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Global beef GLOBAL MARKETS STRATEGIES CONSULTATION #1 industry and trade report This report offers a comprehensive overview of the global beef industry and Australia’s trade relationship with the world. Summary The long-term outlook for global beef consumption is largely positive, underpinned by growth in populations and household wealth in emerging markets, particularly throughout Asia. Australia produces only 4% of global beef but accounts for around 17% of world trade, and has consistently been one of the top three global exporters for several decades. While 2020 was a particularly challenging year, characterised by the far-reaching impact of COVID-19 and tight levels of Australian livestock supply, many opportunities for targeted growth remain. Global opportunities for Australian beef Global challenges for Australian beef • African Swine Fever (ASF) has had a significant impact on • Australian beef production is expected to remain tight in the global meat market, particularly in growing China’s 2021, as the nation enters a herd rebuild phase following import demand across all proteins, including beef. a period of elevated drought-induced turn-off in 2018 • Growing household incomes within emerging markets and 2019. are providing many consumers with the ability to • COVID-19 has created a multitude of challenges that will increase the volume of their protein consumption, while likely have flow-on effects in the coming years. Key those shifting into the middle-upper income brackets are issues through 2020 were disruptions to foodservice typically improving the quality of meat they consume. channels and supply shocks created by logistical and • In developed markets, consumers are seeking processing barriers, with few countries exempt from the differentiated segments across the beef category, such impacts of reduced tourism, higher unemployment levels as certified breeds like Angus or Wagyu, and are and constrained consumer spending. exploring both grassfed and grainfed beef. • Rising production and export volumes from key • Expansion and modernisation of foodservice industries competitors, such as the US and Brazil, will continue to within developing markets. intensify competition in coming years, particularly within Asian markets. • Growing consumer interest and awareness of provenance, sustainability, animal welfare, food safety • The high price of beef compared to competitor proteins, and traceability provide messaging opportunities for such as chicken and fish, will weigh on category growth Australian brands and underpin ambitious, industry-wide in economically-constrained markets. programs for Australia to further differentiate. • There is growing consumer interest in alternative proteins, with a number of meat substitutes becoming more embedded in the mainstream marketplace and competing for market share with beef, albeit off a low base. Global population Households earning* >US$35k/year Australia’s share of global exports Brazil – 22% Australia – 17% 7.790 8.104 311.4 396.1 US – 12% India – 12% Argentina – 8% billion billion million million NZ – 6% in 2020 in 2024 in 2020 in 2024 EU – 6% Canada – 5% Rest of world – 13% Source: Fitch Solutions, 2020 estimate, 2024 forecast Source: Fitch Solutions, 2020 estimate, 2024 forecast Source: IHS Markit, 2019-20 *includes: EU, Egypt, Bahrain, Iran, Jordan, Kuwait, Qatar, Saudi Arabia, UAE, US, Canada, Mexico, Japan, Korea, China, Australia, ASEAN, Taiwan and Hong Kong. Disposable income = earnings after taxes and social security charges. MLA Global beef industry and trade report February 2021 1
Australian beef exports – volume Australian beef exports – value Australian beef exports – cuts Manufacturing – 34% Brisket – 10% Chilled grain – 14% Blade – 7% Frozen grain – 13% Frozen – 62% Chuck roll – 6% Chilled grass – 13% Chilled – 38% Silverside/outside – 6% Frozen grass – 61% Shin/shank – 4% Topside/inside – 4% Other – 30% Total 1.2 million tonnes swt Total A$11.26 billion Source: DAWE 2019-20 tonnes swt Source: IHS Markit, 2019-20 Source: DAWE 2019–20 Share of global beef production Global meat consumption – million tonnes US – 20% 131 137 Brazil – 15% 120 106 EU – 12% China – 11% 71 73 Argentina – 5% India – 4% Australia – 4% 16 16 Mexico – 3% Rest of world – 26% Pork Poultry Beef Sheepmeat 2020 2024 Source: OECD-FAO Agricultural Outlook 2020 estimate Source: OECD-FAO Agricultural Outlook 2020 estimate Major impacts of COVID-19 Economic impacts COVID-19 has profoundly disrupted global economic growth, The impact of COVID-19 has been multi-faceted and far- with few countries immune to the impacts of reduced tourism, reaching, requiring swift adaptation and flexibility to navigate higher unemployment levels and constrained consumer the multitude of challenges. While the majority of global spending. While the majority of Australia’s top beef markets fell industries have grappled with the effect of COVID-19, the into recession in 2020, all of the top 15 markets are forecast for agriculture sector has adapted and performed well, highlighting GDP growth in 2021, according to the International Money Fund. the resilience of the sector. Global economic growth projections Trade and logistics COVID-19 has greatly impacted beef supply chains, with 10 GDP % change (relative to previous year) 8 logistical barriers challenging operations across the world. 6 A combination of spreading COVID-19 cases and social 4 distancing measures have impacted the processing industry, 2 with operational disruptions on production volumes for many 0 suppliers. Trade has been impaired as disruptions have led to -2 port bottlenecks and congestion, slowing the turnaround of -4 refrigerated shipping containers. Air freight has also been -6 impacted, with disruptions to typical flight paths constricting this -8 -10 form of transport and creating additional costs. Australia Canada China Hong Kong Indonesia Iran Japan Korea Kuwait Malaysia Philippines PNG Qatar Saudi Arabia Singapore Taiwan Thailand UAE UK US Foodservice and tourism The multi-layered impact of COVID-19 has prompted some significant shifts in consumer purchasing behaviour. The 2020 2021 foodservice sector has been one of the most impacted Source: IMF, World Economic Outlook Update, October 2020 industries, with wide-scale shutdowns and operating restrictions across most markets. Operators in the foodservice sector that While global markets continue to face uncertainty from COVID- pivoted to takeaway or delivery models were able to weather 19’s economic impacts, international demand for Australian red the COVID-19 storm more successfully. With the reduction in meat remains buoyant. The global ‘mega-trends’ of growth in international travel, this has also contributed to the slowdown of population and disposable incomes, combined with the the foodservice industry worldwide. continuing impact of ASF on global pork supply and demand, underpin a strong opportunity for Australian beef. However, Retail there is potential for a long-term rise in protectionism (an Retail meat sales have performed well off the back of the economic policy of restricting imports from other countries) decline in foodservice activity, with consumers spending more which could result in a renewed emphasis on food security and time cooking at home. There has been a growing consumer a focus on increasing local food production. interest in country of origin, driven by a preference for food choices promoting nutrition, immunity and overall health. MLA Global beef industry and trade report February 2021 2
