Australia faces potential beef from South America
Australia has maintained its position as the second-largest beef exporter in the world, but ever since devastating droughts have plagued the country in recent years, it is facing fierce competition from top South American exporters - Brazil and Argentina. Brazil already has climbed to the top in the beef export market, displacing Australia in one of its biggest Asian markets, China, and is showing no signs of slowing down. High prices of Australian beef in contrast to South America’s plummeting prices from currency depreciation have made Brazillian and Argentinian beef more attractive than ever for importers.
Droughts not new for Australian beef
Droughts affecting beef supplies are not new in Australia. Drought conditions from 2014-15, had a lasting impact on the beef industry as most of the cattle are grass-fed. Previously, South American beef prices largely followed those of Australia’s, but since the drought, Australian beef prices surged upwards, while beef prices in Brazil and Argentina experienced a downward trend, also aided by the depreciation of the real and peso, according to Meat and Livestock Australia (MLA) data. This trend has continued since then: Australian cattle prices have been sky high, even exceeding the US in late 2019. The drought which flared up again from early 2017 all the way to late 2019 had delayed Australia’s opportunity to rebuild its herd, all the while when South American currency depreciated to one of its lowest. Cattle prices during early 2020, for example, in Australia were nearing 250 US cents per kg live weight, while Brazil and Argentina hovered between 120-30 US cents per kg live weight (MLA).
The comparably low beef prices in the South American market have made importers be in favor of the market instead of Australia. Australia’s relationship with China was thwarted by Brazil in 2016, and now holds more than a quarter share of Chinese beef imports (mainly frozen), followed closely by Argentina. Even so, the South American market still has room for expansion within the Chinese market, as ever since the African Swine Fever (ASF) decimated hog, there was a tremendous increase in consumption of beef as a substitute protein source, even on top of the already growing appetite. Ever since ASF broke out in China in 2018, the Chinese government authorized multiple South American beef plants for exports, creating an estimated 50% growth in beef export value from 2018-19 in Brazil. As observed in Chart 1, Argentina has actually surpassed Australia for China’s imports during the aforementioned time period.
Chart 1. Frozen Beef (HS 0202) Imports to China, 2015-2019.
Source: ITC Trade Map, Tridge.
Indonesia hit by increased costs
For importing markets that are not as diversified as China, such as Indonesia, the price increase has been especially damaging. Nearly all of Indonesia’s beef imports consist of Australian beef, and domestic production is limited, with only 45% of domestic beef covering the demand, according to the Asian-Australasian Journal of Animal Sciences. Consumers have expressed increasing concern over rising beef prices, as heavily import-based the market is, the more it is vulnerable to market changes. The growing discontent over prices brought interest in cheaper sources of beef from South America. Additionally, Brazil produces the most halal meat globally, which is attractive in the Indonesian market where it is predominantly Muslim.
With these threats looming for Australian beef, the country is making its way toward rebuilding its herd, as rainfall from 2020 had alleviated some of the aftereffects of the drought. Cattle herd head is expected to grow by 2%, to 25.2 million in 2021. Similarly, exports will also increase by 2% for 2021 to 1.1 million tonnes shipped weight (MLA). Export predictions, however, will depend on the farmer’s decision to withhold the cattle from slaughter in favor of rebuilding its lost population, or slaughter now in order to make up for the losses in the previous years. Climatic issues will always be present in Australian agriculture, and the growing competition from cheaper South American beef will prove to be a calling for market diversification, and also play to its strengths as a high-quality producer.
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