Seismic shift in global beef industry
The global beef industry is on the cusp of substantial change.
The mega forces include a huge increase in demand from China, an ongoing decline in American ranching, and the proposed opening up of the United States domestic market to beef from Brazil, which is the world leader in quantity of beef exports. New beef-raising technologies will also have an impact.
These changes are going to create both challenges and opportunities for New Zealand. Currently, America is New Zealand's most important beef market. Traditionally, we have sent almost all of the beef from cull cows to the US where it is mixed into hamburger beef. A lot of bull beef and forequarter meat from New Zealand steers has also ended up in the US. Tariffs have been minimal.
In comparison, some of our competitors such as Uruguay have both quota and tariff restrictions. In the case of Brazil, there has been a total ban on chilled and frozen beef.
Some years ago I was puzzled by the restriction on the beef trade between Brazil and the US. Ostensibly, the restriction was because of the threat from foot and mouth disease. However, the non-Amazonian regions of Brazil have been free of foot and mouth for many years, and there are rigorous monitoring systems. It was on a Brazilian airline flight one day, sitting beside a senior Brazilian agribusiness executive, that I gained an insight into the politics behind the ban. This executive told me that, whenever the Brazilian Government brought up the issue of beef with the US Government, the US Government would reply that they were not quite ready to have that discussion. Then the next day the US Government would bring up the issue of Brazilian tariffs on American cars, and the unsatisfactory situation in regard to Brazilian royalty payments on American intellectual property. The Brazilian Government would then reply that they were not quite ready for those conversations.
It seems that the US and Brazilian Governments are now ready for those discussions, and progress is being made. No doubt there will be concessions from both sides, but a key issue from the American perspective is that their own supply of beef has been in decline. Throughout the rangelands of America, the number of breeding cows has been declining for quite some years, with consequent impact on the number of young stock going into the big feedlots. The United States Government has now agreed in principle that beef can be imported into the US from 13 Brazilian states. There will still be some restrictions which are likely to have more effect on chilled rather than frozen beef but, in any case, it is in frozen hamburger beef where the big opportunities lie. The full details have yet to emerge, and there may still be substantial tariffs, but there is little doubt that the American market is going to be much more lucrative than the other options available to Brazil. So the end game is becoming clear: in future Brazil will be a major supplier of beef to the US.
If the supply of Brazilian beef to the US were the only mega force about to affect the Zealand beef industry, then we would indeed have something to worry about. However, the emerging demand from China for beef has the potential to more than compensate for increased competition in the North American market.
Quite simply, the Chinese beef industry is in a mess. Traditionally, much of the Chinese beef industry has been based on small-scale farming, but that style of farming has no future in the modern China. Chinese youth have no desire to be small-scale farmers, and Chinese villages are increasingly becoming places where only middle-aged and elderly folk live. Labour is at a premium, and one of the first casualties is the household beef cow. This is despite Chinese wholesale prices for beef doubling in the last five years. Major outbreaks of foot and mouth disease have also had an impact.
The extent of the recent decline in Chinese beef numbers is only now becoming apparent and precise numbers are not available. However, recent reports include declines in breeding cows of more than 50 per cent in some provinces. Meanwhile, the market demand from urban consumers keeps increasing.
The situation with New Zealand exports of beef to China is changing rapidly. Within the last 18 months, sales to China have gone from almost nothing to a situation where they exceed those to either Japan or Korea which, after the US, have traditionally been our next most important markets.
My expectation is that we will see further spectacular growth over the coming months and years.
The future of the New Zealand beef industry is also closely linked to the dairy industry. To produce milk, each cow needs to calve each year so as to start a new lactation. However, only about 30 per cent of the newly born calves are needed for dairy replacements. Currently, some millions of these surplus dairy calves are slaughtered each year as bobby calves.
The key technology that can transform the dairy beef industry is the use of sex selected semen. In America this is already being widely used. The best cows are mated with female selected sperm from dairy breeds, and everything else is mated to male selected sperm from beef breeds.
Here in New Zealand, and related to the specific conditions of our seasonal pastoral farming, the accepted wisdom has been that using sex selected semen is not economic. The problem is that conception rates are a little lower, and this is critical in a seasonal system. Hopefully, if the conception issue can be solved, then this will no longer be an issue. The current wastage will then no longer be necessary, and new beef production opportunities will be created.
The key message in all of this is that change is upon us. It is our choice whether we embrace the forthcoming market and technology opportunities.
*Keith Woodford is Professor of Farm Management and Agribusiness at Lincoln University. His archived writings can be found at http://keithwoodford.wordpress.com
Sunday Star Times