October 24, 2005

 

Brazil's meat industry cautious about Russian deal
 

 

Brazil officials have cheered a meat and sugar exports deal reached in Moscow earlier this week, but industry leaders are more cautious.

 

Brazilian negotiators got an official guarantee from Russia that Brazil meat exporters would receive special treatment from Moscow. In return, Brazil will vote for Russia's acceptance in the WTO.

 

President Luiz Inacio Lula da Silva, who returned Thursday to Brazil, called the deal "exceptional". But the details remain confidential at least for another week, the Foreign Ministry said.

 

As it stands, Russia has promised to increase quotas by only 1,000 tonnes for beef, 10,000 tonnes for pork and 4,000 tonnes for chicken until Dec 31, 2009. Shipments above quotas will see tariffs gradually reduced to 40 percent in 2009 from the current 80 percent.

 

According to Celso Amorim, Brazil's Foreign Minister, two things can come out of the meat deal. Either it means an increase in Russia beef quotas or an end to the quotas altogether after 2010.

 

If Moscow decides to keep quotas for Brazilian beef, it will move Brazil into a global quota category, which in 2006 is 435,000 tonnes, compared to the present quota system Brazil falls into, which is 70,400 tonnes, according to negotiators.

 

The year 2010 is used as a benchmark because if it gets accepted into the WTO, Russia has five years to settle the bilateral agreements it made with nations in exchange for support to join the 148-nation member organization.

 

"There's been a lot of talk about this, but it is better to wait for official word on how this is going to work," said Jose Vicente Ferraz, director of livestock analysts Instituto FNP. "The deal sounds important, of course. But the market is not celebrating."

 

Riu Vargas, director of the pork exporting trade group known by the acronym Abipecs, said that an increase in quotas to 189,900 tonnes in 2007 from 179,800 tonnes in 2006 is an open door, but he acknowledged that the increase was not only for Brazil.

 

"The eastern European nations that are in the (EU) now are our biggest competitors, price-wise," Vargas said. "Plus they are Moscow's next-door neighbour. The only difference is that we are better negotiators. We're going to have to be."

 

As a bloc, the EU is the world's no. 1 pork exporter, followed by the US, Canada, and then Brazil, Abipec said.

 

Beef, chicken and pork exports constitute 39 percent of Brazil's total exports to Russia. From January to September 2005, Brazil exported 175.4 million kilograms of pork, valued at US$411.9 million. Over the same period last year, Brazilian pork exporters shipped 138.6 million kilogram, for a value of US$233 million, according to government numbers.

 

Brazil beef and chicken are experiencing similar growth in the Russian market. Beef exports valued US$405 million from January to September 2005, up from US$167 million in the January to September period last year.

 

Chicken export value rose to US$63 million in the January 2005 from US$55 million during the same period last year despite a drop in volume.

 

Yet, Brazil's top export to Russia is sugar, with volume jumping to 3.3 billion kilograms in January to September 2005 from 2 billion kilograms between January and September last year. Last year, Brazil sugar exporters raked in US$297.8 million from Russian sugar buyers. This year up to September, the number is US$646.8 million.

 

"The accord is good for Brazil, but right now it's a total open market in Russia. There are no special quotas," said Ricardo Rwats, a trader at Fluxo in Sao Paulo. He said if tariffs were cut, whoever has the lower price would win. "That's us, if we have a good crop," he said.

 

Bilateral deals do not always turn out the way Brazil beef exporters wish. Two years ago, Brazil struck a deal with China for beef. "It didn't increase the flow of Brazilian beef to China," said Ferraz. "Sometimes these international trade deals have no effect on business."

 

Brazil beef exports are not listed on the government's top 100 export items to China. Pork exports to China have dropped to 1.6 million kilograms over the January to September period from 2 million over the same period last year, according to government numbers.

 

In Moscow, Alberto Weisser, president of Bunge International, told Valor Economic newspaper Tuesday that Brazil's future in Russia is not in meat, but in animal feed. "The trend is for Russia to increase their own meat production because it creates jobs," Weisser said, adding that Bunge has been increasing its exports of soymeal for use in Russian pork and chicken feed.