Brazil ban expected to have limited impact on Australian beef

Brazil has suspended exports to China after discovering two cases of ‘atypical BSE’ (mad cow disease). If the suspension continues, it could have a significant impact on the global beef market, given that last year China imported approximately 2.1 million tonnes of beef, with 36.5% and 20.9% of volumes coming from Brazil and Argentina, respectively. 2021 is trending even higher, with Chinese beef import volumes up 11.5% for the year-to-date, due to ongoing protein shortages and improving demand.

Although disruptive, it is unlikely the restrictions will last very long. The last instance of Atypical BSE in Brazil was resolved within approximately 10 days, and given China’s reliance on Brazil to fulfill beef volumes and China taking 60% of Brazil's beef exports, both countries are incentivised to amend this as quickly as possible.

Furthering motivation is the announcement that Argentina – the second largest exporter into China – would extend its export controls for another two months. To curb high domestic prices, Argentina has banned the export of several popular cuts and shipments are restricted to 50% of last year’s output until November. Given global demand for beef is so elevated, it’s likely these restrictions may extend further. Even if Brazil returns to market quickly in the medium-term, Chinese import demand will remain strong.

The US appears to be in the best position to capitalise in the medium-term, given improved access into China, continued rising exports into premium Asian markets and tighter supplies out of key competing exporting nations. Year-to-date, the US has imported eight times more beef into China compared to 2020, and with the USDA currently forecasting beef demand to increase another 6.4% in 2022, the US is positioning itself as a reliable competitor in the Chinese market.

The impact on Australia looks to be limited, considering the current ‘rebuild fuelled’ supply shortage and trade tensions that have reduced Australian access to the Chinese market. The cessation of Brazilian exports to China and the extension of Argentina’s restrictions will however continue to apply upwards pressure on the market in maintaining historically high prices at home. However, the recent shakeups out of South America may provide some benefit over time. Given that Australia has the best traceability systems in the world, it can prevent instances like these occurring, which will hopefully be a consideration for China moving forward.