Australian Beef Bound for New Markets

03 July 2007

As the United States (US) begins to regain access to Japan and Korea, Australian beef exporters will increasingly pursue opportunities in alternative markets, a recently released report from the world’s leading food and agribusiness bank says.

According to the Rabobank Global Focus Report on beef, after a three year Bovine Spongiform Encephalopathy (BSE) triggered ban, competition from the US in Korea and Japan will continue to increase. At the same time as export demand from these North Asian markets subsides, increased beef demand from other markets, including developing countries, will see Australian exporters seek new customers the report says.

Report author, Rabobank senior Food and Agribusiness Research (FAR) unit proteins analyst, Wendy Voss says that as normal seasonal conditions return Australian cattle supply is expected to tighten, with cow and heifer slaughter, in particular, expected to decline as re-building efforts take place.

Tighter cattle supplies are expected to place pressure on feedlotters and abattoirs, although margins for these sectors will also depend on feed prices, the extent to which US re-entry into Japan and Korea affects demand for Australian beef, and the impact of the Australian dollar on export returns.

"The Australian dollar has increased by around 15 percent against the US dollar since the same time last year. For an industry like beef that exports nearly two thirds of its production, this has had a significant impact, eroding returns to exporters,” Ms Voss says.

US market outlook

The North American market outlook is positive for Australia, according to the report, which cites higher US protein and domestic fed cattle prices as key factors increasing the competitiveness of imported product.

In contrast to the fall in Australian manufacturing beef exports to its traditional US destination over the last five years, the market for primal cuts, chilled and grain-fed product and other niche products such as organic beef has continued to grow.

According to Ms Voss, this growth is expected to continue as the corn-based ethanol surge of recent years in the US has increased competition for feed grains, pushing the production price of many animal proteins higher.

“These increased US beef prices and an easing of demand for Australian beef in Japan and Korea should see exports to the US of chilled and grain-fed product increase over the medium term,” Ms Voss says.

The US “manufacturing beef” market is also expected to strengthen over coming years. The increased slaughter of 2006-07 in the US due to drought, combined with increased feed grain prices, is expected to restrict herd and beef production growth in the US in the medium term, according to the report.

“Whether Australia can take advantage of this market will depend on a number of factors, including the level of exports from Uruguay, whether the US permits imports of Canadian cattle and boxed beef from animals over 30 months of age, and if Argentina can gain access to the US market,” she says.

Developing markets

According to the report, developing countries are experiencing rapid growth in meat consumption, primarily pork and chicken but also beef, as incomes and populations continue to grow.

Referring to the OECD – FAO Agricultural Outlook 2006-2015, the report says that developing countries, particularly those in the Asia-Pacific and Latin America, will see a compound annual growth rate (CAGR) for beef consumption over the next decade of 2.78 percent, compared to 0.49 percent for developed nations. “This would see consumption of beef in developing countries reach around 48.4 million tonnes by 2015 compared to 28.3 million tonnes in developed countries,” Ms Voss says.

And although the OECD-FAO report also expects growth in supply from low-cost producers to these countries, according to the Rabobank report there is a growing middle to high income group willing to pay for what they consider a “quality” product. This segment, the report says, presents an opportunity for Australian beef producers.

“Over recent years exporters have found it difficult to justify the investment of time, money and product into these markets. But with the prospect of increased US beef exports to North Asia looming, interest and effort put into developing alternative markets should begin to grow,” Ms Voss says.

New competitors

As increased market access for US beef in North Asia squeezes the large market share gained in Japan and Korea since 2003, Australian exporters are expected to expand shipments into alternative markets, many of which are also open to beef from South American countries, including Brazil – the world’s largest exporter of beef in 2006 - according to Ms Voss.

While an increase in the value of the Brazilian currency, the real, and internal competition for land and capital resources means that Brazil is not expected to match the incredible rate of growth witnessed over the past decade, Brazilian production and exports will continue to grow.

“Despite its current exclusion from Australia’s key beef markets, Australia must continue to closely monitor the Brazilian beef industry,” Ms Voss said, adding that Australia has the difficult task of reacting to market events and issues impacting competitors, rather than exerting any primary influence on the world beef market itself.

“Balancing opportunities in new markets with growing competition in existing markets will be critical to the success of Australian beef exporters. Assessing the value proposition that non-traditional markets represent, in comparison to protecting an established position, will be the key challenge to maximising returns,” Ms Voss says.

Contact

For further information please contact Denise Shaw, Public Relations Manager (Tel: +61 2 8115 2744) or email on sydney.pr@rabobank.com.

back to top