The past decade has brought tremendous change to beef-production systems across the world. Nowhere is this more true than in South America. It's these systems — and the changes in them — that draw a great deal of attention as North American producers try to understand what's going on down south.
One of the most common mistakes is to assume beef systems in Brazil and Argentina are similar in character — and pose similar threats to U.S. beef producers. The reality is the two systems couldn't be more different.
Still, South America collectively represents a global beef-production powerhouse where the comparative advantage is in low-cost beef production. Typically, beef can be raised at 35-50% less in terms of volume than North American costs of production.
Led by Brazil and Argentina, South America will continue to use its low-cost, low-price advantage to slug it out for a lion's share of the global beef market.
Differences and distinctions
Today in Brazil, 70% of an estimated 190-200 million cattle are raised in the hot, humid tropics of the sub-Amazon Cerrado. This vast region commands a dependence on Bos indicus breeds — mostly Zebu types. The size of Alaska, the Cerrado is characterized by large grassland/scrubland plateaus with intermittent forests and river valleys. The annual wet-dry rainfall cycle typical of tropical climates presents unique challenges to season-long grazing.
Contrast this to Argentina's temperate Pampas grasslands populated predominately by Bos taurus breeds and English-type cattle. Of Argentina's 55 million cattle, 75% are raised in the Pampas, an area of deep, fertile and open soils that constitutes about one-fourth of Argentina's landmass. Temperatures are mild and rainfall is seasonal.
To the Pampas' south is Patagonia, where arid, windy valleys and plateaus dominate the landscape. To the north is a region of sub-tropical forests bordering Paraguay and Bolivia where commercial cattle raising plays a minor role compared to the incredible production potential of the Pampas.
But the differences between the beef systems of Argentina and Brazil extend far beyond the horizons of the natural environment.
In a global sense, Brazil's cattle industry is immature and can be measured more in decades than centuries. It wasn't until the 1980s, in fact, that Brazil's beef industry began to emerge from subsistence production to become recognized as a commercial, export industry. But even as late as 1986, Brazil was a net beef importer.
Since the early 1990s, Brazil's national cattle herd has grown at the rate of about 5 million head/year.
In Argentina, cattle raising dates back to the early 1500s. The new colony provided Spain with much-needed leather and cured meat — products easily transported across the ocean. The capital city of Buenos Aires grew with the cattle trade and the tanneries that lined the Puerto Madera district of the city.
The Argentine cattle industry has long since matured with the size of the national herd holding relatively stable for decades.
For beef consumers, the differences in these economic and ecological systems are manifested in innate distinctions in eating characteristics of the beef from cattle of Zebu and English breeds.
Argentine beef produced from mostly straight-bred Angus and Hereford tends to be more like what's produced in the northern and central U.S. and Canada — with eating characteristics similar to what we recognize.
Contrast this beef with Nelore, the principal breed of Brazil that can survive the tropical heat, humidity and insects. Nelore cattle are not as genetically predisposed to marbling as English-bred cattle, with a resulting dropoff in tenderness and product consistency.
Meanwhile, Uruguay, with 12 million cattle, produces beef on its Pampas-like grasslands from cattle of mainly Hereford genetics. But far more of Uruguay's beef production today (80%) is exported as opposed to Brazil's (20%) and Argentina's (currently less than 10%).
Like its neighbors, Uruguay produces beef with no added hormones, ionophores or “artificial” growth promotants. Likewise, none of the South American countries are mentioned in BSE-risk discussions.
FMD — “the” determinant
The overarching issue throughout South America, however, is foot-and-mouth-disease (FMD). Even after decades of effort, neither country has proven to global animal health authorities that they've effectively controlled FMD threats.
In Brazil and Argentina, veterinary surveillance, registration and identification of rural properties and animals, along with compulsory vaccination every six months, has led to establishment of FMD-free zones.
Still, North America and most of Asia won't allow imports of fresh, frozen or chilled beef from either country. Beef imports into these regions are limited to thermally processed products, such as corned beef and beef extract, which pose virtually no FMD risk.
It's widely recognized that in order for Brazil and Argentina to eradicate FMD and move into the FMD-free market, their neighboring countries will have to make serious moves to control the disease. And while their FMD incidents have tended to be sporadic and isolated to border regions, the risk of transferring the disease through raw meat to FMD-free countries is not zero.
In 2007, USDA proposed regulations that would relax its trade prohibition by recognizing Southern Argentina as FMD-free. For more on this emerging issue, see page 57.
Uruguay benefits from its small and transparent national herd with compulsory cattle ID/traceability systems, tight borders with Brazil and strict sanitary controls at every level of production.
When import restrictions were placed on beef from Canada into the U.S. in May 2003, Uruguay filled the void in beef trimmings and manufacturing beef imports.
Efficiencies and deficiencies
Even with 2.75 times the number of cattle as the U.S., the three South American countries — Argentina, Brazil and Uruguay — together just barely out-produce the U.S. in beef volume (12.5 million metric tons in 2007 vs. 12 for the U.S.). And, they don't come close with respect to the value of the beef they produce.
The list of productivity differences runs deep.