GLOBAL CONSUMPTION Global beef consumption is currently forecast to grow at an Household income growth within developing countries is average annual rate of 0.6% through to 2024 (OECD-FAO 2020), expected to drive further demand for meat, as increasing supported by population and income growth, primarily in Asia. disposable incomes open up a range of retail and dining choices This growth is expected to equate to an additional 1.8 million for consumers. Starting from a lower per capita base, tonnes of beef being consumed across the globe by 2024. developing countries are forecast to account for 77% of However, beef’s share of global meat consumption is expected additional world consumption growth over the next five years, to decline slightly over that period to 21% (down 0.9% relative to largely due to population growth, urbanisation and increasing 2020), particularly due to the rebound of global pork production incomes. as ASF steadies, the gradual uptake of alternative proteins and shifting consumer perceptions towards health and sustainability. Number of households earning over US$35,000 Beef consumption levels vary across the world but are often 120 determined by a combination of factors, including: 5% 100 • economic growth and consumer purchasing power million households 800 • population growth and demographics • consumer dietary preferences associated with culture and 600 106% religion 400 27% 19% • a history of local meat production and consumer familiarity 22% 200 9% • competition from other proteins and relative prices 23% 192% 46% 26% 82% 139% 0 • trade policies and market access US China Japan UK Korea Australia Taiwan Indonesia Saudi Arabia UAE Philippines Vietnam • resilience of supply chains • urbanisation and cold chain development. Increasingly, consumption in developed markets is also guided 2020 2024f by health perceptions, environmental considerations and animal Source: Fitch Solutions welfare claims. These consumer trends have supported the rise Data labels show percentage growth of 2024 relative to 2020 of the alternative protein industry, which will play a growing role * Disposable income = earnings after taxes and social security charges. in the protein landscape in the years to come. Global consumer trends Beef consumption forecasts Beef has a long history of consumption in many markets around the world and constitutes a major dietary component in some 30 Mostly developing markets Mostly developed markets countries. Beef encompasses a wide range of products, from 25 low value offal and manufacturing product through to highly million tonnes cwe marbled premium Wagyu, all of which play a unique role 20 depending on the country and consumer segment. 15 In many western countries, beef is considered the ‘prime’ meat, 10 viewed as the most superior and delicious, and often considered a family favourite. However, the role of beef differs in 5 many Asian and Middle Eastern countries, where proteins such 0 as pork (in Asia), seafood, chicken and sheepmeat (in the Middle Africa Latin America Asia North America Europe Oceania East) play a larger role in consumer diets. 2020 2023 2026 forecast 2029 forecast A number of trends around the world that favour both grassfed Source: OECD-FAO 2020 Agricultural Outlook and grainfed beef – as well as other points of difference such as Middle East and North Africa (MENA) split across Africa and Asia breed and raising claims – provide Australia’s broad production system with numerous opportunities to target growing Global beef prices have been growing at a faster rate than both segments. chicken and pork. Relative to an index of 2002-2004 prices, global beef prices have more than doubled, while poultry and pork increased just 51% and 19% respectively (FAO meat price For a detailed of overview of MARKET SNAPSHOT l BEEF & SHEEPMEAT index). This consistent divergence in price, underpinned by Australia’s primary beef markets, visit: Japan Japan is geographically a small country, with less than one tenth of the population in China. Yet the market has a high number of comparatively affluent households and sophisticated supply chain infrastructure. A balanced diet based on variety, quality and good flavour is highly important for Japanese consumers, and coupled with the country’s low food sufficiency rate, Japan is a major importer of various food products from global suppliers, including beef. substantial efficiency gains in the poultry and, to a lesser extent, mla.com.au/market-snapshots While the country’s economic growth is subdued compared with many neighbouring markets in Asia, Japanese consumers have a strong interest in healthy living, and will continue to demand high volumes of quality imported proteins, such as Australian red meat. Meat consumption Population1 Household number by disposable income2 per capita3 US$35,000+ US$75,000+ 1,444 24.4 19% pork industries, has contributed to the share of consumption 0.1% million 24.2 42% 55 kg 39% 126 674 10.6 3.8 million 5.1 million Grocery spend4 shifting away from beef towards cheaper proteins. Japan ASEAN 3.3 Japan 26 1.4 A$ 5.9 China Japan Australia ASEAN Australia Australia 5,851 ASEAN China China per person/year 124 million by 2024 44% of total households 7% of total households (-1% from 2021) (52% by 2021) (9% by 2021) Japan is one of the largest export destinations for Australian beef, alongside the US and China. It is also the largest market for grainfed beef, taking close to half of total grainfed exports. Depending on the stage of economic development of the Australian beef Australian beef Australia’s share of Australian beef exports – volume5 exports – value6 beef imports7 offal exports6 16% 11% Chilled grass Australia A$283 million Chilled grain 43% Chilled 33% Frozen grass 57% Frozen 46% Other countries Key outlet: Frozen grain country in question, the challenges and opportunities across 40% (table-top BBQ) Total 284,023 tonnes swt Total A$2.42 billion Japan is a consistent buyer of Australian sheepmeat and is the largest chilled lamb customer in Asia. In 2019–20, total sheepmeat fell 3% on year-ago levels, largely due to a decrease in supply. Australian sheepmeat Australian sheepmeat Australia’s share of Major outlet of