Implications of the Temporary Suspension of Brazilian Beef Exports to China

Last week, the Brazilian government announced that it would be suspending beef exports to China following the detection of a mad cow disease case in the state of Pará. While there’s no official timeline for the suspension, the Association of Brazilian exporters expects it will last until April. This is not the first time that Brazilian beef exports to China were suspended, as this happened in late 2021 as well, but at that time, the suspension lasted for 100 days, severely impacting Brazilian exporters, with losses of over $1 billion.

According to data from ABRAFRIGO, the Brazilian Meatpackers Association, China was the largest export destination of Brazilian beef during 2022. Total Brazilian beef and beef derivatives exports in 2022 totaled 2.34 million mt, with a total worth of $13 billion. Both of these figures represent record highs. Exports to China totaled 1.25 million mt, with a total worth of $7.98 billion. This means China had a market share of 54% in terms of volume and 61% in terms of value, in Brazil’s total beef exports.

The potential loss, according to the Association of Brazilian Exporters is about $500 million. This amounts to almost the same amount that Brazil exported to China during January 2023, which was $485 million, according to the latest ABRAFRIGO data.

Nonetheless, Brazil has several options to mitigate the losses. One is redirecting some of the supply into the domestic market, which hasn’t been strong of late. Inflationary pressures during 2022 made Brazilians prefer cheaper chicken meat. However, domestic prices are likely to fall given this recent development. Prices were already in a downward trend since H2 2022 as input costs eased and demand waned. Moreover, as Lent is observed throughout the country, meat consumption temporarily declines, adding to the bearishness. Yet, with this conjunction of bearish factors, domestic consumption could be getting a boost from low prices. Another option for Brazilian exporters is to redirect their exports to other countries. The immediate effect of the suspension is that more beef is available, which will cause lower export prices, providing an opportunity for importers elsewhere. Since other destinations such as the US already paid a higher export price than China, this might offset the decline in value derived from the potential price decline from the suspension.

Meanwhile, Chinese consumers are likely to face the opposite: higher prices in the short term as domestic stocks might have to be tapped into to replace Brazilian beef. Nonetheless, China might look into other South American meat exporters, such as Argentina and Uruguay, providing an opportunity for these origins.

In 2023, total Brazilian beef exports are expected to subside at least in value due to lower prices, but there is also pressure due to expectations of lower demand from China, independently of the recently announced suspension. According to the USDA, China is expected to substantially lower its beef imports in 2023, due to an increase in its own supply and a decrease in its domestic consumption. Meanwhile, ABRAFRIGO mentioned in January that it was expecting a lower export value in 2023 due to a decline in prices, which will be exacerbated by this temporary suspension of exports to China.