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Argentine beef: changing all the time but with new production and market opportunities

By Liz Bonsall, Promar International , 07-Sep-2012

Related topics: Livestock, Analysis, Beef, Pork, Poultry, Argentina

Argentina has a long tradition when it comes to producing high-quality beef, but the internal and external dynamics within the industry are still subject to ongoing change. This presents both challenges and threats to the future development of the sector.

While Argentina is still a major beef consumer, the last few years have seen difficulties in production and, consequently, a dip in consumption. A recovery now seems likely, however. In terms of the total number of beef cattle, this has fallen by 15% between 2005 and 2010 from 57 million head to 48 million head. The amount of beef produced has seen a decrease of 5% year-on-year, from 3 million tonnes (mt) in 2006 to 2.5mt in 2011.

The decrease in production has mostly been seen since 2005, with the impact of stock liquidation due to severe droughts in 2008/09 causing unusually high slaughtering levels and so causing low calf births in 2009/10. A recent National Food Safety and Quality Service of Argentina (SENASA) report stated there are now around 210,000 cattle operations in Argentina, with an average herd size of around 233 head.

This fall in production is coupled with the uncertainty of the government’s future policy, mainly in terms of export quotas. For many years, the Argentine government has put in place policies to protect the domestic price of beef. Since 2006, this has been through the implementation of quotas on exports. The impact of this, however, has been a decrease in beef exports in recent years. To control internal beef prices so that it remains affordable for all, the government also fixes, on a weekly basis, maximum retail prices and prices paid to the producer and wholesaler of meat products.

High domestic consumption

Beef production has been constrained by government policy, with some arguing this goes back as far as the 1930s, but with the current policies primarily affecting the export opportunity and, as such, production. Of the beef produced in Argentina, 80% is still destined for the domestic market.

Argentina has long been one of the largest consumers of beef in the world. Back in 1958, 98kg per capita of beef was consumed annually, but by 2000, this had decreased to 65kg per capita. The decline in production in the late 2000s and increasing beef prices, caused consumption to dip to 54kg per capita. Consumption is now expected to rise again to 58kg per capita in 2012, as prices decrease.

Production methods have changed considerably too. Long gone are the times when Argentine beef production was all based on cattle ranching. The last 10 years has seen the growth of the feedlot system, with some production changing from being grass-fed to corn-fed. Many farms have altered from using land for grazing their beef cattle to cultivating for soya and other crops. This has been encouraged by the provision of government subsidies for the growing of crops.

While stock reductions meant that production has fallen and impacted on the price of beef, farmers are now rebuilding their herds, though they are still cautious due to uncertain local and international prices. This re-building is evident in the number of beef cattle increasing from 2010’s 17.9 million head, to 2011’s 18.4 million head.

In terms of meat production, forecasts from OECD FAO show that, from 2011, beef production is expected to see a year-on-year increase, surpassing 3mt in 2015. This level of production was last seen in 2009.

While beef consumption in Argentina has fallen, the consumption of alternative proteins, such as pork and poultry, has increased. The consumption of chicken has risen by a third in a year to 37kg/head, four times as much than was consumed 30 years ago. Pork sales have increased by 8% over the past eight years.

Export performance

Argentina’s export market performance has often been somewhat erratic. Exports in the 1980s typically totalled 250,000 tonnes (t) and, by 2005, they stood at 770,000t, but by 2011, they had fallen back again to just under 250,000t. The dip in exports since 2005 mirrors the government policy on export quotas and the subsequent fall in production. Between 2006 and 2011, exports continued to fall, dropping by some 45%, and an even larger fall was seen between 2009 and 2010 – a 53% decrease.

Frozen beef remains the largest export category, accounting for 46% of exports in 2010. Russia has long been the one of the largest markets for Argentine exports, of frozen beef. However, recent years have seen the Russian market experience year-on-year decline, at 47% lower in 2011 than in 2010 in terms of volume, and falling by 64% in terms of value.

The EU is the largest market for Argentine beef, with exports expected to have increased in 2011, with around 60,000t being marketed here. Of this, around half is traded under the Hilton Quota, where high-value beef cuts, such as sirloin and fillet, are exported to the EU under reduced tariffs, although the quota is still not actually fulfilled.

Germany is the largest EU importer of Argentine beef, though this has been declining at 5% year-on-year and stood at 25,100t in 2011. Israel is also a strong market, but like Germany has seen a decline of 8% year-on-year with a 2011 total of 24,330t shipped. While these countries have seen falls, neighbouring Chile has increased imports by 24% year-on-year and exports are now totalling just under 22,000t. The demand for beef from the Middle East has increased, though these markets often prefer lower-value cuts, so this gives an advantage to Brazil over Argentina.

Future challenges

The fluctuation in  Argentinean beef exports looks set to continue in the future, due to the uncertainty of government policy and the preference to produce light steers with a shorter production cycle – producing high-quality meat, but less of it. The EU is still a challenging market with high quality and technical standards demanded, though the Argentine supply chain has seen the number of abattoirs, dual abattoirs and storage facilities increase, which underlines a growing sophistication within the supply chain.

The future looks set for the Argentine beef industry to return to the production levels prior to 2006. While the main policy of the government is to ensure the availability of domestically produced beef, there is still clearly the opportunity to increase exports through filling the Hilton Quota. A growing sophistication within the processing sector and also on the production side has allowed Argentina’s strong reputation for producing some of the world’s best steaks to be kept.

• Liz Bonsall is a research analyst at Promar International which is the agri food consulting arm of Genus plc and can be contacted at the following email address: Elizabeth.Bonsall@genusplc.com

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