In the scope of world affairs, it's one of the smaller countries on the horizon. But in the beef business, Uruguay is looming large on global radar screens.

This South American country nestled between its giant northern neighbor — Brazil — and Argentina, a Spanish cousin to the south, has become a major player in global beef trade. And more than a small concern to U.S. cattle interests.

The emergence of Uruguay on the world scene was triggered in 1995 when it was declared free of aftosa, or foot-and-mouth disease (FMD), by the World Organization for Animal Health (OIE). This opened access to several international beef markets — including North America — that had been closed to Uruguay's fresh and frozen beef. Uruguay briefly suspended exports in April 2001 when new FMD cases were found near its Argentine border.

“But since August 2001, no new cases of FMD have been found in my country and we were able to again access markets that had been closed,” says Uruguay cattle farmer Guzmán Tellechea. He's a board member of the Instituto Nacional de Carnes (INAC), Uruguay's meat export federation. “We are very proud of the beef we produce because of its safety and wholesomeness recognized around the world.”

NAFTA countries were among the markets that opened in June 2003 with Uruguay's attainment of FMD-free with vaccination status.

INAC president Luis Fratti says Uruguay has worked hard to remain FMD-free in the face of recurring FMD outbreaks in both Brazil and Argentina.

“Our neighbors still can't have free access to many markets globally due to aftosa problems,” Fratti explains. “They're restricted to exports of only cooked beef to the U.S. and many other countries. We think that situation will remain so for quite some time.”

Tellechea cites other important factors differentiating his county's beef industry from its neighbors'. Most importantly, nearly all its 12 million beef cattle are of English genetics — Hereford and Angus — compared to Brazil's 190 million-head cattle herd that is 85% Bos indicus (Zebu) species. Tellechea says there will always be “fundamental differences” in the eating characteristics of beef produced from English breeds vs. Zebu cattle.

And while Argentina boasts a cow herd of 55 million head — of mixed English breeds and Zebu — Uruguay claims a more highly-evolved industry infrastructure and more cooperation among industry segments.

None of the three South American countries have significant grain-finishing systems for cattle. In some cases, particularly Argentina and Uruguay, small amounts of corn are fed in short-duration “hybrid” finishing systems to boost gain and quality in the final phases of pasture growth.

Staggering imports

Via efforts by INAC and producers like Fratti and Tellechea, Uruguay beef imports to the U.S. have increased at a staggering rate. In 2004-2005, according to Foreign Agricultural Service data, U.S. importers purchased an average of 157,000 metric tons (mt) of fresh and frozen beef from Uruguayan beef processors. That's up from 32,000 mt in 2003.

This beef — mostly lean-beef trimmings to be ground for hamburger (see sidebar) — crossed the U.S. border after importers paid the 26.4% over-quota ad valorem tariff on amounts over an annual aggregate of its tarrif-rate quota (TRQ) of 20,000 mt. Imports within the quota are subject to a nominal fixed tariff of 4.4¢/kilo (about 2¢/lb.).

“Last year, U.S. beef importers paid nearly $100 million to the U.S. Treasury due to this tariff,” says Juan Lema, INAC's director of external merchandising. “And even though importers pay the tariffs, we must adjust our prices here to stay competitive with countries like Australia and New Zealand — our major competition in the U.S. lean-trimmings market.”

He says the stiff tariff seems to be working, as U.S. beef imports from Uruguay have lost a little steam. Through July 2006, U.S. importers bought 70,000 mt of beef from Uruguay, down 37% from previous year-to-date levels.

Lema and an INAC delegation traveled to Washington, D.C. earlier this year to lobby a TRQ increase. Since Australia and New Zealand haven't historically filled their respective TRQs, they argue the U.S. should reallocate parts of those quotas. Lema says the effort was met with a cold shoulder and the delegation went home fully, but not unexpectedly, disappointed.

“Beef exports are very important to our nation's economy — and to the Uruguay cattle industry,” he says. “Nearly 80% of Uruguay's beef production is exported, representing 6% of the nation's gross national product. Therefore, we have to explore all opportunities to maintain our export momentum.”

A story to tell

INAC is going back to the drawing board. Accepting that Uruguay's U.S. TRQ will likely remain at 20,000 mt, and that U.S. beef-trimmings demand is projected to grow only 1-2% annually near-term — the attention is turning to export of whole-muscle cuts.

“We have a great story to tell in the way we produce beef,” says Pablo Caputti, INAC assistant director of international markets. “We think we can use our national identity of ‘small and green’ to increase our markets globally for our higher value products.”

He says Uruguay placed third in a January 2005 Yale University/University of Columbia world environmental sustainability index of 146 countries. And INAC has developed an ad campaign promoting Uruguay's “grass-fed/free range” beef-production systems that emphasize no anabolics and growth hormones are used. The ads also trumpet Uruguay's statutory ban on animal protein in cattle feed — and that producers and processors adhere to strict codes of animal welfare and humane harvest.

