Red Meat Market Report

South America

Argentina
Red meat update
April 2013

Carolina Bilharinho – April 2013 cbilharinho@mla.com.au 02 9463 9194

Red Meat Market Report – Argentina

April 2013

Overview


Argentina’s economy has traditionally been focussed on agriculture, but the industry and service sectors have also grown in recent years.



During the past decade, Argentina faced an economic crisis, persistent fiscal and current account deficits and high inflation.



Argentina has traditionally produced beef and has one of the largest per capita beef consumption levels in the world, at 58.7 kg per head in 2012.



Argentina has become one of the major grain producers in the world with growing production of soybean, corn and wheat.



The production and consumption of competitor proteins, such as chicken and pork, rose significantly in the last 10 years.



The structure of the Argentinean cattle industry has changed rapidly in recent years.
High production costs combined with uncertain future government policies has hampered the herd from rebuilding and beef production.



Although Argentina was historically among the top five beef exporters in the world, it moved to 11th in 2012 with the lowest export volume for the last 10 years.

Figure 1
Argentina – Regions and cattle distribution
LEGEND
NOA
NEA
Pampeana
Cuyo
Patagonia
= 5000 cattle (approximate)

Cattle herd by regions
Mar-08

NOA

% change

1,249,347

2.7

6,158,270

5,629,889

-8.6

14,667,839

11,759,375

-19.8

1,044,017

930,487

-10.9

627,628

491,040

-21.8

NEA
Pampeana

Mar-11

1,216,382

Region

Cuyo
Patagonia

Regions
NOA: La Rioja, Santiago del Estro, Salta, Jujuy,Tucuman, Catamarca
NEA: Corrientes, Misiones, Formosa, Chaco, Entre Rios
Pampeana: Santa Fe, Buenos Aires, La pampa, Cordoba, Capital Federal
Cuyo: Mendoza, San Luis San Juan
Source: INTA, SENASA

MLA Market Information

Patagonia: Chubut, Neuquen, Santa Cruz, Tierra del Fuego, Rio Negro

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Red Meat Market Report – Argentina

April 2013

History and geography
Argentina is South America’s second largest country in land area and population. It occupies most of the continent’s southern region between the Andes Mountains and the Atlantic Ocean. Diverse geographical landscape produces varying climates from tropical in the north to tundra in the far south. Argentina’s land mass is 2.79 million km2 with large areas suitable for beef and grain production (The World Fact book).
Raising cattle for beef is related to the cultural, social and economic history of Argentina.
Argentina has traditionally produced beef and has one of the major per capita beef consumption levels in the world.
European cattle and sheep were first introduced and released in the Pampa region.
The Pampa region covers roughly one-quarter of the nation, and has the most extensive grassland area in South America. The region has some of the richest topsoil in the world, producing wheat, soybean and corn, providing year-round pasture for
Argentinean cattle.
Beef production in Argentina has historically been located in the Pampa area, with
Argentina’s herd still farmed in this region. However, the increase in more profitable activities such as grain production has resulted in a relocation of cattle to the northwest and northeast of the country.
During the last decade grain production growth in Argentina has been the largest registered in history. One of the major factors that contributed to this surge was the incorporation of new technologies which resulted in a higher yielding crop fields
(Economic Study Institute – Bolsa de Cereales Argentina).

Economy and government policy
Argentina is rich in natural resources with a diversified industrial base and an exportoriented agricultural sector. Argentina’s economy has traditionally been based on agriculture, but the industrial and service sectors have also grown in importance in recent years.
Figure 2
Economic indicators
12

GDP growth (% annual)

consumer price index

10

500

400

8

Argentina has faced an economic crisis, persistent fiscal and current account deficits and high inflation. A severe depression, growing public and external debts in 2001 culminated in the most serious economic, social and political crisis in the country’s history.

The move after 2001-02 crises to a more flexible exchange rate, along with sustained global and regional
200
growth, a surge in domestic aggregate demand via monetary, fiscal, income distribution policies, favourable
100
international commodity prices and interest rate trends
0
were major factors in supporting the five following years
07
08
09
10
11
12f 13f f=forecast of average annual GDP growth of 8% until 2007. Global financial problems and declines in world commodity prices resulted in reduced growth in 2008, and recession in 2009. In 2010, stronger exports assisted a slight recovery in the Argentinean economy, despite high inflation.
300

6
4
2
0
03

04

Source: IMF

05

06

The Argentinean economy slowed in 2012 as a result of uncertain politics, high inflation taxes and a continuing appreciation of the Argentinean peso against the US$ throughout the year.

MLA Market Information

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Red Meat Market Report – Argentina
Figure 3

There has been a trend of increasing government intervention in the Argentinean economy, including policy related to restrictions on imports, limiting economic freedom.

