Production

In 2007, 54.5 million tonnes of beef were produced worldwide, reflecting a growth of approximately 0.2% over 2006, according to the survey by the US Department of Agriculture (USDA) in 2007.

Brazil is the world’s second largest producer of beef, just behind the United States. However, in terms of annual production growth – as can be seen in the table below, Brazil is one of the few countries with positive growth of more than 5%. The only two other countries that have recorded such growth rates are India and China, but India’s beef production is low, with low quality and health control, and China’s domestic market absorbs almost all of its production.

Source: USDA

GIRA, a food consultancy, estimates that world beef production will grow by 1.2% per year till 2015, with Brazil accounting for 21.5% of this growth.

Consumption

In 2007, approximately 52.5 tonnes of beef were consumed worldwide, with the bulk of it concentrated in the western hemisphere, where average annual growth has been 1.7% .

According to USDA data, the highest growth in beef consumption is expected in East and Southeast Asia, Latin America, Middle East and North Africa. This is due to the expected growth in population and per capita income, since beef consumption is strongly related to economic growth and, consequently, income growth.

The following table shows the largest consumers of beef:

Source: USDA
(1) Estimated
(2) Includes Buffalo meet

The following charts show the estimated increases in beef consumption in the next few years and the global regions which will be responsible for such increase:

The Brazilian market is already one of the world’s largest, with increasing population and per capita income as a consequence of GDP growth – particularly in the poorer regions. Brazil’s domestic market is, therefore, traditionally the most important market for its beef producers, and will probably continue to be.

Source: IBGE and USDA

Exports

Brazil is the world’s largest beef exporter, in terms both of volume and revenue. According to the USDA survey, global beef exports in 2007 were 5.7% up on 2006. In the same period, Brazil posted a significant growth of 15.2% in its exports, further expanding and consolidating its position as global leader – despite restrictions by some countries on fresh beef exports.

The following chart shows the growth in beef exports of leading countries from 2004 to 2006:

Source: USDA
(1) Estimated
(2) Includes Buffalo meet

Due to the increasing global demand and the expected liberalization of trade barriers, Brazil’s beef exports are expected to grow in the coming years. For 2008, USDA estimates a 6.4% rise in global exports and a 10.4% rise in Brazilian exports.

The chart presents the OECD/FAO estimate for the leading countries that will drive the growth in global beef exports between 2006 and 2015. According to this estimate, Brazil will represent 36.1% of export volume growth - the biggest share of the increase in global demand for beef.

Over the past 15 years, the Brazilian beef industry has undergone intensive globalization, and Brazilian beef exports rose from less than 5.0% of its production in the early 90s to approximately 17% in 2007. In addition, Brazil’s share of the total beef exports worldwide rose from 5.0% in the early 90s to around 21.5% in 2007, despite the fact that Brazil has access to less than 50.0% of the global market for fresh beef – NAFTA countries, Japan and South Korea have banned import of fresh beef from Brazil. Brazilian beef exports had an average increase of 26.3% from 2000 to 2007, as a result of:

• the growth of productivity in Brazil’s beef industry and reduced production costs;
• the increase in the number of export destinations;
• the reduction of health and trade barriers; and
• the increase in the number of marketing and advertising campaigns.

The chart shows the total value (in US$ million) of fresh beef and processed beef exported by Brazil to the main export destinations in 2007:

Brazil’s main export product, both in terms of volume and revenue, is fresh beef, and it has been growing year after year at the expense of processed beef (as seen in the charts below).

Imports

The United States and Russia are currently the world’s largest beef importers.

Imports are expected to increase in the following years, mainly in the light of (i) higher demand from developed countries and developing countries; (ii) reduction of livestock in Russia and, consequently, its production capacity; (iii) reduction in subsidies granted to cattle producers and exporters in the European Union; and (iv) expected growth in beef imports by China due to the significant growth in beef consumption in the country.

The following chart shows the volume estimate of the main beef importers till 2015:

Brazil’s potential to meet the growing domestic and foreign demand for beef

Brazil’s Competitive Advantages in the Global Beef Industry

We believe that the continuous growth of Brazil’s GDP, the economical and political stability, the control of inflation and the gradual decline in interest rates have been attracting a strong flow of foreign investments to the country, resulting in a favorable scenario for the development of the Brazilian economy in recent years. The preliminary macro-economical results of 2007 indicate acceleration in the rhythm of the country’s economic growth and monetary stability. The expectation that interest rates would continue to fall and that credit availability would continue to grow contributed to the sharp economic growth in 2007. In addition, Brazil offers many competitive advantages as one of the worldwide leaders in agriculture and the cattle raising business, specifically beef production, of which we may highlight:

Scale and Competitive Positioning: According to data provided by the Brazilian Beef Exporters Association (ABIEC), in 2007, Brazil occupied the following positions in relation to other countries: (i) largest beef exporter, in volume and income (even while exporting to less than 50% of the world market of fresh beef); (ii) Largest commercial herd in the world; (iii) second largest beef producer; and (iv) fourth largest consumer of beef in terms of volume.

