December 31, 2003
Brazilian Beef May Not Cash In On US Mad Cow
Brazilian beef producers were anticipating a bumper rise in exports following the discovery of a mad cow disease case in the United States. However hopes of a boost to export revenues may not materialize.
A sharp fall in U.S. prices on the news could actually limit Brazilian beef sales abroad, which Brazil expects to lead the world in 2003.
"Mad cow isn't necessarily good for anyone," said Chuck Levitt, a senior livestock analyst with Alaron Trading in Chicago.
More than 20 countries banned the import of U.S. beef on the news, including the key U.S. markets of Japan and South Korea.
This leaves a potentially huge international supply gap as U.S. exports some 1.5 million metric tons of beef each year.
As a result, Marcus Vinicius Pratini de Moraes, president of the Brazilian Beef Exporters Association, or Abiec, said Brazilian beef export revenues may rise by 10% to 15% in 2004.
However, Brazil cannot capitalize on the main market opportunities in Japan and South Korea as its own beef is banned there following outbreaks of the highly infectious foot-and-mouth disease.
Competitors such as Australia and New Zealand will partially fill demand in these countries, leaving openings for Brazilian beef elsewhere. But they do not produce the kind of marbled-fatty beef the U.S. specializes in, and it seems unlikely that Asian consumers will swap en masse to leaner beef from grass-fed Antipodean cattle.
"It's like swapping apples for oranges," said Levitt.
Meanwhile, U.S. ranchers will have to sell their beef to the suspicious U.S. consumers, which would weigh on prices for the U.S.' huge imports, estimated at around 1.5 million tons.
U.S. cattle prices have been plummeting on the news.
"As a result, exporters such as Australia will have to try to place this beef in other markets, pushing prices down there," said Levitt.
Brazilian beef exports will total around 1.25 million tons this season, up some 17% on the year before, according to Abiec.
LONGER TERM OUTLOOK BETTER FOR BRAZIL
In the longer term, Brazilian farm leaders believe the benefits will be greater.
As the world's lowest cost producer of high-quality product, Brazil would be very competitive in any market that comes up for grabs, said Alcides Torres, beef sector analyst at the local Scot Consultoria in Bebedouro, Sao Paulo state.
Meanwhile the risk of BSE infecting Brazilian cows is extremely low as it almost exclusively uses pasture to feed its cattle, foregoing the intensive farming that is thought to have caused BSE, a brain-wasting disease.
"This is a powerful marketing lever that we must use," said Pratini.
The problems in the U.S. will probably hasten the lifting of the Japanese and South Korean import bans on Brazilian beef, export leaders said.
But to capitalize on this opportunity, Agriculture Minister Roberto Rodrigues warned Brazil must ensure the health of its own commercial cattle herd, the world's largest.
The U.S., Japan, South Korea, Mexico and Canada have all banned various types of Brazilian fresh beef exports since 1991, following outbreaks of the highly infectious foot-and-mouth cattle disease, which attacks cloven-hoofed animals but can't be transmitted to humans.
There hasn't been a case of foot-and-mouth disease since 2001 and the Brazilian government made great efforts to vaccinate cattle in the aftermath of the last outbreak. However, farm leaders warned that the government had been sadly neglecting animal sanitation over the past year and this could be the sector's Achilles heal.
"We have never invested so little in the sector," said Joao Sampaio, president of the Brazilian Rural Society.
He noted that the government spent just 12 million Brazilian real ($1=BRL2.89) of the BRL80 million budget for animal sanitation inspection this year. A budget of around BRL130 million is necessary to monitor what is the world's largest commercial cattle herd, he estimated.
Meanwhile, Rodrigues said Brazil's chicken and pork exports would also benefit in the aftermath of the BSE outbreak as international consumers turn away from beef.
Brazil will also become the world's largest chicken exporter in revenue terms this year, with exports of $1.9 billion, according to industry estimates.
Meanwhile, it should also help Brazil's world-leading soy industry as more farmers turn away from using animal protein in feed in favor of soymeal.