Strong Beef Export Opportunities In Emerging Markets
BMI View: Favoured by two years of herd rebuilding, beef and veal production will be rather strong in 2013, reaching a record high of 2.2mn tonnes, up 3.3% year-on-year. Australia's exports should be boosted this season by increased demand from the United States and emerging markets. In the coming years, greater shipments to emerging markets, in Asia and the Middle East, should offset declining market share in Japan and South Korea, two traditional export markets where Australia faces aggressive competition from the US.
Favoured by two years of herd rebuilding, beef and veal production will be rather strong in 2012/13, reaching a record high of 2.2mn tonnes, up 3.3% year-on-year. Cattle slaughtered are estimated to reach 8.2mn heads, up 3.6% y-o-y. However, herd rebuilding will slow down in 2012/13, due to the hot and dry weather, which will hamper 2013/14 output growth.
Australia, which exports around 60% of its production, should maintain high export volumes in 2013 due to rising production and strong external demand. Beef and veal export volumes were rather weak in 2012, at 1.38mn tonnes, and value increased just 2% y-o-y, reaching AUD4.8bn (US$4.9bn), according to industry sources. Exports are expected to reach 1.41mn tonnes in 2013, slightly above the 10-year average of 1.37mn tonnes. More specifically, exports should be boosted by increased demand from the United States and emerging markets. We forecast the US beef and veal production to drop by 0.3% in 2013, as the drought and resulting poor pasture conditions and high feed prices led to a steep increase in cattle slaughtered in 2011/12, deteriorating the 2012/13 production outlook. This decrease in export capacity of the US will also benefit Australia in its other traditional export markets, Japan and South Korea, where Australia has been facing stiff competition from the US in recent years.
|Diversification To Gain Pace|
|Australia - Beef Exports By Destination (as % of total)|
In the coming years, Australia will continue to face aggressive competition from the US in Japan and South Korea as it attempts to regain the market share it recently lost (see our online services, January 23 2013, 'Japan Beef Sector At Risk Of Future Trade Barrier Reduction'). In February, Japan relaxed in its import regulations, allowing US, Canadian and French beef imports from cattle up to 30 months old (compared with a previous limit at 20 months). This will certainly increase US exports to Japan looking ahead. However, Japan will remain a key export market for Australia, especially given our view that the country will ease its trade barriers for beef in the coming years .
|Larger Opportunities In China And Philippines|
|Select Countries - Beef & Veal Consumption (% Chg Y-o-Y)|
Meanwhile, greater shipments to emerging markets, in Asia and the Middle East, should offset declining market share in traditional export markets. Exports to these markets grew from being almost non-existent in 2005 to represent 30% of total beef export volumes in 2012. More specifically, we see strong opportunity for increasing export volumes to China, South East Asian countries, such as the Philippines, Malaysia, and Indonesia, and to Saudi Arabia and United Arab Emirates. Russia, currently hovering around the fourth or fifth largest market for Australian beef exports, will also remain a market with strong growth. The country's recent accession to the World Trade Organisation (WTO) should ensure that market access (excluding technical issues) for beef and sheep meat remains at least at stable levels over coming years.
|Declining Beef Market Share|
|Select Countries - Beef & Veal Exports (as % of total)|
In these emerging markets, Australia will face competition from other emerging countries, such as Brazil and India, rather than from the US. India is already the largest beef exporter, with a 24% market share in 2013, and exports buffalo meat mainly to Vietnam, Malaysia, Egypt, Saudi Arabia and the Philippines, the very emerging markets Australia is looking to tap. This is because emerging markets - very price sensitive - will mostly import lower-priced frozen products for food manufacturing, which will favour Latin American and Indian providers. High quality Australian chilled beef (mostly going into high end steakhouses), however, will largely avoid the competitiveness issues associated with frozen beef. We also believe China will be the next battleground for Australia-US competition, as the US has managed to secure a market presence through Vietnam and Hong Kong despite the absence of a formal agreement with China.
|Notes: e BMI estimates. f BMI forecasts. Sources: 1 Australian Bureau of Statistics; 2 USDA.|
|Beef & Veal Production, '000 tonnes 1||2,115.0||e||2,185.0||f||2,230.0||f||2,255.0||f||2,280.0||f||2,305.0||f|
|Beef & Veal Consumption, '000 tonnes 2||794.8||e||810.9||f||828.6||f||846.9||f||865.6||f||884.8||f|