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Is lower meat production in China a big business for Brazil?

In 2019, China, which has been an essential partner for Brazil in terms of meat trades for years, has gained even more importance. Due to the lower production of swine products in the Chinese market, due to cases of African Swine Fever (ASF), players in that country have increased imports of meat and Brazil, one of the biggest producers and exporters of meat, has gained advantage in this scenario.


Secex data indicate that, from January to May 2019, the volume of pork shipped by Brazil to China upped 12% compared to that in the same period of 2018. Considering poultry and beef, increases were 15% and 16%. In the same comparison, the revenue in dollar rose 13% for pork, 32% for poultry and 19% for beef.


As China increases the volume purchased and the value paid for the Brazilian meat, both relevance and attractiveness of this destination increase as well. According to Secex, in the five first months this year, 25% of the pork exported by Brazil was shipped to China. For beef, the number is 18% and for poultry, 13%. Considering shipments to Hong Kong, since there is a triangulation involving the region, China and Brazil, percentages increase to 48% for pork, 39% for beef and 17% for poultry.


It is clear that, with sales focused on the Asian market, the performance of exporters is related to it. As a result, the recent announcement of Mapa (Ministry of Agriculture, Livestock and Supply) about the temporary suspension of beef exports to China, due to an atypical case of mad cow disease in Mato Grosso, raised the alarm among players.


Russia is a recent example of how the scenario of shipments focused in only one destination may affect trade relationships between importers and exporters in case of any health or political measure. In November 2017, the Russian veterinary and phytosanitary service announced the suspension of pork and beef imports from Brazil.


In that time, the Brazilian market, although fearful, had expectations that the situation would quickly be reversed because of the important relation between both countries. In 2017, up to November (last month before the suspension), Russia was the biggest destination for the Brazilian pork, accounting for 40% of national shipments, and the third biggest destination of beef, participating with 11% of sales. Moreover, Brazilian exporters were responsible for a great amount of the Russian supply. In 2017, 51% of the total beef purchased by Russia was sold by Brazil and, for pork, this number was 91%.


Although data indicate a mutual importance in the trade relationship between Brazil and Russia, the embargo to the Brazilian meat lasted for almost a year, surprising players and generating significant losses, mainly to swine producers and to the agroindustry. Even after the market reopening in late 2018, the volume imported by Russia reduced sharply compared to the period before the embargo.


Currently, China is the most important destination for pork and poultry from Brazil and the second biggest importer of the Brazilian beef, only behind Hong Kong. As for the Chinese market, data from 2017 indicate that Brazil was responsible for a big share of the meat supply. In that year, from the total poultry imported by China, 84% were from Brazil; for beef, the percentage was 30% and for pork, 4.7%.


The context involving China (health problems in the swine herd and the trade war with the United States) may lead Brazil to strengthen relations with Chinese players. Although health and political issues are temporary, the huge population makes this a strategic market for food exporters.


However, Brazilian players may be focused on the fact that exports, mainly of beef and pork, are concentrated in the Asian market. The more diversified the sales, the lower are the chances that Brazil faces major impacts with reduction/interruption of shipments to one destination only. In addition, the Chinese government has recently announced that will stimulate meat production in the country, as well as it will encourage the recomposition of swine herds. As a result, as the local meat supply gets back to normal, the increase of Brazilian shipments, because of ASF, may reduce.


Consequently, Brazil needs to have strategies to keep its long-term commercial relationship with China and, at the same time, increase its participation in other countries. Trades between Brazil and China are indeed attractive, but players who work on the meat chain need to have a wider view, aiming more consumer markets.

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