First, Zebu heifers reach puberty at an older age than heifers of Bos taurus breeds. Brazilian ranchers struggle to get their heifers bred as two-year-olds — let alone as yearlings.
Even in Argentina and Uruguay, sexual precocity is a problem, mostly due to nutrition but also because of within-breed type; and first-service conception rates will not stand up to North American standards. Mating of heifers averages 36 months with a normal calving rate of 65%.
While the more progressive Argentine or Uruguayan ranchers boast higher weights, most calves destined for grass-finishing pastures are weaned at 300-400 lbs.
In Uruguay, average slaughter age remains 36-48 months — with 800- to 1,000-lb. slaughter weights the norm. In Argentina, meanwhile, age of slaughter has dropped dramatically in the past decade from 36-40 months to 20-24 months; slaughter weights are similar to Uruguay.
In Brazil, average harvest age has dropped from 54 months to 38 months in the past 10 years. Slaughter weights tend to be lower than typical live weights entering U.S. packing plants, however. Brazilians also continue to take a hit with a 53% average dressing ratio vs. North America's roughly 63%.
When talking beef-production efficiencies, it would be a mistake not to mention Brazil's growing environmental movement.
Depending on the ecological region, landowners must maintain 20-80% of their private land in “environmental preserve.”
This doesn't include riparian zones where grazing prohibitions exist. In fact, no economic activity can occur within these mandatory preserves — and government and environmental watchdogs are making sure Brazilian landowners abide by the law.
Systems changing fast
Challenges notwithstanding, Brazil's rise to domination in world beef markets isn't a short-term phenomenon. But there are signs that, after 10 years, the growth in Brazil's beef herd is slowing. Driven by skyrocketing world grain prices and ethanol energy demand, enormous tracts of cattle pasture in the south and central regions of the country are being converted to crop production at warp speed.
As a result, cattle herds are being driven north and northeast from the traditional beef states of São Paulo and Paranã, where farmers can make more money with a plow than with a cow. As this shift continues, Brazilian ranchers become more reliant on the Nelore breed. The result is diminished prospects for grain finishing and intensive crossbreeding as herds move deeper into the tropical regions.
In those regions, transportation, energy and processing infrastructure have been slow to maintain pace with expansion of the cattle industry. Compare it to the post-Civil War expansion of the U.S. cattle industry into the U.S. West.
A similar crop/livestock tug-of-war over land use exists in Argentina.
But unlike in Brazil, government policies have worked to stifle Argentina's position in global beef trade. In 2005, the Argentine government initiated economic reforms designed to provide domestic consumers food at reasonable prices by first implementing measures to discourage beef exports.
The government has since set maximum feeder- and slaughter-cattle prices and minimum cattle-slaughter weights. Then, adding to beef producers' chagrin, it capped wholesale and retail beef prices for a dozen of the more popular beef cuts.
Consequently today, growing cash crops such as soybeans and corn is more profitable in the Pampas than raising livestock.
Interestingly, 10 years ago, grain finishing in Argentina was seldom mentioned in the same breath as beef. Today, the feeding picture is changing. To maintain beef production on less land — and poorer land — many cattle farmers are using corn and other feeds under “hybridized” fattening systems for two or three months before slaughter.
Argentina has a small but growing confined feedlot sector, where about 100 facilities supply 300,000 of the country's 13-million slaughter cattle annually. Cactus Argentina, a 25,000-head feedlot in Villa Mercedes — a joint venture with Cactus Feeders, Tyson Foods and a local company — is Argentina's largest feedlot.
Cattle feeders are currently compensated by the government for feed-corn purchases — as long as the beef they produce doesn't go into export channels. Ranchers finishing on corn under the hybrid systems aren't eligible for the compensation.
Clint Peck is director of Montana Beef Quality Assurance and a frequent visitor to South America.
The next 10 years
Brazil, Argentina and Uruguay will continue to compete more directly with Australian and New Zealand grass-fed beef in global markets than with grain-fed North American beef. But U.S. producers will continue to face increased competition from cheaper South American beef in many markets where “quality” in terms of eating characteristics doesn't matter.
For the past 10 years, low-cost production and aggressive global market access has been the name of the game in South America. Producers remain vigilant not to allow increased costs to erode their comparative advantages.
However, they face growing social and environmental pressures, and are bracing themselves for increased government meddling and consumer scrutiny. U.S. producers have been down these roads and know this all comes at a cost.
In Argentina, the future, beyond competition for land, is uncertain due to government intervention in the beef business. Policymakers must weigh serving domestic consumers who are the world's highest per-capita meat consumers, against allowing industry to service worldwide markets for Argentine beef.
In Brazil, the direction of the beef industry will pivot on increased competition for land and barriers to expanding agriculture into new frontiers. The needs of an exploding population, endemic poverty, rights of “landless” people and indigenous tribes, and deep-rooted corruption could override efficiency objectives and limit the rate of growth of the beef industry.
In Uruguay, expanded production through increased productivity and aggressive market promotion will help Uruguayan producers penetrate higher-priced beef markets globally. Keeping Uruguay out of places like Mexico and Asia continues to be a top economic and political priority for U.S. beef industries.
— Clint Peck