Australian consumer profiles differ. For instance, demand in many mature exports – volume5 exports – value6 sheepmeat imports7 sheepmeat 8 42% Chilled lamb 28% (Sheepmeat BBQ) Australia 64% 29% Frozen lamb Lamb Chilled mutton Mutton Other countries in Hokkaido Frozen mutton (Northern island 72% of Japan) 1% 28% markets is shifting focus from quantity to quality, as many Total 13,793 tonnes swt Total A$164 million 1 2 Data source for charts: Fitch Solutions 2021, ASEAN = Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam, Fitch Solutions 2021 (disposable income = 3 earnings after taxes and social security charges), ASEAN = Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam, Fitch Solutions, GIRA (per person per year in 4 cwt excluding fish/seafood) 2020 and 2021, IGD 2021 (defined as the total annual grocery retail market turnover in a given year, divided by the population for the same year. Grocery retail market data 5 6 7 8 excludes VAT/sales tax), DAWE (FY 2019–20), ABS/IHS Markit (FY 2019–20), IHS Markit (most recent 12 months due to data availability), MLA MLA MARKET SNAPSHOT BEEF AND SHEEPMEAT JAPAN September 2020 1 high-income countries are reaching saturation levels of per capita meat consumption and consumer preferences leading to a diversification of protein sources. Differentiation is a key factor which will become increasingly important for consumers in developed markets, as they seek flavour and experience over volume. MLA Global beef industry and trade report February 2021 3
World meat price indices Global meat consumption: developed economies 300 250 250 200 index (2002–04=100) million tonnes cwe 200 150 150 100 100 50 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Beef Pork Poultry Sheepmeat Beef Sheepmeat Pork Poultry Source: OECD-FAO 2020 Agricultural Outlook Source: FAO There are several broad trends affecting beef consumption Global meat consumption: developing economies globally in both foodservice and retail channels, with growth in 250 consumer demand for: • fresher and less processed offerings 200 million tonnes cwe • more customised meals 150 • more international cuisines • messaging relating to provenance and health (e.g. ‘grassfed’, 100 ‘free from’, ‘natural’) 50 • growth of e-commerce and different delivery methods • more convenient, on-the-go offerings 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 • smaller but higher quality premium portions. Consumer perceptions of beef and competing proteins can also Beef Pork Poultry Sheepmeat vary significantly from market to market. For instance, the Source: OECD-FAO 2020 Agricultural Outlook economic development of a country influences typical consumer purchasing drivers, with developing countries focusing more on freshness and safety, while developed Major global markets markets focus on value and points of difference. Given the diversity of Australian beef, understanding consumer needs and United States what drives purchasing decisions in each market is essential. Globally, the US has the highest number of households earning Key motivators to purchase beef disposable incomes over US$35,000 and US$75,000 per year. This affluent consumer base, combined with high per capita Japan Safety Freshness Value beef consumption, means the country remains highly attractive and influential in the global protein trade landscape. Korea Safety Natural Freshness Opportunities exist for Australian red meat to enhance its profile Saudi Arabia Halal Safety Natural in the US thanks to growing demand from consumers for natural, healthy and environmentally sustainable products. China Safety Natural Freshness The US is one of the largest global consumers of animal United States Freshness Natural Value proteins, with the level of meat consumption near maturity. Going forward, the opportunity for growth within the beef Indonesia Halal Freshness Safety category will be to increase export value through premium Malaysia Halal Safety Freshness products like chilled grassfed beef, rather than through increased volume of conventional beef exports. Source: MLA Global Consumer Tracker China The popularity of meat alternatives is growing and research China has transformed from being a minor import market in indicates that as protein demand evolves in the future, 2010 to the world’s largest imported beef market in 2020, with traditional growth drivers may become more contemporary, growth accelerated by the spread of ASF and the subsequent such as dietary shifts for health and ethical reasons, government decline in pork production. However, China’s beef import regulations, environmental constraints and technological expansion was underway well before the onset of ASF. It is advances. While traditional meat will dominate the protein mix expected that population and income growth across the country for decades ahead, a growing proportion of the global protein will continue to drive importation growth in the long‑term. shortfall is expected to be offset by emerging plant-based Chinese consumers consider beef a superior protein, making it alternatives, lab grown proteins and expanding aquaculture a family favourite due to its high nutritional value and great production. taste. Barriers to more frequent consumption, apart from price, are driven by perceptions that beef is more difficult to prepare, less fresh and less tender compared to other proteins. In urban upper middle-class households, there is increasing exposure to western-style steaks, sausages, pasta dishes and burgers, both at home and via foodservice. MLA Global beef industry and trade report February 2021 4
Annual beef consumption per capita developed in the world in size and sophistication, with a diverse range of global cuisines and price points available to 30 consumers. 25 kg/person (retail weight) South-East Asia 20 This dynamic and fast-growing region is diverse in population 15 size, economic status and cultural/ethnic background. Improving household incomes and changing consumer tastes in the region 10 are driving a rapid rise in red meat consumption, particularly in 5 urban cities. South-East Asian consumers associate beef with superiority and good taste, which typically drive them to pay a 0 premium for it. Consumers also have positive perceptions of US Australia Canada Korea UK EU Vietnam Japan Malaysia China Saudi Arabia Philippines Indonesia imported beef products, with ‘premium quality’ and ‘better taste’ being commonly perceived benefits. MENA (Middle East and North Africa) Source: OECD-FAO 2020 MENA is a large, complex region with many varied consumer markets. MENA consumers have traditionally preferred leaner Japan meat. However, consumption and spending on beef is forecast to increase across almost all MENA markets in the next several A balanced diet based on variety, quality and good flavour is years as more affluent consumers come to appreciate the very important for Japanese