And, in May, OIE declared Uruguay “BSE Free.” Uruguay even advertises it has had no cases of E. Coli O157:H7.

In fact, Caputti embraces U.S. efforts to initiate country-of-origin labeling (COOL) of beef products. With 100% traceability through a mandatory national animal ID system, Uruguay is linking its beef-supply chain from the source farm through fabrication to a series of quality-production standards and operating procedures.

“With our cost-of-production advantages, and this clean, green production system that can be documented, we can compete for market share in any meat case in the world,” Caputti says. “We're not afraid of America's COOL requirements, if and when they become law. In fact, we think putting a country label on a beef package is a good idea.”

Message for U.S. producers

Caputti says Uruguayan cattle farmers recognize their industry will never attain the scale of the U.S. beef industry. The country is simply too small, and its culture and natural resources will keep Uruguay in the realm of grass-fed beef countries.

But Uruguay lays claim to a technologically modern cattle production and beef processing industry enhanced through the development of a sophisticated meat-supply chain.

“The smaller stature of the Uruguayan beef-supply chain provides a degree of flexibility for making the best of market opportunities,” Caputti says. “Therefore, the speed of action and reaction of the meat chain to customer demands adds to the high potential of this industry.”

This reaction ability is also reflected in Uruguay's ability to address global consumer demand for more tender beef products. In 1990 the national slaughter comprised almost 80% steers older than 3Ω years. In 2000, “adult” steers were reduced to 50% of the slaughter mix, thereby advancing better overall meat quality.

In response to consumer demands, Uruguay is developing product labels for Certified Natural Beef, Certified Organic Beef, Certified Hereford Beef, and Certified Uruguayan Angus Beef.

“These markets are among the fastest growing of all beef-consumer segments — especially in North America,” Lema says. “American producers must realize we can develop similar programs and may have lower costs relative to some of their systems.”

There's no question these programs represent competition to certain segments of the U.S. cattle industry.

“Ultimately, the intent is to certify the whole country conforms to a process of producing high-quality, grass-fed beef,” says Kansas State University economist John Fox in a paper written for the University of California Agricultural Issues Center.

“Clearly, some countries such as Uruguay may have highly differentiated products that become more competitive with U.S. beef,” Fox says. He adds a warning for U.S. producers involved in alliances seeking to differentiate their beef by geographic origin or by the process in which the beef was produced — especially grass-fed systems.

“They must realize producers in other countries can develop similar products,” Fox says, “And in a global beef industry, domestic (U.S.) certification programs are not likely going to present significant barriers to market entry.”

Making the case for trimmings

Some U.S. beef producers believe beef imports are harmful to their industry and should be sharply restricted. Although a highly modified system has been in place for decades to limit U.S. beef imports via a tariff rate quota system (except from NAFTA countries), imports continue to flow across the U.S. border.

But the case can be made that imports of lean-beef trimmings are a surprising bonus of the global beef industry, says Thomas Elam, adjunct fellow with the Center for Global Food Issues, a project of the Hudson Institute.

The beef that makes up the U.S. ground-beef supply consists mainly of two types of beef trimmings product — 50% lean (50s), mostly from grain-fed cattle; and 90% lean (90s), mostly from cull beef and dairy cows.

Elam says each type alone has little value in our highly evolved food products marketplace. “In fact, most 50s would go into the waste stream unless mixed with leaner 90s,” he says.

The U.S. domestic market faces an increasingly short supply of 90s due to growth in ground-beef demand. This is exacerbated by the long-term trend toward fewer dairy cows and increasing specialization of the U.S. industry in the high-value end of the grain-fed market.

On the other hand, several countries, such as Australia, New Zealand, and more recently Uruguay, have been able to use their comparative advantages in grass-fed beef production to become important suppliers of 90s into the U.S. beef market. High, relative beef prices in the U.S. have also attracted beef imports.

“Increased imports of 90s during the foreseeable future will be required to maintain or improve the value of the domestic 50s supply,” Elam explains.

He says, when one looks at the total picture, including the value of all U.S. beef going into the ground-beef supply, imports of lean beef trimmings actually enhance the value of the U.S. beef market and overall cattle prices.

“Attempts to restrict imports of lean trimmings into the U.S. would very likely prove to be counter productive for producer profitability,” Elam concludes. “In addition, importing lean trimmings allows U.S. cattlemen to maximize their competitive advantage of fed-beef production.”

Elam says it comes down to a basic economic question.

“Which would you rather do, sell calves that will end up as high-value fed beef, or take those same calves and sell them as lower value grass-fed cattle?”