Exchange rates
ARS/USD

1.2

BRL/USD

April 2013

AUD/USD

Index against US$

1

Argentinean agriculture

0.8
0.6

Argentina is rich in natural resources, including over 49 million head of cattle (United State Department of
Agriculture - USDA). Annual grain production exceeded
90 million tonnes in 2011-12, with Argentina one of the main exporters of soybean and corn and their derivatives.

0.4
0.2
0
2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Source: FxTop

Argentina is one of the major grain producers in the world.
Investment in developing technology and management improved grain production. During the last decade, soybean production rose 37%, totalling 40.1 million tonnes in 2011-12 which made Argentina the third largest soybean producer in the world. Corn and barley production also registered significant growth, totalling 21 million tonnes and 5.5 million tonnes in 2011-12, respectively.

Figure 4
Grain production
80

million tonnes wheat corn

barley

soybean

60

40

20

0
/8
/9
/6
/3
/7
/4
/5
3f
11
12
10
/1
07
08
05
02
06
03
04
0/
1/
9/
12
20
20
20
20
20
20
20
01
00
01
2
2
2
20

f = forcast

Source: USDA

According to the USDA, Argentinean grain production is forecast to increase in 2012-13 with barley and corn up 22% and 26%, respectively. Soybean production is expected to have the largest increase for the same period, up 28%, totalling 51.5 million tonnes.

Argentinean beef – production and consumption The structure of the Argentinean cattle industry has changed rapidly in recent years.
The high cost of production, combined with uncertainty regarding future government policies and more profitable activities such as grain production, has compromised the cattle herd and beef production. Grain production (especially soybean in Argentina) has grown and occupied fields that were previously used for beef production.
Argentina has a large area recognised as naturally suitable for extensive beef production.
As noted earlier, the Pampa area was originally only for beef production, but now has a large area dedicated to producing grains. The majority of cattle still remain in Pampa region, but moving slightly to the northeast and northwest of the country.
Argentina has been successful in controlling diseases such as Foot-and-Mouth disease
(FMD) – the last case was registered in 2006. World Organization for Animal Health OIE recognises the country as a BSE negligible risk
Figure 5 status and with two free zones of FMD without
Cattle herd and female slaughter vaccination (from Rio Negro to the South) and the north, million head
% female slaughter
70
60 with compulsory vaccinations. herd % female slaughter
60

50

50

40

40
30
30
20

20

10

10

0

0
02

03

04

05

06

07

Source: Magyp - INDEC

MLA Market Information

08

09

10

11

12

The Argentinean cattle herd fell 6% during the last decade, to 49,597 head in 2012 (USDA). A significant decline was registered in 2010 due to the combination of two major factors: severe droughts and low-returns in 2008-09 which resulted in a substantial rise in cattle slaughter, with female slaughter for the three year period (2008, 2009 and 2010) averaging 47% of total slaughter and compromising any possibility of growth or rebuilding of the cattle herd.
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Red Meat Market Report – Argentina

Figure 6
Beef production and per capita consumption
3.5

million tonnes cwt beef kg/person/year

per capita consumption

80
70

3

60

2.5

50
2
40
1.5
30
1

20

0.5

10

0

0
02

03

04

05

06

07

08

09

10

11

12

Source: USDA

Figure 7
Trade steer price
350

USc/kg lwt
2010

2011

2012

300
250
200
150
100
50
0
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

April 2013

Argentinean beef production over the past 10 years has fluctuated, with peak production from 2005 to 2007 due to lower production costs, a higher number of cattle slaughtered and foreign companies investing in the beef industry. Last year, production rose 4% year-on-year, to 2.6 million tonnes cwt with female slaughter also rising
5.6% for the same period, compromising the herd rebuild expected for 2012.
Argentina has one of the largest beef consumption levels in the world, beef is part of the popular culture and dairy diet and is also believed to be a superior quality. After a continuous fall in beef consumption since 2007 which averaged 69.4 kg per head, beef consumption rose 7% year-on-year in 2012, averaging 58.7 kg per head
(CICCRA – Argentinean Beef Promotion Institute), although still below historical levels. The rise in domestic consumption helped absorb the production growth registered last year.
Argentina faced an intense drought in 2011 and 2012, w h i c h re d u c e d p a s t u re a re a s a n d i n c r e a s e d production costs, especially for cattle on feed. As a consequence, producers were discouraged to invest, which explains the increase in slaughter and beef in the domestic market.

Source: IPCVA

Meat production – competitor proteins

Figure 8
Competitor proteins production
2.5

million tonnes poultry In contrast to beef production in recent years, poultry and pork production has increased significantly, resulting in a strong industry in Argentina, with the consumption of cheaper proteins such as chicken and pork rising.

pork

2

1.5

1

0.5

0
02

03

04

05

06

07

08

09

10

11

12f

13f

f = forcast

Source: USDA

The continuous growth in poultry production in the last decade has resulted in Argentina being the eighth largest poultry meat producer and the sixth largest exporter in the world (IICA – Inter-American Institute for Cooperation in Agriculture).