consumers, and coupled with the benefits of premium quality beef, combined with ongoing country’s low food sufficiency rate, Japan is a major importer of urbanisation and westernisation. The region has a comparatively various food products from global suppliers, including beef. young population – all MENA-10 countries, except Kuwait, have While the country’s economic growth is subdued compared with over half of their population aged under 35 years. many neighbouring markets in Asia, Japanese consumers have a strong interest in healthy living, and will continue to demand high volumes of quality imported proteins. Despite flat population growth, beef consumption is projected to increase in For the latest outlook on Australian Japan due to growing per capita consumption. export markets, visit: mla.com.au/ prices-markets/overseas-markets/ Beef is considered the most premium protein with good taste, underpinned by a strong emotional connection and a unique flavour experience. Japan’s restaurant sector is one of the most GLOBAL SUPPLY Global beef production was estimated to have fallen by 2% in 2020, largely due to the contraction of Australian beef supplies and the impact of COVID-19 on the Indian meat processing industry. In 2021, the United States Department of Agriculture (USDA) has forecast global production volumes to lift to 61.5 million tonnes carcase weight equivalent (cwe), an increase of 2% on 2020 levels. Economic recovery across the globe is expected to support the growth of beef production, particularly for those nations that have suffered from disruptions caused by COVID-19. Global beef production 0–499 500–999 1,000–1,499 1,500–1,999 2,000–2,499 2,500–2,999 3,000–3,499 3,500–3,999 4,000+ Source: USDA, 2020 volumes, thousand tonnes cwe The types of production systems and supply chains vary greatly around the world. Beef production in NZ, the EU and India is mainly a by-product of large dairy industries. However, at one extreme, New Zealand is almost entirely export focused, while the EU is domestically oriented. MLA Global beef industry and trade report February 2021 5
Production mix 100 Australia China Argentina Uruguay 80 US Mexico Canada Beef cattle % of cow herd 60 Brazil 40 EU 20 Russia New Zealand India 0 0 20 40 60 80 100 Export % share of production Source: USDA Bubble size reflects 2020 production Meanwhile, most producers in North and South America rely on of cattle went through this system in 2019–20, comprising 46% beef cattle genetics for production, but the former primarily of the national kill. The MSA system takes into account all finishes Bos taurus cattle on grain and the latter a mix of Bos factors that affect eating quality from paddock to plate, and is taurus and Bos indicus cattle predominantly on grass. Uruguay’s recognised as a world-leading eating quality program. beef industry is similar to Australia’s, with Bos taurus genetics, traceability systems and an export focus, however, it remains a much smaller competitor in global markets and produces For the latest outlook on Australian predominantly grassfed beef. beef supply, visit: mla.com.au/cattleprojections Australia Following on from a sustained period of drought from 2018–19, notable levels of rainfall in 2020 have resulted in increased pasture availability, predominantly across the eastern states. After several years of high cattle turn-off and the cattle herd sitting at historically low levels, this has created the opportunity for producers to rebuild numbers. Driven by the ongoing dry conditions, the Australian cattle herd dipped to a 20-year low in 2020, sitting below 25 million head. Beef production is United States expected to tighten in 2021, as producers across the country The US is the world leader in beef production, utilising extensive look to rebuild herd numbers, assuming seasonal conditions grain feeding systems that enable quick weight gain and continue to support a rebuild phase. efficient outputs. US cattle are among some of the heaviest in The Australian feedlot sector continues to grow in an effort to the world, and impressive economies of scale allow the US to mitigate periods of climate variation and enable a consistent compete strongly with other global producers where land, supply of beef, regardless of conditions. This ensures Australia labour and cattle are substantially cheaper. can continue to produce high volumes of quality beef year- Global carcase weights round and a steady supply of product to both domestic and international markets. 400 Average carcase weight (kg/head) The quality and safety of Australian beef is guaranteed through 350 an assortment of traceability systems, underpinning Australia’s 300 competitive edge. The main systems underpinning Australian 250 beef are the: 200 European Union • National Livestock Identification System (NLIS) United States 150 • Livestock Production Assurance (LPA) Argentina 100 Australia Uruguay Canada Mexico China • National Vendor Declaration (NVD) Brazil India 50 0 For the latest outlook on Australian traceability systems Source: USDA visit: integritysystems.com.au The US remains a major competitor for Australia and has a Through these systems, Australia is able to protect the disease- strong presence within some of Australia’s largest markets, free status of Australian red meat, as well as maintain Australia’s Japan and Korea, while also expanding slowly into China image as a clean, safe and natural producer and exporter of following the US-China trade agreement signed in early 2020. red meat. The US can produce high quality beef, with grainfed cattle of The consistent eating quality of grass and grainfed beef is Bos taurus genetics making up the majority of production, while guaranteed through the Meat Standards Australia (MSA) grading developed cold chain infrastructure and modern slaughter program, which has been developed to improve the supply of facilities provide the capability to export chilled product. consistently high quality beef to the consumer. A record number MLA Global beef industry and trade report February 2021 6
