Meat Trade Expert Gives View
Of World Outlook For Future

By David Bowser

HOUSTON — The competitive environment of other meats is a major challenge confronting beef producers around the world today, says a French-based international researcher.

Alan E. Gordon, president of Gordon International Research Associates, says pork, poultry, mutton and lamb are a major challenge to beef in today's world market.

"The good news is that despite some pessimistic reports by others, we forecast a steady world growth in total meat consumption," Gordon says.

His firm forecasts increases from 186 million tons in 1997 to 253 million in 2007.

"There is growth in every region from 1997, even in the former Soviet Union," Gordon says.

The news for beef, however, is not so good. His data indicates a drop in market share for beef from 24.8 percent in 1997 to 20.2 percent in 2007. Pork is expected to remain about the same with a slight increase. Sheep and goat meat will increase their market share from 5.8 percent to 6.5 percent.

Poultry will increase its market share from 29.8 percent to 34.2 percent world-wide.

There are a number of problems with raising cattle compared to the other meats, Gordon says.

He notes that world-wide, cattle systems have a double function. Cattle are used to produce both meat and dairy products. The dairy/beef split in terms of herd varies considerably between 66/34 in the EU, 20/80 in the U.S. and 11/89 in Australia, Gordon says.

For dairy producers, the major income is milk with less attention to the meat yield. The meat quality from dairy herds is not as good as that from specialized beef herds.

Meanwhile, cattle life cycles are slow compared to poultry and pork, which means slow reaction to market opportunities. There is also little vertical integration and much fragmentation in the cattle industry, which is characterized by many small producers. The average U.S. beef cow herd size of 40 head is actually lower than the EU average of 45.

The cattle industry is also inconsistent, with a wide variety of breeds. The U.S. has more than 65 breeds while there are 25 to 30 in the EU. This leads to problems of carcass conformity, Gordon notes, though he says feedlots in the U.S. do a good job of harmonization of carcass quality for packers.

Gordon goes on to say the cattleman's mentality of independence makes vertical coordination difficult, and there is little ownership of packers by producers; integration is usually from the packer back. He says there is also a low level of contract relationships between animal producers and packers.

In the EU, but not in the U.S., there is no major corporate capital in the beef system, so packers are under-financed with no funds for product development.

The power in the EU, Gordon says, is with the retailer. In the U.S., it is more with the packer, but retailer concentration is appearing to increasingly flex its muscles.

"Retailers have increased their share of the final retail price at the expense of farmers and abattoirs," Gordon says. "Declines in farmgate prices are unevenly reflected in retail prices."

He says the European consumer does not have the same love affair with beef as the U.S. consumer, but it is seen as the best meat in terms of taste, texture and flavor. Unfortunately, health scares on both sides of the Atlantic have taken their toll.

Gordon says that while hindquarter cuts are convenient, they are expensive. With the forequarter, apart from ground beef, the market is still waiting for quick to cook and convenient products to compete in the ever-growing demand in both North America and Western Europe.

Gordon says that while beef products produced world-wide vary, so do the countries which produce them.

The top six producers at the world level in 1997 as a percent of the world's production of 47.5 million tons were the U.S. with 24.6 percent, the EU with 16.7 percent, Brazil with 12.7 percent, China with nine percent, India with 5.3 percent, and Argentina with five percent.

Australia, the world's largest beef exporter, is only in eighth place (behind Russia) with 4.1 percent of the world's production.

"The top six therefore represented in 1997 almost three quarters of world beef production," Gordon says. "When we look at our forecasts for 2007, the hierarchy is changed with the most striking development being the progression of China, which moves to third place."

Gordon predicts that in 2007 the U.S. will produce 22.8 percent of the world's beef. The EU will produce 14.6 percent, China will produce 15.5 percent, Brazil will have 11.5 percent, India will have 6.2 percent, and Argentina will produce 4.4 percent of the world's cattle.

"The U.S. is a net beef importer in volume," Gordon notes.

Beef consumption, however, is declining and production volume will scarcely change overall between 1997 and 2007. There will be more available for focused exports with the inevitable low price imports of forequarter from Australia and New Zealand for the processing market, he says.

Gordon predicts that two thirds of the beef from the EU, where there's a large gap between consumption and production, will come from the dairy system.

