Markets

Brazilian Meat Production

By USDA, FAS - This report looks at Brazil's recent export success, focussing on how the Brazilian Pork industry is suffering under Russian TRQ's. Brazil’s export prowess in agricultural products is the result of a deliberate strategy that began in the early 1990’s. After discarding a policy of import-substituting industrialization, which for years crippled agriculture by diverting state resources into industrial development, Brazil has now fully embraced agriculture as a way to generate export revenue and encourage employment in rural areas.

16 July 2004

4 minute read

The meat sector in particular is regarded as an important channel for valued-added exports. Investment in the meat sector has been most noticeable in the south and southeastern regions, where there is generally greater affluence and better access to maritime infrastructure.

The States of Paraná, Santa Caterina, Rio Grande do Sul and São Paolo, which comprise less than 10 percent of Brazil’s total landmass, encompass 37 percent of the population and 51 percent of GDP; these States also account for 70 percent of poultry production, 49 percent of pork production, and 26 percent of beef production.

While the majority of Brazilian meat exports still originate from these four States, the Cerrado region, a 1.5 million square kilometer expanse located around the central plateaus of Mato Grosso, Mato Grosso do Sul, Goiás and Minas Gerais, is the new frontier for largescale agricultural development. Already well known for the production of corn and soybeans, Brazil’s Cerrado is also ideally suited for livestock and poultry production. With abundant feed supplies and inexpensive land still relatively unencumbered by environmental regulations, the Cerrado has vast potential for meat production. Almost half of Brazil’s beef herds, which are largely grass fed zebu breeds, are based in the Cerrado. Regional poultry production has also nearly doubled in the 6 years between 1997 and 2002.

Growing Pains in Brazil’s Pork Industry

Within the last decade, Brazilian pork production has grown by an average of almost 10 percent a year to more than 2.5 million tons in 2003. Until the early 1990’s, Brazilian swine herds were primarily composed of mixed breeds of lard-producing low-quality animals. However, as demand for lard diminished, hog farmers gradually turned to higher quality meat breeds such as Duroc, Landrace and Large White.

Traditional Brazilian hog farms in the South still tend to be small to mid-sized operations (typically with less than 250 sows). These farmers frequently engage in vertically integrated arrangements with large agribusinesses that will provide genetics, feed and technical services before purchasing the final product. With the constraints of prohibitively expensive credit, small independent farmers are often reluctant to face the risks of large-scale expansion.

Cheap land in the Cerrado region does offer the possibility of larger scale pork production, however, inland transportation infrastructure is grossly inadequate. Most highways outside of the large urban centers are still undivided two lane roads, and railways are better suited for the transportation of bulk commodities. Notwithstanding the limitations in Brazil’s transportation network, pork exports have grown at an astonishing rate. In 1990, Brazil exported 19,000 tons or about 2 percent of total production.

By 2003, 603,000 tons, almost one fourth of all pork produced, was leaving Itajaí, Rio Grande and other southern Brazilian ports for Russia and other markets around the world. Since the year 2000, Brazil’s fortunes in exporting pork have been closely tied to the Russian market. After overcoming a series of trade disruptions due to veterinary concerns with Aujeszky’s disease (pseudorabies), Brazil has had to face Russia’s tariff rate quota (TRQ) system. Under the 2004 Russian TRQ, Brazil is competing for a share of the 179,500-ton quota (product weight) reserved for “other countries”.

Although Brazilian pork remains very competitive, this quota is 40 percent lower than the amount Brazil managed to ship in 2003. As a result of the Russian TRQ, Brazilian pork exports for 2004 are forecast to decline by almost 30 percent, to 425,000 tons (CWE). The anticipated decline in exports is bound to place a considerable burden on Brazil’s domestic pork consumption, which is notoriously underdeveloped. Annual pork consumption stands at a relatively low 12.4 kg. per person. While wealthier southern states like Santa Caterina and São Paolo consume more than twice the national average, pork is commonly sold in relatively expensive processed form and, consequently, is often unaffordable.