Brazil on the rise, South American beef expert tells NZ producers

Rabobank's Brazil-based analyst Adolfo Fontes.

New Zealand beef producers have been put on notice that Brazil – home to the world’s largest beef cattle herd – is set to emerge as a competitive force on the global market over the next five years.

A visiting South American beef expert, Adolfo Fontes, Brazil-based senior analyst with agribusiness specialist Rabobank, says Brazil is intent on lifting productivity to increase competitiveness in global beef markets, and the “potential to increase production there is huge”, through improved genetics and grain-fed systems to boost carcase weights.

However, Fontes says, New Zealand’s beef industry need not be too concerned, at least in the medium term, with New Zealand’s position as a producer of premium quality beef likely to protect its market share. “New Zealand has a fantastic reputation around the world for producing top quality beef, supported by the highest standards of food safety as well as the disease-free status, which will ensure that demand for New Zealand beef will remain strong moving forward,” he said.

Speaking at a series of producer presentations around New Zealand, Fontes told local farmers that a shift towards more intensive beef production systems was emerging in Brazil, with expectations that by 2025, 20 percent of beef would be produced through a feedlot system – up from 10 per cent currently.

“We are also seeing Brazilian farmers increasingly adopt integrated crop-livestock systems to utilise their maize or soybean crops, and it is estimated that five million hectares are farmed this way,” he said.

While intensive production systems would increase the quantity, and also quality, of Brazil’s beef, Fontes noted that the country was still lagging behind the sophisticated production systems of the US and Australia – where feedlots account for around 90 and 30 per cent of beef production, respectively.

While New Zealand does not have a large feedlot sector and relies on pasture-fed production systems, Fontes said that in a lot of developed and developing markets, demand for grass fed beef would remain strong and experience further growth in the future.

Brazilian farmers were also focused on improving genetics, with British and European breeds such as Angus and Hereford increasingly incorporated into the national herd through crossbreeding.

“If Brazil can lift the productivity of our cattle herd – which stands at 220 million head –it could emerge as the world’s largest beef producer,” he said. “Currently the US are the largest producer, yet they have around 90 million head of cattle,” he said.

As the world’s second largest beef producer, Brazil also holds second place in global beef trade, with key markets including China, Egypt, Russia and the EU.

“Brazil is set to become the biggest supplier of beef into China, with around 200,000 tonnes expected to be exported this year,” Fontes commented, “however, most of this growth represents a transition from the Hong Kong market to official Chinese channels.”

According to Fontes, Brazil was also on track to secure access to the US fresh beef market, with the first shipment anticipated by the middle of the year.

“While exports to the US will be limited by quota agreements, access to the US market will improve Brazil’s position in international markets and could be the catalyst for other countries to open their markets – with sights set on Japan, South Korea, Mexico and Canada – although this could be a long way off,” he said.

Fontes said Brazil’s improved trade position wasn’t, however, expected to erode New Zealand’s market share, with global beef consumption forecast to continue to outstrip Brazil’s rising production, with China, in particular, a growing market given population growth and increased demand for red meat.

“Having said that, once Brazil improves the organisation of its beef value chain, which is achievable in the next 10 to 20 years, we could see competition increase,” he said.

Fontes said there were challenges to the outlook for Brazil however, with the country facing infrastructure bottlenecks as well as political and economic uncertainty.

“GDP is expected to fall by more than three per cent this year. This, though, has seen domestic beef consumption decline in favour of cheaper proteins such as poultry which has led to a greater proportion of beef directed into exports”, Fontes said, “with export competitiveness aided by the devaluation of the Brazilian real.”

“The weak Brazilian exchange rate supports Brazil’s competitiveness into China from a price perspective,” he said, “though we would expect the per unit price of Brazilian beef to stabilise with the currency not likely to fall further.”

Responsible for analysing the beef sector for Rabobank in Brazil, Adolfo Fontes previously spent five years as the market intelligence coordinator for a leading international company in the animal nutrition business.

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