"Despite a volume reduction in production by 2007," Gordon says, "consumption will also decline to maintain the distortion of EU beef exports in world markets."

China is making an effort to use its pasture resources to develop beef and sheepmeat production to offset the feed requirements of its massive pork production, Gordon says. He adds that their pork production is also changing from a backyard operation to a more industrialized, feed-intensive format.

"China is not a member of the WTO nor is membership probable in the medium term, and its market is virtually closed to imports," Gordon says. "There are no exports."

Brazil, with one of the largest beef herds in the world and an opportunistic exporter of mainly processed beef, will decline in production between 1997 and 2007, Gordon predicts. Domestic meat consumption pull is coming from poultry and to a lesser degree from pork.

India, with its 80 percent Hindu population and a non-carnivore lifestyle, does not use their huge beef and buffalo herd for meat. The animals are used mainly for farm work and milk.

"It is, however, the cheapest meat in India," Gordon says. "There is some consumption pull and significant exports."

There has been a steady reduction in the beef herd in Argentina, though slow rebuilding is in progress, Gordon says.

"Prices are good for the cow-calf operations but high for fatteners and abattoirs," he notes.

Between 1997 and 2007, Gordon forecasts declines in per-capita beef consumption among almost all the traditional high-level beef consumers. Per capita consumption growth is coming from Japan and China.

He notes that while beef maintains a good image in Japan, overall meat consumption is low due to high seafood consumption.

Gordon predicts that U.S. beef consumption will be down from 43.8 kilograms per person in 1997 to 38.9 kg per person in 2007. The predicted drops in other nations include the EU, Brazil, Argentina and Australia. Japan and China, however, should show an increase.

"The per capita gain, almost 500,000 tons in volume, for Japan is very good news for exporters, as Japan is not really able to increase economically its beef production," Gordon says.

There are a number of components in the world beef trade, Gordon says.

There is the live trade with Canada and Mexico shipping cattle to the U.S., Ireland ships cattle to the Middle East, Australia to Southeast Asia and the Middle East. The main volume of beef, however, is fresh meat, bone-in and boneless, chilled and frozen. Most of the processed meat comes from Brazil and Argentina.

In the Pacific, Australia and New Zealand ship mainly hindquarters to Japan and mainly forequarters to the U.S. The U.S. and Canada export mainly grainfed hindquarters to Japan and Korea.

In the Atlantic, Argentina, Uruguay and Brazil ship fresh and processed beef to Europe and some fresh product to the Middle East. The EU exports fresh beef to the Middle East and Russia.

There are some efforts by Australia to move into the Middle East market and marginally into the EU.

In theory, the EU could try to break into the Japanese market, but there would be doubts about quality in competition with top quality U.S. grainfed and Australian grain and grassfed beef, Gordon says.

"There are also considerable differences in prices obtained on the different trade axis," Gordon says.

The three major world exporters in 1997 (excluding live trade) were Australia, the EU and the U.S. They represent 59 percent of world trade.

The U.S. only exports eight percent of its production and is highly focused on Japan. U.S. export beef is unsubsidized.

The EU, which is subsidized, exports about 12 percent of its production, and exports are essentially a removal of surplus.

Australia exports about 64 percent of its production, and its beef exports are of major significance to its economy. They are unsubsidized.

The top three major importers, excluding live cattle, represented half of the world's imports in 1997.

They are the U.S., Japan and Russia.

Again, each country is different, Gordon notes.

The U.S. has a structural shortage of forequarter due to the hamburger predilection, which shows few signs of lessening.

Japan is a quality market, and Russia's is a low priced and volatile market for meat and processed meat.

"We see the top three importers in 1997 maintaining their hierarchy and percentage importance in 2007, with the usual caveats about Russia," Gordon says.

There are, Gordon says, a variety of trade lobbying positions varying from protectionist to extreme liberalization.

"The U.S. is in between, and in our opinion takes a somewhat opportunistic position depending on its interests, which differ for each of the four meats," Gordon says. "The climate of low world prices in agriculture is not condusive to further liberalization, and there are big differences in views of the role of agriculture between the EU and the U.S."

More of the same can be anticipated, he says, with further reductions in subsidy volumes, further reductions in tariffs, and tightening of rules, though the WTO has to tread carefully on issues such as bananas and hormones in beef.

The result will be freer trade, but not free trade, Gordon said.