Even cows are no longer sacred:
Indian companies have gained share in the global beef industry quickly, albeit at the discount end of the market.
Indian beef exports are expected to reach 1.525m tonnes this year from only 609m tonnes in 2009, outstripping world leaders Australia and Brazil, according to US Department of Agriculture figures.
Brazil looks to beef up its business
By Joe Leahy, Gregory Meyer and James Fontanella-Khan
From his office on an outer ring-road of São Paulo, Wesley Mendonça Batista, chief executive of JBS, is looking to steer Brazil’s biggest meatpacker by revenue deeper into emerging markets.
Since he and his brother Joesly launched a series of mergers and acquisitions in the US and Australia that created the world’s largest meat exporter, times have been tough.Shrinking US, Australian and European cow herds, depressed economic conditions and declining beef consumption for health reasons in advanced economies has been hard on margins.
“We can grow in a double-digit way our revenue but we need to be more focused, to look to areas in which we can grow more profitably,” Mr Batista says, citing growth markets such as the Middle East, north Africa, Russia and the former Soviet Union.
However, any expansion into these markets will not go uncontested. Mr Batista and rival meatpackers in Brazil, such as Minerva and Marfrig, or in the US, such as Tyson Foods, have a newcomer to contend with – India.
Led by Alanna & Sons, a Dubai-based exporter of Indian beef, mainly water buffalo, Indian companies have gained share in the global beef industry quickly, albeit at the discount end of the market.
Indian beef exports are expected to reach 1.525m tonnes this year from only 609m tonnes in 2009, outstripping world leaders Australia and Brazil, according to US Department of Agriculture figures.
This has come in spite of stagnation in overall global production of beef and veal, which is down 2.4 per cent from its peak in 2007, before the financial crisis, the USDA says.
“Although you have the middle classes consuming more beef in developing countries like Brazil, you have developed economies such as the EU and the US with declining rates of beef consumption,” says Gabriel Vaz de Lima, an analyst with Barclays in São Paulo, who recently rated JBS “underweight” because of negative meatpacking spreads in the US.
In the US, a brutal drought in Texas last year resulted in the smallest herd the US has had since 1952, although meatier cows partially offset the decline in population.
US cattle futures hit records earlier this year, while domestic beef demand has taken a hit from the weak economy, changing consumer tastes and a controversy over additives used in the production of meat trimmings used in ground beef, known pejoratively as “pink slime”.
Cargill, one of four large US beef processors, reported weaker meat results in the beginning of the year because of what it called a “cyclical downturn in North American beef”, while Tyson Foods broke even in beef in its latest quarter amid what it called “extremely challenging market conditions”.
“Domestic demand for beef did not match what packers were paying on cattle prices,” says Bob Wilson, analyst at HedgersEdge, an agricultural market research service.
With the US now in high summer “grilling season”, domestic consumption is expected to pick up. Operating profits for US meat packers have rebounded to about $25 a head, from a loss of $112 a head as recently as April, says HedgersEdge.
US beef processors are turning to overseas markets to fill the gap, with export volumes last year breaking records, according to the US Meat Export Federation.
International producers, such as JBS, are fortunate to have had the booming Brazilian market to offset problems in the US. Brazilian ranchers are expanding their herds, resulting in greater supply for meatpackers.
“We are seeing the opposite of what is happening in the US – cattle prices have fallen 5-7 per cent, there is higher availability of supply,” says Mr Vaz de Lima of Barclays.
While Brazilian exporters such as JBS will increasingly encounter products from Indian exporters in emerging markets, producers on the subcontinent will face their own challenges.
They will need to move up the value chain to command higher prices and they will continually need to reassure a religiously sensitive domestic Hindu population that no cow meat is being exported. Several Indian states ban the slaughter of cows, which are considered sacred for Hindus.
“There is no exact data on the amount of [cow] beef being slaughtered and sold as people fear violent attacks from Hindus,” says a Mumbai-based executive of a food processing group. But he added it could be as much as 5 per cent.
Prakash Javadekar, a senior member of India’s Hindu nationalist party, the BJP, says violence against people slaughtering cows was not justifiable. But it would be difficult to restrain those who believed cows were holy. “This is our religion. People should respect this,” says Mr Javadekar. |
