Inside Milk
Australia sees competition from South America
The drought in Australia is a new challenge for dairy farmers every year. Now that there was finally enough precipitation last year, the mood was optimistic and the livestock could be replenished again. But, a new danger is lurking. The country is in danger of losing its position as the second largest exporter of beef. There is a lot of competition, especially from cheap South America.
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Australia is still the second largest beef exporter in the world, but it could lose this position over time. Due to the extreme drought in recent years, the country's cattle herd has shrunk considerably, which has an effect on beef prices. The relatively cheap Brazil and Argentina, as a result of currency devaluation, are therefore increasingly preferred. In particular, Australia's largest trading partner, China, is unwilling to pay more for Australian beef.
Trade relations disrupted
The trend of rising prices in Australia and falling prices in South American countries has continued since then. Cattle prices in Australia were close to 2020 US cents per kilo of live weight in early 250, while Brazil and Argentina recorded between 120 and 130 US cents per kilo of live weight. In short: the South Americans are about half the price of the Australians and this means that Australian trade relations are being put to the test.
The trade relationship between Australia and China was first thwarted by Brazil in 2016 and that country now controls more than 25% of Chinese beef imports (mainly frozen products). Argentina is today the second largest supplier to China. And there is still more than enough room for growth in those countries. Since African swine fever, there has been a significant growth in the consumption of beef (as an alternative protein source) in China. It is clear that Australia is slowly losing the Chinese buyer due to low prices in South America.
Price increases also harmful elsewhere
High prices not only play a role in the trade relationship with China, Indonesia is also considering switching to South America. So far, almost all imported beef comes from Australia and that is an important market, because domestic production only covers 45% of demand. However, consumers have expressed concerns about rising beef prices. Since the market is strongly based on imports, it is more vulnerable to market changes, according to general criticism.
As a result of the dissatisfaction among Indonesians, the government is increasingly interested in cheaper sources, including Brazil and Argentina. In addition, Brazil produces the most halal meat worldwide, which is attractive in the Indonesian market where the majority of residents are Muslim.
Replenish cattle herd
Due to the above threats, restoring the Australian cattle herd to normal levels is seen as (very) important. By the end of this year, the cattle herd should have increased by 2%, to 25,2 million animals. Exports could therefore increase by 2% to 1,1 million tons. Ultimately, this will depend on the choice that Australian farmers make: do I not slaughter my cattle to achieve reconstruction or do I slaughter my cattle to make up for my losses from previous years? The answer to that question will determine Australia's position in the global beef market.