South America set to dominate beef

South America, and in particular Brazil, is set to dominate global beef trade in 2016 with favourable currency rates, improved market access and increased beef availability expected to lift South American beef exports by 11 per cent, according to a new industry report.

In its Beef Quarterly report, Rabobank says Brazil is likely to become the leading beef exporter into China in 2016, with access into the US fresh beef market also expected in coming months.

Report lead-author, Rabobank senior animal proteins analyst Angus Gidley-Baird says “increased competition out of South America is not necessarily to the detriment of Australian beef producers, and might even work in our favour, as a means of sustaining supply into China and subsequently appetite for beef”.

“With Australia’s herd in rebuild stage following the drought-induced liquidation of cattle over the past two years, Australian beef production and exports are expected to remain low in the short-term,” he says.

And while the US continues to rebuild their cow numbers and production starts to increase, Mr Gidley-Baird says, its production levels are still at 20-year lows.

“So essentially, South America is the only major beef-producing region expected to exhibit strong new growth in 2016,” he says.

“While most of the production will come out of Brazil, there should also be increased exports out of Argentina and Uruguay.”

The report says weaker currencies, particularly for Brazil, have been a large driver of this export growth, while the weak Brazilian economy has also seen a greater proportion of its product redirected from the domestic market into exports.

In 2016, Mr Gidley-Baird says, Brazil is likely to export around 200,000 tonnes of beef directly into China – double the volume shipped in 2015.

However, most of this growth represents a transition from the Hong Kong market to official Chinese channels.

“With Chinese beef imports continuing to increase, despite the slowdown in the Chinese economy, keeping their beef supply chain well supplied will help underpin demand in supermarkets and online stores,” he says.

“The challenge for Australia will be to remain competitive in key markets, particularly when our beef production picks up again, and ensure Australian product is distinguished in those markets through quality, traceability and food safety.”

Australia has the advantage of greater market access and free-trade agreements, Mr Gidley-Baird says.

“Australia’s FTA with China means we have a two per cent lower tariff than other exporters to China. We also have a 10 per cent tariff advantage over exporters into Japan and an eight per cent tariff advantage into South Korea,” he says.

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