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Paradigm shifts in the beef cattle production

The beef cattle production chain has gone through intense transformations over the last decades, resulting in new dynamics of the sector. For agents, it is clear that, since the Real Plan and the end of the inflationary trend and financial gains, both producers and the industry had to adapt to the new reality of low margins and the need of working capital.

 

This new scenario of the Brazilian economy, along with the globalization movement in the 1990’s, triggered the search for a better planning of the activity as a chain.

 

However, since the early 2000’s and specially over the last 10 years, with the significant increase of Brazilian beef exports, the beef cattle production sector has faced three paradigm shifts: industrial, of the consuming market and of the production.

 

The first big movement was observed for slaughterhouses. Due to the reduction of inflation, the market opening and the need to become more efficient, the industrial sector had the need to obtain higher cash flow and investment capital. This trend started in 2007, with the IPO (initial public offering) of JBS, Minerva and Marfrig meatpackers and the policy of the government in that period, with contribution of public institutions, such as BNDES (National Bank for Economic and Social Development).

 

The IPO, in turn, brought a new reality for the sector. The financial structure and the operation in future markets of the exchange rate and cattle improved, as well as contracts with clients and the reach of end consumers.

 

This new reality led many companies to leave the activity due to lack of efficiency and professionalism and the sharp competition with groups that were obtaining more investment. Consequently, there was a movement of concentration of the sector – the participation of three major companies in Brazilian slaughters changed from 27.8% in 2007 to 57.4% in 2016. Moreover, this movement changed relationships between suppliers and clients, encouraging changes in other areas of the chain.

 

The second paradigm shift occurred for the consuming market. From 2005 to 2014, the Brazilian economy went through a positive scenario, with inflation control and increases of salary and employment, resulting in heated consuming market. The higher purchase power, in turn, led the Brazilian consumer to search for products with higher added-value and, for beef, it means a standard and soft meat.

 

Therefore, for the first time, branded beef appeared. Moreover, the number of slaughterhouses with differentiated meat and specialized in market niches increased. At this point, consumers were looking for quality and creating a new relationship with the product offered.

 

In São Paulo, new slaughterhouses appeared, with Sisp (state inspection), aiming to sell meat only in São Paulo State, where there is high purchase power and firm demand for differentiated products. Slaughter numbers confirm this scenario. In 2010, SIF (federal inspection) slaughters accounted for 92% of the total in Brazil, and in 2017 it changed to 77%.

 

According to data from Indea (Mato Grosso Agricultural Defense Institute), the search for higher quality affected the producing sector. In 2006, the slaughter of animals older than three years-old accounted for 57% of the total in Mato Grosso State, and in 2017, the number of slaughters of animals up to three years-old represented 77% - Idea data.

 

The third paradigm shift was observed in the producing sector: producers changed their way to see the activity after changes in the sector in the last decade – until the 1990’s, cattle raisers had cattle as store of value.

 

The need to improve yield and profitability – due to the advance of other activities (grains, sugarcane, forest etc.) and to limits of areas available for expansion – led cattle raisers to search for new technologies in nutrition, pastures, health management and genetics. This context resulted in lower costs, increasing the competitiveness of the activity.

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