BRAZIL’S big moves on the beef trade into China is not necessarily the tsunami for Australia it might at first appear but the key will be setting ourselves aside as a superior product.
Prominent agribusiness outfit Rabobank’s latest Beef Quarterly report, released today, has Brazil dominating global beef trade this year courtesy of favourable currency rates, improved market access and greater supply.
The South American beef giant should become the leading beef exporter to China and its access to the US fresh beef market is also expected this year - two key markets for Australian beef.
However, report lead author Rabobank senior animal proteins analyst Angus Gidley-Baird said that won’t necessarily spell disaster for Australia in China - in fact sustaining supply in a market where demand is growing could be a good thing at a time when Australia has less volume to offer.
Free Trade Agreements look like serving Australia very well under the set of global beef trade circumstances shaping up for 2016.
While it’s hard to isolate and qualify the benefits of an FTA to the individual producer, Mr Gidley-Baird said the the beef industry had kicked some major goals recently - Korea in 2014 and Japan and China last year - that were now setting the scene for advantages in markets that Brazil was targeting.
In China, Australia has a two per cent lower tariff than other exporters, which will be removed at that rate annually until it hits zero in 2024.
“By 2025 we are predicting China will need an extra 2m tonnes of beef and that will come mostly from Brazil and Australia,” Mr Gidley-Baird said.
In January this year Brazil exported 8900t to China, against Australia’s 5317t.
Chinese import figures showed the per unit import value of the Brazilian product was US$4.87, while Australia’s was $4.61.
“That is a per unit value, so it will be influenced by what cuts are being sold and the markets they are going to but what it shows is that the perception Brazilian product is a lot cheaper is not the case,” Mr Gidley-Baird said.
“Our tariff advantages will make a difference to Chinese buyers weighing up the two.”
Brazil does not appear to be trying to negotiate an FTA with China, focussing instead on access to the US.
FTAs serve as a green light to reach out to trading partners, Mr Gidley-Baird said.
At last month’s Northern Territory Cattlemen’s Association conference in Alice Springs, he presented a slide which showed Australia had an agreement with regions which represented 34 per cent of world beef consumption.
That meant the FTAs Australia had would have flow-on benefits, he said.
Indeed, an investigation by Deloitte has estimated the value-add of the China FTA to Australia’s beef industry, based on the combination of higher prices and higher output, to be worth approximately 2.5 per cent, or $350 million.
Other modelling shows up to an 8 cent per kilogram liveweight improvement, Mr Gidley-Baird said.
“There are other spin-offs from FTAs which are just as beneficial, such as online selling opportunities,” he said.
“We’ve seen Bindaree Beef’s First Cut and Devondale using this platform to secure markets and protect against low-cost competition.”
However, technical barriers, such as HGP requirements and blue tongue zones were now becoming more prevalent and it was incumbent on the industry to develop strong ties so they could be resolved, he said.
The Rabobank Beef Quarterly says that while the US is starting to rebuild, production levels are still at 20-year lows so essentially, South America is the only major beef-producing region expected to exhibit strong new growth in 2016. Most will come out of Brazil but Argentina and Uruguay will also increase exports.
Brazil is forecast to sent around 200,000 tonnes of beef to China - double that shipped last year.
However, Mr Gidley-Baird pointed out a lot of that growth represented a transition from the Hong Kong market to official Chinese channels.