Russia after Chinese Beef Import Market with New Sign Protocol

Published 2021년 9월 28일

Russia and China have agreed on a new supply protocol for Russian beef that will simplify and facilitate Russian bovine products into China. The suspension on beef exports from Brazil and Argentina, China’s main beef suppliers, has put China in a difficult position with a possible shortfall of 40% in imported beef supply and a consequent rise in prices. Therefore, Chinese authorities have accelerated the process for Russian bovine meat to enter the market. Although Russia is not a traditional exporter of bovine meat, the new protocol gives Russian producers great export possibilities to expand into the large Chinese market.

The Rosselkhoznadzor, the health control body in Russia, has announced that along with the Chinese customs administration it has signed a protocol on the terms for controls, quarantine, and requirements for veterinary certificates for beef from Russia. The protocol will grant licenses to a long list of Russian producers that they will be able to export to China after following the agreed protocol. At the moment, Russia’s beef supplies to China are small, with only two producers currently licensed by Beijing to supply their product.

The Gap in the Chinese Beef Market

Brazil, the world’s largest beef exporter, suspended sales to China, its biggest customer, after confirming two cases of "atypical" mad cow disease at two plants earlier this month. In 2020, Brazil exported around 900K tonnes and a value of USD 4B to China of frozen bovine products accounting for 42.7% of the export share. Before the withdrawal of exports earlier this month, Brazil was forecast to increase its shipments in the month of September by 216K. However, those 216K that were expected in September didn’t make it to China, leaving the market with a considerable gap.

Additionally, Argentina, which is China’s second-largest supplier with 21.2% of the share, has suspended all bovine exports to China since May to protect domestic prices and has recently extended the ban until the end of October. In 2020, Argentina exported 482K of frozen beef with a value of USD 2B and has grown its exports to China at a growth rate of 75% year on year since 2015.

Source: ITC Trade Map, Tridge

Over the last years, there has been considerable change in the trade dynamics of Chinese imports. Since China opened its doors to new beef suppliers, the market in China largely shifted to South American countries. By 2020, Argentina and Brazil combined had 64% of the import share in China, alluding to the fact that the market had become dependent on these two countries. However, with the export suspension for both countries, China will need to face a sudden shortfall in its beef supply as prices begin to rise in Chinese wholesale meat markets.

China to Look for Short Term Solutions

Meat consumption in China has increased rapidly in recent years, and imports have accelerated year after year. China now accounts for 35.8% of beef imports globally and, since 2016 is the world’s largest importer of meat. Frozen beef imports have seen a 45% growth rate over the last five years and, in 2020, despite pandemic constraints, imports saw a 24% increase from 2019. With the two largest suppliers not being able to fulfill the market, Chinese authorities will need to accelerate the establishment of protocols to allow beef from other nontraditional destinations to arrive at the market.

The new supply protocol signed with Russia responds to the forced diversification of beef suppliers that China would need to go through. In the case of Russia, a country with which enjoys a close diplomatic relation, it makes sense that trade facilitation would be granted for Russia to supply frozen beef to China. Although Russia is not a traditional exporter of meat, mainly consuming all its production, it has exported bovine meat to China. In the first quarter of 2021, Russia supplied 3.6K tones of beef to China, as there are a couple of producers that hold permits. With the new protocol, the Russian authority has stated that all exporters that hold the certification that these protocols approved would be able to reach the Chinese market.

Outlook of a Possible Major Shortfall in the Market

Imports from China have grown to become a USD 9.7B market in frozen beef for its suppliers. Besides Argentina and Brazil, Australia (12.4%), Uruguay (8.6%), and New Zealand (8%) are the largest suppliers that followed. Uruguay will undoubtedly increase its exports taking advantage of this situation. In July, Uruguay shipments from Uruguay reached 38K tons for USD 218M, which would be a monthly record figure for the country. New Zealand would be another supplier that could benefit from the situation. However, the Association of the Meat Industry in New Zealand has already revealed that the country will not increase exports to cover the supply gap left by South America due to being at the lowest point of the New Zealand processing season.

The US will be another country that will be able to increase its beef exports to China with the ease of trade negotiations. In fact, it was reported that the US had exported eight times more meat to China in the first quarter of the year compared to 2020. With the USDA currently forecasting demand to increase by 6.4% in 2022, it looks like the US will position itself as a large competitor for the Chinese market.

Both Brazil and Argentina are supposed to resume exports in the coming months. However, if both countries don’t start to supply within the next month, it will have a significant impact, and it will be difficult for other producing countries to fill the gap. The truth is that even with Uruguay considerably increasing its shipments, with Russian exports starting to come in and with the US taking a presence, the gap from Brazil and Argentina is so large that they won’t be able to sufficiently fill it this year.

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