The first question most American cattle producers ask when pondering world beef markets is “Just where does Brazil fit in worldwide beef production?”
Ask Dennis Carl, a member of the Australian Meat Council and a packer/exporter, and he'll tell you it's becoming increasingly hard for his country to compete with South American producers.
“They have massive herds, an abundance of natural resources, very low currency rates and a low cost of production,” Carl says. “Once they overcome their animal health problems, which they're slowly but surely doing, Brazil will be probably the biggest threat of all to Australian beef exports.”
World's Largest Beef Herd
Estimated at 160 million cattle (all beef cattle and calves), Brazil has the world's largest beef producing herd. But it's second to the U.S. in beef production where all beef cattle and calves total 96.1 million.
Brazil's cattle numbers have increased 20 million head from just three years ago. The growth was fueled by export markets that grew by 50% following a 40% devaluation of Brazil's currency (the Real) in 1999.
Today, 70% of Brazil's beef goes to the European Union (EU). But exporters are expanding other markets (including the U.S.) and opening new markets, principally in Asian countries. And Brazil is already strongly competitive with Australia in the low-quality beef trade to the Pacific Rim, the Middle East and Europe.
Brazil, whose worldwide beef exports are predicted to increase by 10% in 2003, can export only cooked and preserved beef to the U.S. due to its foot-and-mouth disease (FMD) status. The past few years, U.S. imports from Brazil, which aren't subject to quota restrictions, routinely have accounted for 4-5% of U.S. beef imports, or 0.35% of total U.S. supplies.
One of Brazil's major goals is to export fresh, chilled and frozen beef to the U.S., and a national FMD eradication program is moving generally from south to north. The goal is to eradicate FMD in Brazil by 2005, and from the continent by 2009.
To accomplish this, Brazil has established FMD-free zones and buffer zones. These free zones are based on the regionalization of production systems and trade of animals. Permanent checkpoints and mobile inspection teams are strategically distributed between the risk zones and buffer and FMD-free zones.
USDA is currently completing an FMD risk assessment, which will be followed by an economic impact assessment. The USDA rule-making process can take from six to 24 months. Even if a final rule granting Brazil permission to export beef to the U.S. is published, tariff rate quotas will likely restrict those imports.
For many reasons, including disease control, Brazil is phasing in a mandatory national cattle identification (ID) and traceability system.
Starting last June, all cattle producing beef for export to the EU had to be enrolled in the program. Any animals destined to other foreign markets must be enrolled by December 2003. Producers located in FMD-free areas are to be in the program by the end of 2005. By 2007, all cattle and buffalo in the country must be in the program.
Last year, Digital Angel Corp., South St. Paul, MN, signed a 10-year agreement with Brazil's livestock export certification agency, Embrapa (Brazil's federal agricultural research agency) and the Ministry of Agriculture. The purpose is to develop a national ID and food safety-tracing program for livestock.
Many beef processors have already completed functions that trace individual cuts all the way back to the individual animal and its producer.
Eyes Wide Open
In mid-February, 30 Americans traveled to Brazil on a farm and ranch tour hosted by BEEF magazine and The Corn and Soybean Digest (formerly Soybean Digest). Here are some observations from the group.
A second-world transportation infrastructure limits Brazil's agricultural growth and access to international markets. The country is focused on improving roads and highways, building more rail and port systems and increasing cold storage and warehouse capacity.
Most Brazilian employers pay the equivalent of $50-100/month for farm labor, though they must pay an equal amount to cover employee benefits. But, observers warn against comparing wage levels between this and other economic systems.
The overall cost of producing slaughter cattle in Brazil is estimated at 33-50% of that in the U.S.
Cattle producers routinely wait 30 days for payment from the packing plant. Meanwhile, packers wait 25-30 days for payment from retailers and importers.
About 80% of all cattle in Brazil are based on tropics-friendly Nelore (zebu-type) genetics. While English and Continental breeds are commonly used in Brazil's southern regions, crossbreeding is slow to come in northern tropical regions.
Brazil produces primarily grass-fed beef with average age at slaughter of 20-30 months. Carcasses yield an average of 50-55% — far below U.S. standards.
Depending on the region, landowners must keep (or return) 20-50% of private land in ecological preserve. Also, all riparian areas must be in vegetative buffer zones. No income can be generated from any preserve.
Back To The Competition
The American tour group felt the central-west region of Brazil, at least today, is a greater competitive threat to the U.S. soybean industry than to the U.S. beef industry. The area is simply more suited to growing and exporting beans than beef.
That doesn't mean this region of Brazil — with literally millions of acres open to expansion — can't or won't be grazed in the future. But before the land can be grazed, it must be cleared of native vegetation and reseeded to exotic forage species — mainly species imported from Africa.
For now, most Brazilian cattle farmers are relegated to primarily commodity beef production. The better cuts will continue to be boxed and shipped overseas where hormone-free Brazilian beef is in high demand — and “quality” is viewed differently than in the U.S.
Brazilian farmers, of course, will also continue to satisfy strong domestic demand for churascaria (traditional Brazilian barbeque). Here, the individual muscle cuts are marinated, sliced thinly against the grain and placed hot on the plate.
Sleepless In America?
Chuck Markley, a Byron, MI, farmer-feeder was one cattleman on the tour. He says he's not losing sleep over Brazil.
“I'll start getting very concerned if they ever decide to improve the quality of their beef by feeding grain,” he says. “We saw some places where they're cross-breeding to develop more muscle in their cattle and be more productive.”
Allan Feller was very impressed with what he saw in Brazil. He's a cattle feeder and commodity broker from Wisner, NE.
“Their marketing system is more organized than what I thought,” he says. “But, the market trades more off of supply and demand than futures or exchange markets.”
Feller sees Brazilian cattle as strictly commodity cattle. He says everywhere the group went they ate what was among the best beef Brazil had to offer.
“The beef was still tough. It had no marbling and had to be sliced really thin in order to eat it,” he says. “With all the crops they raise, I'm surprised they don't finish more of their cattle on grain.”
Van Seney, a farmer/rancher and cattle feeder from Waitsburg, WA, was prepared to see vast areas of lush cattle pasture.
“It was far more lush and vast than I even imagined,” he says. “I've never seen country as lush and productive.”
But, Seney was far less impressed with the government restrictions placed on Brazilian farmers.
“And there's a lot they have yet to do with their infrastructure — roads, ports, rail system,” he says. “Even if the money is there to build infrastructure, I don't know if it's going to be directed to where it's needed.”
He was also surprised at the environmental concern — and government regulations. “I would never thought Brazilian farmers had to follow so many environmental rules,” Seney adds.
Walt Stafford, Richland, MI, is concerned that as today's advances in livestock genetic technology — DNA testing, gene splicing, etc. — finds its way south, Brazilians will be able to improve the quality and tenderness of their Nelore-based beef supplies.
“They can certainly adopt technology as easily as we can — these are things we need to be aware of as we look at Brazil's beef industry,” he notes. “It's definitely a country to watch.”