2014 may, finally, be the year that U.S. beef producers have been waiting for. This year, according to a Rabobank analysis, may be the year that China officially reopens to U.S. beef imports.
The Chinese market, officially at least, has been closed to U.S. beef since 2003, shortly after the U.S. announced its first BSE case. An unofficial “gray market” exists, however, for U.S. beef exported to Hong Kong and Vietnam, which makes its way eventually to the Chinese mainland.
While the U.S. beef industry is glad for any export opportunity to China, the prospects for a full, official reopening of the Chinese market to U.S. beef is exciting. Beef is not a mainstay in the Chinese diet, but it is growing in acceptance and, as others have observed, 1.3 billion of anything is a really big number.
In the report, Rabobank’s Food & Agribusiness Research team says that local Chinese beef producers are facing many challenges, making it difficult for domestic production to catch up with demand in China’s beef market. While the Chinese government is now providing some support, the gap in productivity between China and other beef-producing countries continues to widen. That means China will need to allow a substantial increase in imports in order to cover the supply gap. Rabobank expects China’s beef imports to grow between 15% and 20% each year for the coming five years.
Initially, the report says any increase in beef imports will come from other countries. The ban on Australian fresh and chilled beef imports has just been lifted, Rabobank says, and China is likely to open the door to Brazilian beef in the coming months. By the end of 2014, China may open the market to U.S. beef.
Should that happen, the U.S. is already in position to move quickly to ramp up promotions and sales. The U.S. Meat Export Federation has an office in China and has successfully completed pork promotions that significantly moved the needle on U.S. pork sales there. With that infrastructure already in place, the U.S. is in position to immediately be a major player in the Chinese beef market.
That’s good news, because China is getting aggressive in importing beef. “China became a huge importer of beef in 2013,” explained Rabobank analyst Chenjun Pan. “According to official statistics, China’s beef cattle stock has been in continual decline since 2004, due to a lack of government support, low productivity, and the lack of farmers willing to invest in beef production, deterred by high costs and a shortage of labor.”
Rabobank expects rising urban income levels and government support to spur a slow recovery, but not fast enough to catch up with accelerating demand. The structural supply deficit will force an increase in China’s beef imports, including smuggled beef, of nearly 20% − or even double the current import volume by 2018.
China’s beef cattle supply shortage is a structural issue and the industry itself faces many challenges. It lags behind other major beef-producing countries in all the key aspects, such as genetics, breeding, productivity, farm management and grassland/feed resources. According to Rabobank’s report, the Chinese government will need to decide which agricultural products it wishes to maintain (or achieve) self-sufficiency in, and which it will allow to be more exposed to imports.
Rabobank analysts say that beef is not a strategically important agricultural product in China, although the government needs to keep a certain ratio of self-sufficiency to ensure beef supply to the Muslim population. Support for beef producers in China will increase but will remain lower than support for other livestock sectors, leaving beef producers to face the challenges of limited land, water and feed resources.
Given the great challenges facing the industry, Rabobank expects to see only marginal beef production growth in 2014 to 2015. Female cattle stock will be restored to a limited extent through government support. Production will likely see further increases between 2016 and 2018, assuming that the whole herd size benefits from the recovering female cattle stock in the previous years.
But herd growth in China likely won’t be sufficient to keep pace with the demand and the ability to afford a better diet. And that means China will have to continue to loosen its grip and become even more of a player in global trade.
As that happens, get ready. Because 1.3 billion of anything is a really big number.
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