US beef production/herd size 13.0 105 12.5 100 12.0 million tonnes cwe 11.5 95 million head 11.0 10.5 90 10.0 Brazilian Bos indicus Nelore cattle 85 9.5 Brazil’s grain feeding capabilities are building. In 2019, about 6 9.0 80 million cattle were finished on grain – almost doubling from a 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020e 2021f decade prior, but dwarfed by the 40 million processed overall. While feedlots currently only account for approximately 10% of Beef production (LHS) Herd size January (RHS) Brazil’s meat production, this is expected to double over the Source: USDA next five years. This shift in production focus could soon see Brazil challenge Australia and the US in grainfed beef export The US cattle herd follows a fairly consistent cyclical pattern, markets. and with the peak now likely to be reached in 2021, a contraction is expected in the coming years, underpinned by Beef production and export forecasts 2021 reduced cow-calf profitability, increased female slaughter and an eventual smaller calf crop. US beef production is forecast to 20 India increase in 2021, as a result of a greater availability of cattle and Percentage export growth 15 heavier slaughter weights, due in part to COVID-19’s impact on Canada processing capacity. This increase in production will likely result 10 in US export volumes lifting, increasing competition for market 5 US Brazil share across international markets. EU Australia 0 -6 -4 -2 0 New Zealand 2 4 6 8 10 Regional beef production growth (2009–2029f) -5 Argentina 25 -10 Percentage production growth Latin America million tonnes cwt 20 Source: USDA Foreign Agriculture Service, MLA estimates (Australia) Note: Bubble size shows expected 2020 export volume. Percentage growth shows 2021 forecast North America Asia relative to 2020 levels. 15 f2029 10 2009 Africa Argentina Europe 2019 Argentina produces a mix of commodity and high-quality beef, 5 with the herd made up of predominantly Bos taurus genetics. 0 Oceania Grainfed cattle account for close to a third of Argentinian cattle turn-off. Argentinian beef exports in 2021 are expected to Source: FAO-OECD 2020 Outlook contract slightly as production volumes are forecast to tighten after a period of elevated slaughter through 2020 on the back of Brazil dry conditions across the country. Brazilian beef production is expected to continue growing in Argentina’s beef export situation improved substantially in 2015 coming years, underpinned by a slowly expanding herd, the following the removal of a 15% export tariff, export restrictions opening of new land for grazing, greater availability of slaughter and currency controls overvaluing the peso. However, recent cattle and strong international demand. Brazil lacks the years have seen a surge in inflation and a collapse of the efficiency of Australia in producing beef, but has been catching Argentinian peso. The combination of these factors has lent up in recent years as it adopts new practices and technologies. support to the commercial viability of exporting beef rather than selling it locally, resulting in the proportion of Argentinian beef Compared to Australia and the US, the Brazilian herd is less which is exported lifting from 7% in 2015 to 25% in 2020. productive, giving it greater ability to lift future production from efficiency gains rather than from greater resource use. Both Argentinian beef has become very competitive in the global investment and modernisation have improved production market. China became a major destination for Argentinian beef efficiency, with Brazil increasing beef production by 3.7 million in 2020, with shipments doubling relative to 2019 and the tonnes (or 55%) carcase weight (cwt) since the beginning of the market accounting for almost three quarters of exports. The millennium. price of cattle in Argentina is substantially lower than prices in other countries, such as the US and Australia, which creates a Brazil has been a key contributor to global production growth in significant competitive advantage for its product. recent years, a trend that is set to continue in 2021. Beef production in Brazil is expected to benefit from an improving European Union (EU) domestic market and enduring demand from China, MENA, and The EU is a significant producer of beef, but most production is emerging demand from South-East Asia. derived from a dairy-based herd and consumed domestically. The Brazilian herd is predominantly comprised of Bos indicus After an increase from 2013–19 due to a restructuring of the dairy breeds finished on pasture and destined for the commodity beef sector, EU beef production began to decline in 2020, and is trade. However, Brazilian livestock operations are increasingly expected to continue falling long-term until 2030. Nevertheless, using an ‘industrial cross’ of local Bos indicus Nelore cattle with in 2020, beef production was estimated at 7.8 million tonnes cwe US/Argentine Angus genetics. This industrial cross combines – almost four times that of Australia. France holds the position as the feed efficiency and meat quality benefits derived from the largest beef producer in the region, accounting for 17% of EU Angus cattle with the heat and tick tolerance found in the production in 2019, followed by Germany (13%) and the UK (11%). Nelore breed. In 2020, domestic beef production was estimated to account for 95% of total EU beef consumption. MLA Global beef industry and trade report February 2021 7
The region is a high-cost producer of beef, remaining heavily developing the agriculture sector due to its importance to protected from the global market while being subsidised economic growth. through the EU Common Agricultural Policy. Regardless of the expected decline in production, beef exports are predicted to Australian cost of production increase by 8% in 2020, with newly obtained access into China While one of the most efficient countries to breed and grow out for some member states combined with increasing demand from calves – largely due to high levels of broadacre labour efficiency existing partners in the Philippines, Bosnia and Israel, and and economies of scale – Australia is less competitive in sluggish domestic demand. Irish beef exports, currently finishing cattle relative to other major producers (the result of dominated by the UK market, remain sensitive to the Brexit high costs of store cattle, land, labour, regulatory requirements outcome, and may be directed into new markets in coming and feed). High on-farm costs are compounded by additional years. The majority of beef production in the EU is traded expenses in the supply chain, particularly in processing cattle, internally through Europe, with much of the remainder destined where Australia’s costs are twice that of Brazil’s and 24% more for the UK. than the US’s (AMPC). With a high reliance on exports, Australia China also faces greater freight and supply chain costs, as well as tariffs in some markets, compared with other major producers China is the world’s third largest beef producer. By global servicing similar domestic markets. standards, China’s production system is characterised by smaller-scale producers and abattoirs. An inability for local Prior to 2015, cattle prices in Australia closely tracked with production to keep up with increasing demand has led to a South American prices on a currency-adjusted basis, but the surge in imports in recent years. China’s domestic beef separation in markets following the 2014–15 Australian drought production shortfall is expected to continue expanding over the has not reversed, partly due to relatively tight supplies of next five years, with short-term fluctuations in local production finished cattle in Australia and the