The investment in technology which began in 2002, and stronger domestic and international demand helped Argentinean poultry production rise 158% throughout the last decade, with further growth of 9.3% year-on-year in 2012, to 1.936 million tonnes swt (USDA).
The higher prices in almost all beef cuts assisted average chicken consumption to rise 17% since 2009, with per capita poultry meat consumption averaging 39 kg per head in 2012 (SENASA – National Health Service and Food – Argentinean Government).
Poultry consumption in Argentina is expected to rise again in the near future, while consumption of others meats is expected to remain stable.
The Argentinean government has no specific policy for the poultry sector. However, in compensation for keeping domestic prices low, poultry processors receive government financial support to partly offset high feed costs.

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Red Meat Market Report – Argentina

April 2013

The government is working hard in trying to open new markets and stimulating investment in the sector, providing the industry with access to several beneficial lines of credit. Poultry production totalled 1.9 million tonnes cwt in 2012, an increase of
27% since 2009.
Likewise, but with small volumes, the pork industry has registered substantial increases in the last decade, again underpinned by a solid foundation of strategic planning and government investments.
Pig slaughter in 2012 rose 11% year-on-year, to 3.8 million head (ONCCA – National
Bureau of Agricultural Trade Control). Average pork meat consumption has been stable in the past three years, averaging 8.43 kg per head/year.
Pork exports also rose during the last decade, with further growth in 2012, up 12% year-on-year, to 6,986 tonnes swt. Pork production is expected to grow with exports.

Beef exports
Argentina has always been among the major beef exporters in the world, but has recently lost place in the international market. During the 1960’s and 70’s, Argentina was among the three largest beef exporters, and in the 1980’s belonged within the five, mainly due to the surge of European countries and
Figure 9
Australia in the beef export market. From 1990’s,
Total beef exports
Argentina was among the 10 top exporters, and
'000 tonnes swt average export price (US$/kg)
500
according to the latest USDA figures, Argentina was in
11
11th place in 2012.
400
9
300
7
200

5

100

The recent decline in export volumes has largely mirrored the drop in cattle numbers, beef production and rising production costs.

Also contributing to the decline in exports in recent years was the decision by the Argentinean Government in
1
06
07
08
09
10
11
12
2006 to ensure adequate domestic beef supply. In order to achieve this, the government implemented export quotas, which increased beef prices for the international market and reduced the competitiveness of Argentinean beef. Such controls also impacted the slaughter market, with the number of abattoirs decreasing 65% in the last five years, according to SENASA.
3

0
02

03

04

05

Source: IPCVA

Following this, exports continuously declined, with the exception of 2009 when a widespread drought resulted in a significant increase in cattle slaughter which temporarily increased the volume of Argentinean beef entering domestic and export markets.
In 2012, beef exports reached the lowest level since
2001, totalling 111,053 tonnes swt. Shipments declined to all destinations, with the exception of Chile, the only country to increase imports from Argentina and consequently become Argentina’s major market in 2012, totalling 28,173 tonnes swt (IPCVA – National Institute of Beef Promotion – Argentina).

Figure 10
Beef exports - Major markets
500

'000 tonnes swt
EU

South America

Russia

others

400

300

200

100

0
02

03

04

05

06

Source: GTA

MLA Market Information

07

08

09

10

11

12

In contrast, Argentinean beef exports started 2013 on the rise, with shipments for January increasing 14% year-on-year, to 10,538 tonnes swt, with Chile and Israel the major destinations. However, while exports were up year-on-year, they still remained well below historical levels. 6

Red Meat Market Report – Argentina

April 2013

In 1979, an agreement with the European Union established a quota (Hilton) for exporting high-quality boneless beef. Argentina holds half of this quota which is 28,000 tonnes swt per year. The US and Canada has the second largest allocation (11,500 tonnes swt) followed by Brazil (10,000 tonnes swt),
Figure 1
11
Australia (7,500 tonnes swt), Uruguay (6,300 tonnes
Beef exports - Hilton Quota by cut swt), New Zealand (1,300 tonnes swt) and Paraguay
(1,000 tonnes swt).
2012
2011
Striploin
42.8%

Striploin
42.1%

Rump
23.9%
Tenderloin
17.1%

Others Rump
6.7% 24.6%
Cube roll
10.2%

Others
3.3%

Tenderloin
17.9%

Cube roll
11.4%

Source: Agriculture Department - Argentina

In the last fiscal year (2011-2012), Argentina only shipped 64% of its allocation, exporting a total of 18,800 tonnes swt.
Recently, the volume of Hilton cuts exported declined
7% in January 2013, to 1,824 tonnes swt – which will make it very difficult for Argentina to fulfil their EU quota for 2012-13. To date Argentina has exported 12,232 tonnes swt from its Hilton quota.

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