Meat exports consolidate Brazil-China trade partnership

Catapulted by the emergence of bird flu that hit the US and by the drought that deteriorated Australian pastures, Brazil has become the largest supplier of poultry and beef to China. Even though it was accelerated by climate and sanitary adversities, the movement is consolidating the Asian country as on of the most relevant markets for Brazilian meatpackers.

If added to the sales to Hong Kong, the controversial access point to the Chinese market, the Brazilian industry has China as its largest market, surpassing traditional importers like Saudi Arabia and Japan. Additionally, Brazil was able to reduce its dependence on – unstable – Russia in the pork market.

Data from the Center for Customs Data of China compiled by GHL International Consulting show that Brazil was responsible for more than 80% of the chicken – chicken feet, above all – imported by the Chinese in the year between January and May. Little more than a year later China re-opened its market to Brazilian beef, the meatpackers installed here supplied 30% of Chinese imports.

“Who knows what the limit of this will be? Nobody knows,” said the vice president for markets at the Brazilian Association of Animal Protein (ABPA), Richard Santin. In his opinion, the end of China’s one-child policy has not even yet been incorporated into projections for growth of demand and the forecasts, already robust, may be underestimated. According to the estimates of the US Department of Agriculture (USDA), beef imports from China will grow 1 million tonnes by 2025.

From 2015 until now, Chinese demand for chicken has grown but the jump in Brazilian exports was of such a magnitude due to the embargo that China imposed on US poultry, said Adolfo Fontes, an analyst for Rabobank. “It was from there that Brazil took off.”  In the first half, exports of chicken to China increased almost 80%, according to data from the Secretary of Foreign Commerce (Secex) compiled by ABPA.

The explosion of sales fit like a glove for the Brazilian poultry industry. An explanation: Chinese consumers that are avid for chicken feet. Without China, the cut would be a problem as it has little demand in Brazil and other importing countries.

For the Chinese, importing chicken feet from Brazil is also advantageous. As China practically doesn’t consume chicken breast, the country faces an “excess of supply of chicken breast,” says BRF general director in Asia, Simon Cheng. “The price of chicken breast doesn’t pay the Chinese industry well,” he added.

“A Chinese importer joked and asked me if we couldn’t make chicken with more feet and less breast,” said JBS Foods executive director Ivan Monteiro. According to him, China is the biggest destination for meat exported by the company. In the case of BRF, Japan is still the main client in Asia, according to Mr. Cheng.

In the long term, there aren’t reasons to doubt the appetite of the Chinese for Brazilian chicken. “China is changing its agriculture policy a little.” It was an illusion to think that they would resolve everything with self-sufficiency,” said José Carlos Hausknecht, a partner at the MB Agro consultancy.

For China, importing more beef could be a solution to surmount the scarcity of water in the country, says Mr. Fontes, of Rabobank. This doesn’t mean, however, that China will give up on local production. A leader in pork production, the Chinese dispute with Brazil the second place among the largest producers of chicken, trailing only the US.

Although future demand is assured, sales of chicken to China are not free from risks for Brazilian industry. The most important of these is the possible resumption of US exports to China. Mr. Cheng recognizes that the end of the embargo to the US would prompt a price shock for chicken feet. Bet he believes there is no concrete position in this regard by the Chinese government, and, even if there is an opening, the American slaughterhouses would be authorized one by one, not all at once.

In the beef industry, the risk would be the recomposition of the Australian herd, which should take place over the coming years. However, Brazil has taken up the post of the main supplier to the Chinese, Mr. Fontes believes.

In addition to this, beef is the animal protein that will lead the increase of Chinese imports through 2025, also because it is more complex to be produced locally. Of the 1 million tonne increase estimated by the USDA, about 600,000 tonnes should be from beef.

Even so, the Brazilian industry needs to improve the mix of cuts sold to the Chinese and also to sell ‘gourmet’ beef, says the president of the Association of Brazilian Exporters (Abiec), Antonio Camardeli. Currently, Brazil sells less noble cuts to China (eye round and top round cuts among others).

For the former secretary of agricultural policy at the Agriculture ministry, André Nassar, the Brazilian industry should take into consideration that China is a market that “fights for the price,” According to this, investment in the institutional promotion of Brazilian beef to improve the reputation of the product is a necessity. Another possibility is to invest in distribution.

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