Brazilian real and Argentine – which still accounts for over 70% of consumption – likely peso coming under significant downward pressure in recent having a significant impact on import requirements. years, with both dropping dramatically in 2019. While elevated prices are positive for Australian producers, high India slaughter and supply chain costs mean that Australia must Indian buffalo meat (IBM) is a commodity product that sets the continue to focus on improving efficiency and increasing the world price floor. IBM is a by-product of the large Indian dairy value proposition for consumers in order to remain competitive. industry, made up of many smallholders. India does not have FMD-free status, restricting access to many countries. Global cattle prices Therefore, it predominantly exports to developing and price 400 sensitive markets in South-East Asia and the Middle East. IBM production expanded rapidly throughout the 2000s as the 350 dairy sector grew and buffalos began being utilised for meat, however, it has slowed recently. While a massive industry, IBM US¢/kg live weight 300 production remains sensitive to domestic politics, with some Hindu groups emboldened by the Modi government calling for its outright ban. Approximately 40% of IBM production is 250 consumed domestically, predominantly by India’s Christian and Muslim populations. 200 India’s agriculture industry was hit particularly hard by the consequences of COVID-19. Contractions in processing capacity 150 and logistical complications across the industry meant that exports of IBM collapsed in the first half of 2020. While India’s 100 2012 2013 2014 2015 2016 2017 2018 2019 2020 agricultural infrastructure isn’t as developed as that of some other beef producing nations, the underlying potential of the US Australia Brazil Argentina Uruguay Paraguay country means the Indian government has prioritised Source: IPCVA (Argentina); MLA’s NLRS (Australia); Esalq/Cepea (Brazil); USDA/Steiner Consulting Group (US). Finished cattle (steer) specifications vary between indicators. Cattle slaughter costs* On-farm cost of finishing cattle** For more information on Australia’s comparative cost of 400 1.4 500 production, visit: 350 1.2 ampc.com.au/2018/10/Analysis- 300 400 1.0 of-Regulatory-and-Related- 250 Costs-in-Red-Meat-Processing 0.8 A$/head US¢/kg 200 300 mla.com.au/prices-markets/ 0.6 150 Trends-analysis/agribenchmark 0.4 100 200 50 0.2 0 0.0 100 Australia US Argentina Brazil Canada Australia US Argentina Brazil Labour Utilities Certification Other Maximum Average Minimum A$/kg cwt (RHS) Source: *AMPC (Analysis of regulatory and related costs in red meat processing) 2015-16 typical operating slaughter costs and excludes cost of cattle. **agri benchmark 2018 typical farm/feedlot cost of finishing cattle, includes the cost of store cattle. MLA Global beef industry and trade report February 2021 8
GLOBAL TRADE AND DEMAND The bulk of beef consumption growth over the past decade has Australian beef exports (2000–2020) been in the developing world, particularly Asia, with forecasts 450 for the next decade indicating a similar trend. However, surplus Japan 2000 2015 400 production remains centred in North and South America and US 350 ‘000 tonnes cwt Australasia. These production and consumption imbalances China 300 drive global trade. Additionally, reduced tariffs and sea freight 250 costs, improved cold chains and the development of governing 2020 Korea 200 Indonesia Other institutions have supported the growth of the global beef trade 150 over the past two decades. In 2020, 17% of beef production was 2011 SEA 100 (exc. Indonesia) MENA traded internationally – higher than poultry, pork and 50 sheepmeat. 0 Top beef exporters and importers Source: DAWE 12 Top exporters Top importers Competitive landscape 10 The competitive landscape for the global beef market has 8 evolved over the decades. While export volumes are ten-fold US$ billion 6 what they were in the 1960s, Australia has consistently maintained an important role within the global marketplace, and 4 remains one of the three largest beef exporters. 2 Competition in Australia’s major markets 0 More premium More commodity Australia Brazil US Argentina India NZ EU* Canada Taiwan Russia UK* Hong Kong EU* South Korea Japan US China 100 80 Source: IHS Markit, FY2019–20 market share (%) *EU only includes external trade but UK includes trade within and outside the EU 60 Australia exports approximately 75% of beef production – 40 far more than most but comparable to New Zealand and Uruguay – and as such, is heavily exposed to currency 20 fluctuations, the health of the global economy and market access changes. Australia is a major player when it comes to 0 ia A n US a da an EU ina sia s exports, particularly in providing high value product backed by ne re pa EN ys iw na ne Ch Ko pi Ja ala M Ta Ca do integrity and quality assurance systems. For FY2019–20, ilip M In Australia was the beneficiary of a soft Australian dollar that Ph Imported beef market contributed towards making it the most valuable year for beef Supplier: Australia Argentina Brazil Uruguay US exports on record. Canada Mexico India NZ Other The Australian outlook is for tight supplies in 2021, with beef Source: IHS, data is for FY2019-20 exports forecast at approximately one million tonnes shipped weight (swt). Diminished supply will intensify competition for The US is Australia’s single largest export competitor due to its market share across export markets. Forecast growth in beef access to high value markets, large scale and exportable production from the US will place pressure on Australia’s high surplus, and ability to supply large volumes of high quality value export markets, while production growth in Brazil and chilled product. The US exports significant volumes of beef to India will lead to further competition for Australian manufacturing Japan and Korea and maintains a minor presence within the beef and live cattle exports to China, South-East Asia and the Greater China and South-East Asian markets. Competitive Middle East and North Africa region. Strategically targeting high pressure from the US is set to increase due to an expanding value markets will continue to be a priority for Australia at a time production base and market access improvements. Some of when domestic supplies are expected to tighten. these access improvements include: While production trends paint part of the picture, market access • In 2019, the US came to an agreement with the EU to ‘ring- changes, such as the increasing number of South American fence’ a portion of the EU High Quality Beef (HQB) grainfed plants gaining export approval for China, could have a far quota (shared with Uruguay, Argentina and Australia), which greater competitive impact on Australian beef in some markets. provides the US with exclusive access to 18,500 tonnes swt of the quota, which will increase incrementally to 35,000 tonnes swt over a seven-year phase-in period. • At the start of 2020, the US reached an agreement with Japan to bring tariffs on US beef in line with signatories to the Comprehensive and Progressive Trans-Pacific Partnership, but it will operate within its own smaller safeguard. • The US-China Phase One trade agreement also entered into force in January 2020, but little trade is yet to materialise. MLA Global beef industry and trade report February 2021 9