Record growth and high potential for production growth. According to USDA data, the production of beef and by-products in Brazil grew 33.9% in the past five years, as against the 9.0% growth in the world market. The USDA also states that Brazilian beef exports and consumption grew 20.3% and 3.1% per annum, respectively, in the past five years. The growth in Brazilian beef exports in recent years is explained by the improvement in general production and health surveillance conditions, genetic improvements and nutrition of cattle, as well as the growing professionalization and formalization of the industry consequent to the opening up of new markets. An example of this was the exports to the Russian and East European markets after the BSE outbreak in Europe in 2001 and 2002. In addition, despite the significant growth, Brazil is one of the few countries that still has large areas for agriculture and cattle raising at attractive costs, which enables expansion with low environmental impact and low number of animals per hectare. According to data from Brazil’s Ministry of Agriculture, Livestock and Supplies (MAPA) in April 2007, Brazil used only 90 million of the potential 388 million hectares of land available for agriculture and cattle raising, with a further 105 million hectares still available. We believe that Brazil’s competitors do not have the same successful combination of available land, ideal climate, human and economical resources, and the know-how.

The following graph shows the potentially arable land in the world:

Another indicator of Brazil’s production potential is the Output Rate (number of cattle slaughtered/total cattle in the herd) which measures how well a country uses its cattle. It is influenced by factors such as: (i) cattle breed (zebu cattle or taurine cattle); cattle raising system (pasture or confinement); (iii) usage or non-usage of growth hormones; and (iv) quality and type of feeding. Thus, even though Brazil has the largest commercial herd in the world, it is the world’s second largest beef producer due to a low Output Rate of 22.0% in 2006, mainly due to the fact that, in contrast to other countries such as the USA, in Brazil cattle are predominantly raised in fields, and the use of growth hormones in cattle raising is banned. As stated in the following graph, Brazil has high potential for improving its cattle output by increasing the Output Rate and catering to the growing demand for beef in both the domestic and foreign markets:

Low production costs: The cost of producing beef and its by-products in Brazil is low when compared to that of its main competitors, because Brazil benefits from: (i) favorable climate and land available at low prices, which is directly reflected in the price of cattle; (ii) a higher level of technological development than its main competitors in the continent; (iii) economies of scale derived from the high volume of production. (iv) low cost and qualified manpower, contributing to the competitivity of Brazilian producers in the international market; and (v) better output rate of cattle, generating economies of scale. According to ABIEC’s report, the average production cost in Brazil is between US$0.90 and 1.00/kilogram, as against US$1.80/kilogram in Australia, US$1.90/kilogram in the United States and US$1.30/kilogram in Argentina. The two main components of the industry’s cost structure are raw material and production costs.

Moreover, pasture feeding costs are lower than the cereal-based feed, giving us a competitive edge, especially in the current scenario of rising grain prices. These factors contribute to significantly reducing the costs of raising cattle in Brazil when compared to other leading beef producers.

Brazil has the lowest cost structure among the leading beef exporters, being 33% below New Zealand, the second most competitive exporter. The chart shows raw material costs in the world’s leading beef producers.

Extensive cattle raising and product quality. Brazil mostly employs extensive cattle raising. In contrast to the majority of beef producers, including the USA and European Union countries, Brazilian cattle feed on pastures and/or vegetable feed, which is one of the factors that eliminate the risk of a BSE outbreak among Brazilian cattle. Moreover, the diversity of breeds in Brazil makes it easier to cater to the most diverse markets and their specific demands. In addition, Brazilian beef is characterized by the low fat content and absence of growth hormones, which are used in raising cattle in a few countries.

These competitive advantages and the absence of government restrictions such as the surtax on fresh beef exports in countries like Argentina, provide an excellent opportunity to meet the growing global demand for beef caused by the growing world population, the growth in per capita income and foreign trade, and the decline in domestic production in many countries.

Sanitary and Trade Restrictions

Of the main beef importing countries, the group comprised of the NAFTA (North American Free Trade Agreement) countries, Japan and South Korea applies restrictions on imports of fresh beef from countries or regions with an active foot-and-mouth disease vaccination program. These countries only accept import of industrialized beef. The European Union allows the import of fresh beef from certain regions in countries affected by foot-and-mouth disease, provided these regions are not directly affected, subject to the regionalization rules suggested by the World Organization for Animal Health (OIE). However, the European Union restricts the free trade of fresh beef by means of an import quota system, which imposes heavier taxation on fresh beef imports in excess of the quota established, and has also banned the import of beef treated with hormone and anabolic substances. Consequently, North American beef treated with growth hormone has been banned under allegations of health risks. In this context, Brazil can benefit from possible extension of the European Union barriers on US beef, since Brazil does not use growth hormone in cattle breeding. In addition to the European Union, other large importers of fresh beef tend to follow the OIE guidelines, but have the autonomy to establish their own rules for beef imports.

Last Update on April 08, 2010