Uruguay: big beef in a small country

For Uruguay, beef exports are a matter of survival and the main export of a small South American country with a population of 3.5m people.

Approximately 600,000t of beef are produced annually, 75% of which is exported to more than 80 countries.

Only four other countries in the world – Ireland, Australia, New Zealand and Paraguay – are this dependent on exports but the market trade rules are not the same for all of them.

Ireland’s almost exclusive market is Europe, with an overwhelming predominance of the UK, so it has a limited global presence.

Australia and New Zealand are strong agricultural countries, just like the others, but beef in their overall global exports is not particularly important. It is different with Uruguay because beef has, for many decades, been the most important export and currently accounts for 25% of total exports when hides and offal are included.

Australia and New Zealand have understood the importance of market access as the most important tool for the sustainability of their industry and have been extremely successful in this. They have access to almost all the markets in the world.

With the exception of the EU, they have been able to establish preferential commercial agreements with most markets, allowing them to capture most of the value of the market without leaving substantial amounts of the price in tariffs. Ireland, as part of the EU, has benefited from this.

Other important exporting countries that export smaller proportions of their production, have their business structured for their domestic markets. In their case, exports allow for an increase in production without over supplying their local market, but normally the products exported differ substantially from those sold locally.

Brexit introduces a huge impact on Ireland’s main beef market. The timely agreement between the UK and the EU is good news for the Irish beef industry, but the scenario for the Irish industry will have significant changes. The UK is not part of the EU anymore and will have to work on global commercial agreements with most beef suppliers, giving them access conditions to the UK market similar to those that Ireland will have.

Markets change more frequently than desired. Export-based countries need many markets to which they can distribute the more than 150 products obtained from slaughtered animals, allowing for the best mix of products, volumes and prices in each market.

The result is a global “beef products” average exports price, which is different for each country, and is the result of its available markets, commercial agreements and set of products allocated to each market, all of which change over time. This average price is the main driver for livestock prices.

Negative or positive changes, permanent or not, in main markets quickly drive export flows to alternative markets, allowing for reduced impact on the average global price obtained by exporters, and on livestock prices.

In the case of Uruguay, effective and quick changes in markets during 2019 and 2020 have allowed for a better capture of value during the peak prices of 2019 and for a smoother oscillation of prices during the market disruption caused by the COVID-19 pandemic over the past year.

High-quality cuts that can be sold as such and obtain premium prices, are a small proportion of what is produced.

The challenge is always how to sell all the rest of the cuts and byproducts and obtain the best value. Having several markets available allows for the balanced sale of all products, avoiding high stocks of products difficult to sell.

Depending on few markets that also have very specific preferences will always generate conflicts of carcase balance, which will inevitably affect livestock prices. Markets that can absorb most items of the carcase such as the US, in an undifferentiated way for processing, or China which values a complete set of individual cuts, as well as beef for processing, are very important.

When a country has access to a high-value export market, it quickly becomes dependent on that market. This works as long as the market doesn’t become disrupted but if it is disrupted, the consequences can be serious. Ireland has this position in the UK market and South American countries are in that position with China. A mix of markets reduces the exposure even if they aren’t as lucrative. The sole leader in the markets is the consumer.

More markets being supplied provide a much better insight of consumer trends and preferences. Interacting with the most successful suppliers in these markets will always show the way to capture the highest value in these markets.

Europe and North America seem to have reached the limit of beef consumption, and the most possible scenario in the future is a gradual decline in consumption. Europe and North America are also self-sufficient in beef production, so they selectively import the products they do not produce enough of, ie Europe – high-quality beef; North America – lean commodity beef for processing.

On the other hand, consumption in Asia is increasing at a rate that it is unable to supply itself. It depend on imports and should be the focus of all countries that depend on beef exports.