South American suppliers Brazil and Argentina have emerged plants for exports. Almost half of all the beef exported from as major trade competitors in the past decade. They both have Brazil in 2020 was sent to China, representing a remarkable shift large production bases to draw exports from, and in recent in focus from last year when China accounted for 24% of years favourable shifts in exchange rates and the poor Brazilian beef exports. Currency movements have also had a performance of their domestic markets have promoted the profound impact on the affordability of South American exports. appeal of exporting meat. The Brazilian real depreciated from 2018 through 2020, finishing 2020 near an all-time low of US$0.19, making Brazilian beef Global top three imported beef markets more affordable on the global market. South American suppliers may soon benefit from the EU- 2,500 Taiwan Mercosur trade agreement and the ear-marked 99,000 tonnes Hong Kong of access provided to the EU market, however, this agreement is 2,000 yet to be ratified and political appetite may be waning on both ‘000 tonnes swt 1,500 sides to finalise the deal. Additionally, in 2019 Brazil was permitted 50,000 tonnes of access into Indonesia, which will 1000 potentially impact Australian cattle and beef shipments if fully China realised. However in 2020, only 4,000 tonnes swt was sent. 500 Other exporters, such as New Zealand and Canada, compete in 0 similar markets and segments to Australia, but opportunities to Greater China US Japan South Korea Russia expand exports remain limited by supply. New Zealand is heavily reliant on trade to the US and China, with smaller trade Source: IHS, data is for FY2019-20 volumes flowing into a variety of other destinations. Canada is the leading supplier of beef to the US and also supplies sizeable With South American trade ramping up in recent years, China volumes to Japan. While India is an exporting powerhouse, has been a key target market for expansion. After the sudden it purely supplies IBM to South-East Asia and the Middle East. emergence of the ASF-induced pork deficit in China in 2019, trade flows between these nations advanced rapidly, with Chinese officials promptly approving dozens of South American Evolution of China beef imports 250 200 ASF discovered in China, August 2018 150 million tonnes cwe 100 50 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 Brazil Argentina NZ Uruguay Australia US Other Source: IHS, China Customs Beef trade growth over time 12 10 Creation of WTO 8 million tonnes cwe 6 4 20 0 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Brazil Australia India US Other Source: USDA MLA Global beef industry and trade report February 2021 10
The influence of African Swine Fever Chinese beef consumption ASF has quickly spread throughout Asia’s largely informal and ASF discovered in China, August 2018 Imported beef % of beef consumption fragmented pork industry. The disease is transmittable when 10 30 pigs come into direct contact with infected animals, indirect 25 8 contact with contaminated objects or are fed contaminated pork million tonnes cwe products. The disease has a near 100% mortality rate and once 20 6 it makes its way into a pig herd, culling the pig population within 15 the immediate area is currently the best method of defence. The 4 transmission of the disease has been accelerated by wild pig 10 populations carrying the disease across country borders. 2 5 Vietnam, Cambodia, Laos, Myanmar, Mongolia, Indonesia, East 0 0 Timor, Korea and the Philippines have all reported cases of ASF 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020f 2021f since the onset of the outbreak in China in 2018. Domestic production (LHS) Import volume (LHS) Distribution of ASF Import percentage (RHS) Source: USDA Chinese pork consumption ASF discovered in China, August 2018 Imported pork % of pork consumption 60 12 50 10 million tonnes cwe 40 8 30 6 Current unresolved disease event 20 4 Source: World Organisation for Animal Health 10 2 ASF continues to have a large influence on global markets, with 0 0 world pork production in 2020 estimated to be down 18% on 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020f 2021f 2018 levels (prior to the spread through Asia). While pork exports from the US, Canada and Brazil lifted substantially in Domestic production (LHS) Pork imports (LHS) response to the supply shortage, this wasn’t enough to cover Import percentage (RHS) the deficit. In China, price inflation across meat categories Source: USDA occurred as demand hugely outstripped available supply. However, prices have eased in the latter part of 2020 as pork Australia’s market access production begins to recover. In November, the China retail pork price was up by 141% year-on-year, while chicken, beef and Trade is central to the ongoing viability of the Australian beef sheepmeat were up 28%, 24% and 22%, respectively. While industry, and pursuing unrestrained entry to global customers ASF-affected countries have sought to prevent further remains critical. Australia’s access to export markets has outbreaks by utilising biosecurity measures to contain the virus, generally improved over the past three decades, led initially by its highly infectious nature makes all containment challenging. multilateral negotiations through the World Trade Organization, and more recently through a series of bilateral and regional free In 2020, Chinese pork production was estimated to be down trade agreements. Reductions in non-tariff barriers have also 30% on 2017 levels, with the breeding herd down approximately been advantageous, however, many remain and have a 50% for the same period. Based on these figures, the Chinese noticeable impact on the cost of doing business. pork contraction has equated to approximately 17 million metric tonnes. There has not been sufficient meat traded globally, let Australia has some of the best beef access globally due to trade alone out of Australia, to fully cover the immediate deficits in reform initiatives and Australia’s reputation as a safe and reliable China, hence the rapid surge in demand. The bulk of major beef supplier, underpinned by a suite of industry integrity and animal exporters all recorded unprecedented beef trade with China in health status systems. Australia now has free trade agreements 2020, while Australia was hampered by supply constraints. with most major beef import