consumption has stagnated as much as beef. Even in the west, beef has been dethroned. Since the late 1980s in Canada and the mid 1990s in the United States, per capita chicken consumption has exceeded that of beef.
In sum, with the world's population jumping 45%, beef consumption increased 13% over the same period. Yet, to a certain extent, this state of affairs is about to change. According to a report by Texas A&M University, over the next twenty years, developing country demand for beef, particularly in Latin America, will raise worldwide beef production by 2% annually, letting beef finally keep pace with world population growth.
In wealthy countries, beef consumption will continue to rise at a very slow pace. At the same time, in developing countries, among meat lines, only chicken's consumption will rise faster. With beef consumption stagnating in the west and rising everywhere from Brazil to China, it will no longer be a rich country's meat.
In the past, wealthy countries ate a lot of beef, developing countries almost none. In the future, beef's consumption base will be as firmly rooted in Asia and Latin America as it is in the west.
Supply fundamentals change: US exits the equation
However, it is not just beef's consumption characteristics that are changing. The United States, once the world's greatest beef exporter, is no more. Its exports of chicken overtook those of beef over two decades ago. In fact, at this time, the US is a net exporter of beef by value but a slight beef net importer by volume.
On the other hand, Brazil now accounts for about half of global beef exports and over 38% of net exports. With its low cost, large, expandable grazing land area, its proportion of world beef production will, if anything, rise in the decade to come. With its domestic demand rising faster than it can expand grazing areas, Argentina, which is known for its high-quality grass-fed steaks, will fade in importance as an exporter.
Demand stagnates in rich countries, grows fast in poor countries
Yet, more than beef's supply base is changing: So too, is its demand characteristics. The accompanying chart shows that Asian countries have both the lowest beef consumption per capita and the highest growth rate in beef demand per person.
Rather than just be eaten in large quantities in a few western countries, over time, this trend means that beef will be eaten thinly all around the world. It also points to another trend that ultimately rooted in scarcity and resources: Trade flows of red meat such as beef or pork are now rising faster than for white meats like chicken or sea food.
The reason for this has to do with the inequality of geographical and climactic endowment. So long as there is a supply of feed raw materials and water, poultry's land requirements are minimal. Hence, chickens can be raised anywhere in the world that has access to feed. On the other hand, red meats such as beef and to a lesser extent, swine require larger land areas. In the case of ruminants like cattle, a certain amount of open grazing land is a prerequisite.
Many importers, few exporters & rising prices?
Going into the 21st century, developing countries that do not have the land area to raise cattle started developing a taste for beef. Such countries can afford to buy feed to raise poultry but lack the land to house and feed cattle and swine.
Hence, while poultry can be raised locally almost anywhere, beef can only be raised in countries with open stretches of arable land. This means that even if countries were to erect trade barriers against both beef and chicken, the vast majority could eat locally produced, higher priced poultry but most would still be forced to import their beef.
With the number of developing countries with a sufficiently high income level to afford beef rising quickly, the number of countries importing beef is growing quickly, as the number of middle income country residents who consume it. At the same time, with population growth taking much of North America and Europe's exportable beef surplus out of the equation, the world finds itself depending on just four major exporting countries.
Brazil's share of global beef exports exceeds Saudi Arabia's share of oil exports but is lower than the US's market share of corn exports. Within ten years, Brazil and Australia will together account for approximately two-thirds of the world's exportable beef. They will be exporting their beef to dozens of developing countries, where beef's upmarket consumption characteristics will make it more recession proof than fish or poultry.
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