On Friday last week, Brazilian officials announced allegations that the country’s largest meat producers had been selling and exporting spoiled meat, aided by bribes to government officials and agricultural inspectors. We put together an assessment of the situation using data from Gro to help evaluate the repercussions of this large disruption to the global meat market.
The Importance of Brazilian Meat:
Domestically, this scandal occurs at a bad time for Brazil. After years of lackluster economic performance, Brazilians hoped for a much-needed boost from their previously booming agricultural sector. While the Brazilian meat industry will recover in the long run, the scare’s short-term impact will mean that the meat industry can’t provide the rapid relief that the economy needs.
Brazil was the world’s largest exporter of beef and chicken meat. After the scandal erupted, nations around the globe quickly moved to either suspend, restrict, or re-inspect Brazilian imports.
On Monday, China, which is the largest importer of Brazilian beef and chicken, announced that it was suspending Brazilian meat imports. Since then, other importers that have also imposed restrictions on Brazilian meat include the EU, Hong Kong, Japan, South Korea, Chile, Mexico, Canada, and Switzerland. Though South Korea has since lifted its restriction, South Korean grocery stores are still removing Brazilian meat products from their shelves, along with their counterparts in China and Hong Kong. Major Brazil customers Saudi Arabia and Egypt have also announced re-inspections of Brazilian meat that had already been imported.
Such a scandal will continue to have major repercussions across the global meat market. The sudden disappearance of the second largest producer of both beef and chicken in the world has sent suppliers scrambling for new sources.
In the Gro bar chart below, we see that China and Hong Kong mostly import beef from Brazil, Australia, Uruguay, and the US. With Brazilian beef and chicken off the market, domestic meat suppliers worldwide must turn to their other trade partners.
But a view of cattle herd sizes in the other countries that China and Hong Kong import beef from casts doubt on whether these other trade partners will be able to fill the void. Brazil alone has more cattle than all these other countries combined. Australia is a front runner to replace Brazil in exporting more beef to China. However, Australia is still attempting to rebuild its own cattle herds after a drought in 2013 to 2015. Furthermore, its higher-priced, higher-quality beef can’t really substitute for Brazil’s lower-end product.
Similarly, global poultry supply has already suffered this year from a spread of avian flu in the US, Asia, and Europe. The resulting near-simultaneous shock to supply in both the beef and chicken markets will result in increased meat prices—and price volatility—in the remainder of 2017.