markets including the US, Japan, Korea, China and Indonesia, which represented 84% of In response to the production deficit in China, pork export Australian beef and veal export value in 2019–20. The EU and volumes from Spain, the US, Germany, Canada and Brazil all Russia remain exceptions. lifted sharply upwards to respond to the spike in demand. However, Germany, accounting for 17% of China’s imported pork The Comprehensive and Progressive Trans-Pacific Partnership in 2019, has since reported outbreaks of ASF. China (CPTPP) has been ratified, providing improved access to Japan, subsequently paused all trade with Germany. This contraction in Canada and Mexico. The Regional Comprehensive Economic pork supply may provide further support for demand of other Partnership (RCEP) – a multilateral agreement between ASEAN proteins, such as beef. nations and China, India, Australia, New Zealand and Korea – came into force in November 2020. Additionally, new trade In 2021, pork production in China is expected to grow for the agreements with Indonesia, Hong Kong and Peru will facilitate first time since 2017, and as the Chinese swine herd recovers, trade and foster new opportunities. this will likely curb the expansion phase of Chinese beef imports. Regardless, beef import volumes should remain at Australian trade negotiations with the EU commenced in June historical highs, given that Chinese pork production still remains 2018, while negotiations with the UK began more recently in well back on the typical pre-2020 volumes. June 2020. While existing EU quotas will be split between the EU and UK as a result of Brexit, these negotiations represent the first opportunity in over 40 years to significantly reshape Australia’s red meat market access and provide opportunities to modernise the existing trade regime. MLA Global beef industry and trade report February 2021 11
Recent political shifts have resulted in trade liberalisation Major live export trade flows also exist across North America, becoming increasingly challenging. The increase in primarily comprised of feeder cattle from Mexico and Canada protectionism, led by the US’s approach to trade, does pose destined for US feedlots, as well as finished cattle from Canada some risk, but Australian beef exports have largely avoided any and the US crossing the border to be killed in either country. blowback from the US-China trade war. However, trade tensions While Mexico has traditionally exported over one million cattle a between Australia and China rose through 2020, which has year to the US, the synergies and sea freight infrastructure are resulted in China restricting imports of certain Australian not in place to ship large quantities to South-East Asia. agricultural products, including beef from certain plants. Brazil, another major exporter of cattle, previously focused Australia’s favourable access to global markets is underpinned shipments within South America, however, its attention has by strong animal health credentials, world-leading animal since shifted to the Middle East, particularly Turkey. While traceability and food safety systems and the fact it has never Brazil’s FMD status is a barrier for exporting cattle to Indonesia, had a case of foot-and-mouth disease (FMD) or bovine FMD is already an endemic disease in Vietnam (Australia’s spongiform encephalopathy (BSE). While Australia’s track record second largest market) and Brazil is expected to be granted has sheltered the industry from competition, sanitary and access in the near future, following sanitary agreements phytosanitary measures imposed on other exporters due to between the two countries in 2019. The EU also ships various diseases continue to be wound back, and Australia is considerable volumes of cattle to markets across the Middle being increasingly exposed to a widening line-up of competitors East, but no trade exists to South-East Asia. across markets. Live exports Value of exports for major live cattle suppliers Australia is a leading long-haul exporter of live cattle globally, 1,500 Trade to with trade links to supply chains in South-East Asia and the SEA & MENA 1,200 Middle East. Trade dynamics allow Australia to be the leading, Trade within Trade to North America MENA if not sole, supplier of cattle to many countries, however, the US$ millions 900 high cost of Australian cattle presents a significant challenge in price-sensitive markets. 600 Indonesia is the leading destination for Australian feeder cattle. 300 Broadacre pastoral production in northern Australia is very suited to raising calves but less so to finishing cattle, while 0 efficient Indonesian feedlots can utilise by-products from palm Australia Canada US Mexico EU-28 Brazil oil and other crops as low-cost feed options. A lack of cold chain Source: UN Comtrade, 2019-20 exports infrastructure and the dominance of wet markets also supports the customer preference for freshly slaughtered cattle. Australian exports to Vietnam are based on similar fundamentals, however, the trade is predominantly made up of slaughter cattle, underpinned by constrained feedlot capacity and the market’s preference. Vietnam’s feedlot industry is an exception to this, with expected development in the coming years. MLA Global beef industry and trade report February 2021 12
SUMMARY TABLE Argentina Australia Uruguay Canada Mexico EU-27 China Brazil India NZ US Cattle head (million 24.6 10.2 94.4 16.9 11.2 244.1 54.5 11.5 303.1 91.4 77.1 head)* Dairy % of cow herd** 8% 82% 23% 31% 22% 43% 8% 7% 100% 20% 65% Cattle and calf slaughter (million 7.4 4.4 33.3 6.4 3.5 39.9 14.1 2 34.8 48.5 24.0 head)* Cattle exports (million 1.1 0.12 0.29 1.5 0.64 0.29 - 0.12 - 0.02 0.96 head)* Beef and veal 2,072 675 12,374 2,090 1,310 10,100 3,180 510 3,650 6,780 6,880 production ('000 cwt)* Total domestic consumption ('000 567 79 12,610 1,870 1,048 7,600 2,385 160 2,600 9,515 6,570 tonnes cwt)* Domestic share of 27% 10% 89% 83% 62% 75% 75% 22% 71% 100% 95% production Per capita domestic consumption (kg/ 22.0 16.7 38.0 13.0 25.5 35.4 53.5 56.3 0.8 6.1 14.9 person cwe)*** Beef exports ('000 1,214 460 931 255 363 1,658 602 295 914 - 454 tonnes swt)† Chilled % share of 25% 7% 45% 87% 81% 11% 14% 10% 1% - 60% exports† Average export price 5.86 5.26 7.06 5.71 5.85 4.45 5.19 5.56 2.85 - 4.82 ($US/kg)†† UK, Japan, US, China, China, China, US, China, China, Vietnam, B&H†††, Top three export South South US, Japan, US, Japan, HK, Chile, Malaysia, - Switz- markets† Korea, Korea, Neth- US Japan HK Egypt Israel Egypt erland Mexico Japan erlands Source: *USDA, MLA (Aust.) 2020 estimate; **USDA 2020 estimate; *** MLA (Aust.), FAO-OECD 2020 estimate converted to carcase weight equivalent, USDA 2020 estimate; †IHS, DAWE (Aust.) 2019-20 actual, ††IHS 2019-20 actual. †††Bosnia & Herzegovina MLA Global beef industry and trade report February 2021 13
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