Meat Matters

Argentina Presents Lesson In Market Interference

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The grass isn’t always greener on the other side of the fence. Sometimes it’s browner. Just ask cattle producers in Argentina and Australia. They’ve endured the worst droughts in their lifetime, and it is one reason why the global cattle herd is shrinking.

BEEF readers who have visited Argentina know what a dynamic beef industry it has. Most people come back raving about the great beef and the glorious pampas on which cattle are raised. It’s little wonder that Argentines were the world’s No. 1 beef eaters. Heck, even tennis pro Juan Martin del Potro attributed his winning last year’s U.S. Open to eating beef in his hometown of Tandil.

Argentina’s industry, though, has also been hit by pervasive government interference in its cattle and beef markets. Imagine if Washington suddenly decreed a limit on U.S. beef exports in an attempt to keep the price of beef down at home. That’s what occurred in Argentina.

Several years of drought forced many producers to sell their herds. But others have also turned their fields over to more profitable soybeans, blaming the government for eroding ranching profit margins with export curbs and price caps.

Some reports say the Argentine herd has declined by 10 million head in the past four years, to 48-49 million head. Beef production is set to fall 24% this year to about 2.6 million metric tons, which continues to restrict Argentina’s beef exports. It was the world’s fourth-largest exporter in 2009, shipping 653,000 metric tons, but is expected to slip to eighth place this year.

Not surprisingly, Argentines’ beefy appetites have also taken a beating. Per-capita consumption fell 18% in the first seven months of 2010 vs. last year, and Uruguayans are now the biggest per-capita beef eaters.

Australian producers weathered their drought much better. The national herd fell by only 1 million head in two years. Producers have just experienced their wettest winter in years, which has produced near record-high cattle prices. That’s because the prospect of ample green grass is causing producers to hold back cattle.

Most Australian producers are much happier than two years ago. But some aren’t, and they’re demanding that Meat and Livestock Australia (MLA) – the industry’s main marketing body – be scrapped.

The parallels with this move, and producer discontent here in the U.S. over the beef checkoff and support of USDA’s proposed regulation on livestock marketing, are strikingly similar. The fringe group leading the attack against MLA sounds just like certain groups here in the U.S.

All these groups have things in common. Their members seem embittered against the rest of the industry. They make wild and erroneous claims against other sectors or entities. They blame others for their supposed woes. And they believe their remedies will cure all their complaints.

What a delusion. These folks don’t realize that their actions will only hurt themselves. Supporting more government restrictions on the market, as in the U.S., or MLA’s dissolution isn’t just pitting producer against producer. It’s forcing the beef industries in both countries to waste precious energy to defend themselves when the real focus should be on how to grow demand for beef so that cattle producers can feel confident about expanding their herds. Some producers see other producers, or packers, as the enemy. But the only real enemy to beef is competing proteins, notably chicken.

The other lesson for U.S. producers is that government interference in the cattle and beef markets can severely damage an industry. Just think back to the beef price freeze under President Nixon. Argentina’s shrinking herd means fewer producers and packers. Beef plants are currently operating at only 60% of capacity. At least 10 have closed and more are likely to do so.

It’s not far-fetched to imagine that kind of scenario here if USDA’s proposed rule takes effect.
-- Steve Kay

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Steve Kay offers a unique, big-picture perspective on the North American meat and livestock industry.

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Steve Kay

Steve Kay is editor and publisher of Cattle Buyers Weekly (www.cattlebuyersweekly.com ) subscription newsletter, the number-one marketing and business newsletter for the meat and livestock...

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