China set to become biggest beef export market

carcasses-2China is on the cusp of becoming Australia’s largest beef export market in 2019, with little sign of demand abating anytime soon, as Chinese consumers shift away from pork to other proteins in the wake of African Swine Fever, according to a leading animal protein analyst visiting from China.

And it is not just China that has been gripped by the disease, with the virus confirmed just last week in South Korea and prevalent in many South-East Asian countries and parts of Europe and Africa.

Rabobank’s senior animal proteins analyst for China, Chenjun Pan said with the Chinese pig herd halving over the past year to 200 million pigs as a result of African Swine Fever (ASF), the increase in demand for other meats, including beef, had risen significantly.

And this had changed the global meat trade pattern, she says, with China – the world’s largest animal protein importer – now accounting for 27 per cent of the world’s pork imports and 24 per cent of global beef imports.

“Chinese beef imports have risen by 53 per cent so far this year, while imports from Australia have increased by 65 per cent in the year-to-date (July) – with China overtaking the US and Japan to become Australia’s largest export market for beef,” she says.

Ms Pan has spent the past two weeks meeting with beef producers across Queensland and New South Wales to give a first-hand account of the impact of ASF on China’s pork industry and the wider animal proteins market.

She says China’s demand for beef will continue to grow, with the country expected to source 30 per cent of their beef from overseas markets by 2025. “This is a total turnaround from just 10 years ago when China was a net exporter of beef and an increase on last year, when 20 per cent of the country’s beef was imported.”

African Swine Fever

Since the first case of ASF was confirmed in August last year, Ms Pan says, 25 per cent of China’s pork production has been wiped out (in the vicinity of 13 million tonnes) – which is “unprecedented”.

“This has resulted in a serious shortage in animal protein, with the market shrinking by eight million tonnes – even with the considerable increase in imports this year,” she says.

Ms Pan says Chinese consumers are switching from pork to other proteins, including beef, not only due to the 50 to 80 per cent increase in the price of pork, but concerns surrounding its quality and safety.

“In particular, the middle and upper classes are steering away from pork by substituting their diets with other proteins, such as ground beef,” she says. “But from a price point of view, poultry has been the key substitute.”

While ASF control measures are being researched, with vaccination trials soon to take place on commercial farms, Ms Pan says the only way to curb the outbreak is through strict biosecurity measures. “The disease has spread very quickly throughout the country and is very hard to eradicate,” she says.

Ms Pan says while producers are wanting to restock their herds, “many have failed”.

“There are no restrictions to restock, but it will take time,” she says. “With the breeding herd down significantly we expect the herd, and subsequently pork production, to rebound a little by 2021, but it is likely to take three to five years for it to return anywhere near the levels seen before the outbreak.

“And this will see beef and poultry imports remain high at least out to 2025.”

Beef consumption

Ms Pan says while beef makes up around nine per cent of China’s total animal protein consumption – with pork coming in at around 65 per cent and poultry at 20 per cent (pre-ASF) – demand for beef has been increasing in recent years not only due to the substitution away from pork but increased demand among the growing middle class.

“While there has been a lot of talk about the slowing Chinese economy, the consumer market appears to be resilient, particularly among the middle, aspirant and lower affluent classes,” she says.

“In these segments of the market, price is no longer the single most important factor driving demand, rather convenience, taste, nutrition and value-added snacking. And with an increase in demand for ‘ready to cook’ meals, this supports greater consumption of beef at home – as beef is predominately consumed in food service, such as restaurants.

Ms Pan says while beef is still considered a premium product, at double the price of pork, domestic production can’t keep up with demand.

“There is a structural supply shortage in China,” she says, “with the national cattle herd declining from around 127 million head in 1999 to around 88 million head in 2018. This has been driven by resource and environmental constraints. Furthermore, government policies and incentives available to the pork industry are not extended to the beef industry, resulting in a highly fragmented industry and little in the way of research into genetics.”

Implications for Australia

Australian-based senior animal proteins analyst Angus Gidley-Baird, who has been travelling with Ms Pan during her two-week tour, says China’s increased demand for beef has “helped prop up the Australian beef price” this year.

“China has absorbed much of the increased slaughter that has been going through the system at the moment,” he says, “and if they weren’t there, prices would be softer than where they are currently.”

Mr Gidley-Baird says while ASF offers great opportunity for the Australian beef sector, particularly over the next 12 to 24 months, “our competitiveness will fall once we get rain and cattle prices increase”.

“The Chinese market is very sensitive to price, and while we are competitive with the likes of South America at the moment, once our prices increase – and they are coming off a high base – they are likely to remain high,” he says.

“This means the risk is that when our own supply comes back on board, it could be at a time when there is a lot of supply from South America and the US on the global market.”

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