A Hopeful Superpower

The Brazililan beef industry has potential, but it has a lot to overcome.

Brazil is already a beef-producing machine. With 165 million cattle and 200 million acres of undeveloped savannah ready for agricultural expansion, the nation is poised to become a beef superpower.

But this status is far from certain, First, a substantial implementation of technology, infrastructure investment and a boost in overall productivity are essential.

“The country has incredible potential,” observes Dan Dierschke, Austin, TX. A cow/calf producer and a U.S. Meat Export Federation director, he recently toured numerous beef farms in south-central Brazil.

“Brazil has the capability to be as competitive with the U.S. in beef as they are in soybeans,” he says. “But they have problems to overcome before they're a major threat.”

Dierschke lists those challenges as:

  • With interest rates approaching 45% annually, there's virtually no borrowing for agricultural production.

  • Endemic parasitic and animal disease concerns, especially the threat of foot-and-mouth disease, are problematic.

  • Government money for agricultural growth and development, especially in the beef sector, is limited.

Yet, Brazilian beef production is anticipated to rise this year and into 2003. Brazil is expecting increased calf crops, reduced slaughter ages, better forage production and improved overall profitability, says Keppler Filho. He's a scientist with Embrapa, Brazil's agricultural research arm.

“Further increases in exports are expected mainly due to advanced productivity in meat packing,” he explains. “Exports will also be helped by the relative weakness of the Real (Brazilian currency) compared to the U.S. dollar.”

Not Time To Panic

Chuck Lambert allows that Brazil has the resources — the cattle, the land and the grain resources — to be a huge beef player. But the National Cattlemen's Beef Association chief economist says those things alone don't justify panic on the part of U.S. producers.

Lambert notes that U.S. beef producers still have a distinct advantage in capital availability, transportation and storage, government research, packing efficiency and animal health.

“That's beyond the all-important factors of basic political and economic stability,” he says. “It should not be understated how important a stable government is to the competitiveness of a country's agricultural sector.”

In many ways, Brazil's livestock sector is similar to the one in the U.S. 100 years ago, says rancher Kathleen Kelly, Meeker, CO. Kelly was a delegate to the International Federation of Agriculture Producers in the Philippines, and she participated in negotiations in Argentina for the Free Trade Agreement of the Americas.

“Brazil has vast regions available for groundbreaking and homesteading,” she says. “And the people are tough, crafty and intent on surviving.”

But she believes Brazilian beef farmers still manage in ways that keep them from becoming more competitive.

“They slaughter cattle at a much older age than most of their competition. And their climate dictates to a great degree the type of cattle they can raise and, therefore, the quality of beef they produce,” she says.

Furthermore, the transportation system, beef processing and cold storage facilities, especially in undeveloped areas, leave a lot to be desired, she adds.

Economic Disparities

Kelly and Dierschke say Brazilian agriculture exhibits the same economic disparities found elsewhere. A lot are “marginal” beef producers — very poor farmers with six or eight cows. Then there are the very rich who have cattle as a sideline.

A recent survey conducted by the International Farm Comparison Network (IFCN) reflects a dim view of Brazilian “family” beef farms. IFCN data indicate the smaller sustainable (no off-farm income) Brazilian beef farms return about $1,500/year. But larger enterprises, many averaging 7,500 animal units or more, are capable of 10% or better profit margins.

“None of the family beef farms in the IFCN study showed a return to labor reaching the wages of local labor markets,” says Filho. The national minimum wage, something ignored more often than not, is about $90/month.

“Beyond the immediate income factor, I believe access to capital is our biggest long-term concern today in Brazil,” explains Filho. “This will constitute a major problem if necessary investments to increase our productivity are not made very soon.”

Depending on the region and production system, the fixed and variable costs of growing a beef animal from birth to slaughter range from 20-31¢/lb. The lowest costs are found in large, extensive farms in Brazil's central-west region, says Sam Giordano of the University of São Paulo. The highest costs are associated with the smaller intensive operations in the south.

“The low costs are mainly due to land and labor prices and the lack of external feed costs,” adds Giordano. “It compensates for the relatively low productivity and low prices farmers receive.”

Dierschke says farmers he saw received about $260 for a 1,000-lb., slaughter-ready animal. “One man I met was buying year-old stockers for $100/head,” he says.

João Mella, buyer for the Independéncia cattle farming and meat packing conglomerate, pays local farmers $120-$160 for 400-lb. calves, depending on quality and raising techniques. He notes that most of the 65,000 cattle Independéncia fattens for slaughter annually graze pastures seeded to Brachiaria sp. — a productive perennial grass yielding 8-12% protein.

“Without this grass, many farmers would not be in the cattle business to this degree,” says Mella. “The investment has been large, but the grass helps us produce more beef at a lower cost. Therefore, we can pay more money to our calf farmers.”

Beyond Corned Beef

Paul Nieuwenhuis, Monaco, is a buyer for Tutty Bon International. He exports beef from Frigorifico Bertin, Brazil's largest exporter. He says Brazilian beef is a mainstay in Europe, where meat consumption is returning to pre-1999 levels. He has no doubt Brazil will continue to be the major beef supplier to Europe.

“Being hormone-free is a major competitive factor,” he says. “And with or without trade sanctions, Europeans will continue to demand hormone-free meat.”

Brazil is scrambling to meet the demands of overseas markets following Europe's episodes with FMD and bovine spongiform encephalopathy (BSE). Brazilian exporters are also capitalizing on the void left after Argentina's ill-fated monetary policies put that country into economic chaos last fall.

Nieuwenhuis says it's no secret that Brazilian packers aspire to compete with fresh U.S. and Canadian beef in North American restaurants and meat cases.

“For Brazil today, though, the U.S. market is only in industrialized beef,” he adds. “And, there's a limit to how much canned stew and corned beef Americans can eat.”

Or, is there?

Kelly says she's concerned the U.S. beef industry's push for pre-cooked and further processed beef will open the door for Brazil. Cooked meat is not subject to import quotas or FMD restrictions.

“This is something we have to watch carefully,” she says, “along with keeping Brazil out of our fresh meat markets.”

As number three in exports behind the U.S. and Australia, Brazil knows it's fighting an uphill battle against what it sees as “subsidized” beef sectors in other countries. It also has other problems.

“We are a fragmented country with a lot of different social conditions and problems,” says Antonio Netto, Independéncia founder and president. “But we aren't going backward in Brazil, only forward. Brazil has the desire to become a force in the world economy — with that comes the desire to be the world's premier beef producer.”

See more on Brazil at www.beef-mag.com.