Report Highlights

Post projects beef and pork production to increase in 2007, mostly driven by strong domestic demand and a recovery of the export market. Profit margins for both cattle and hog producers are expected to recover after low levels in 2006 as feed prices remain stable. There are some uncertainties related to the poor management and enforcement of animal health programs that could negatively impact on exports in 2007, in particular those to the European Union.

Executive Summary

Cattle inventories continue to expand in Brazil in response to higher investments in animal genetics and improved pasture and management practices stimulated by government credit programs. Production of beef is projected to increase in 2007 in response to higher domestic demand, because of competitive consumer prices; and a projected growth in beef exports, as Brazil resolves its market access problems with foreign markets due to the outbreak of Footand- Mouth Disease (FMD) last year in Mato Grosso do Sul. Continued aggressive market promotion efforts in non-traditional markets will also help to increase beef sales.

Pork production and exports is also projected to increase in 2007, recovering from a poor performance in 2006, mostly due to the Russian ban on Brazil’s exports of pork, since Brazil remains heavily dependent on the Russian market. However, aggressive market promotion efforts are targeting other destinations and exports are expected to grow in 2007.

Pork Production

Post forecasts pork production to increase by eight percent in 2007 recovering from the current decline of 2 percent estimated for 2006. There are two main factors supporting our forecast: a recovery of the export market combined higher domestic demand. This projection also assumes a moderate increase in feed costs since the new Crop Plan officially announced for 2006/07-crop year continues to inject more subsidized credit to increase corn production, and provided funds for renegotiation of old farm debts. It also assumes that current favorable returns to hog breeders will continue in the first half of next year. Brazilian pork exporters also project a moderate devaluation of the Brazilian currency in 2005 that will make the Brazilian product more competitive in world markets.

Our forecast also estimates an increase in hog production in the center-west region due to investments made by national and foreign groups, mostly in the state of Mato Grosso. These investments benefit from long-term federal credit lines as well state development programs. An increase in hog production in the center-west region will off-set a small decline in hog production in the southern region of Brazil, where hog producers have balanced supply and demand to increase profit margins.

However, the three most southern states of Brazil still account for about 40 percent of swine slaughter and the production system is highly vertical. About 45 percent of Brazil’s pork production is concentrated among 10 large packers, of which Sadia accounts for 11 percent of production, followed by Perdigao with 8 percent, Aurora with 7 percent, and Seara with 5 percent. Although Seara only accounts for 5 percent of total pork production, the company alone accounts for 25 percent of all pork exports.

Consumption

Pork consumption in 2007 is forecasted to remain strong mostly because of the expected stable consumer prices and strong market promotion conducted jointly by producers and packers to increase per capita domestic consumption of fresh pork in Brazil. Promotional activities for pork are concentrated in the supermarkets, mostly in the Center-South of the country.

Pork utilization in Brazil is estimated at 70 percent industrial/processing, and 30 percent fresh consumption. A promotional campaign to increase fresh pork consumption, which started in the south, has expanded to other major cities in the southeast. Pork producers remain concerned about the seasonal trend of fresh pork consumption in Brazil that is concentrated during the winter months (June-August), and are trying to address this concern with their campaign to promote the benefits of pork consumption year-round. Pork producers are trying to close the gap between the regions of Brazil in terms of pork consumption. Currently, per capita pork consumption is concentrated in the South with per capita consumption at 18 kilograms and the Southeast at 15 kilograms, while the Center- West (11 kilograms) and Northeast (6 kilograms) regions consume less pork.

Trade

Pork exports are projected to increase by five percent in 2007, after a significant decline in 2006, due to the Russian ban (see below). According to trade sources, although pork exports are still too concentrated in the Russian market, exports to other non-traditional markets are projected to increase next year because of increased market access through negotiations of SPS issues and aggressive market promotion in target markets to reduce Brazil’s dependence on pork exports to the Russian market.

Review of 2006 pork exports: Post revised the estimates for pork exports in 2006. The volume of pork exports during Jan-June 2006, decreased by 30 percent, a significant reduction. This result is mostly attributed to the Russian ban on eight Brazilian states due to the FMD outbreak last year in Mato Grosso do Sul and Parana. As of August 25, 2006, except for Rio Grande do Sul and Mato Grosso; Russia continues with the ban on imports of Brazilian pork from six other states, including Santa Catarina. The decline in the volume of pork exports during the first half of 2006 was partially offset by increased exports to other destinations in Eastern Europe (mostly Ukraine), and to Hong Kong and Singapore.

Marketing

In addition to the domestic campaign to increase consumption of fresh pork, Brazilian pork exporters initiated a marketing program in 2002 to expand overseas sales of pork. The program is half financed by the Brazilian Pork Processors and Exporters Association (ABIPECS) and the other half by the Federal Government Export Promotion Agency (APEX), under the Ministry of Industry, Commerce and Foreign Trade (MDIC). In 2006, ABIPECS renewed its agreement with APEX for funding US$ 2.8 million for market promotion activities during 2006/07, of which APEX will fund 50 percent.

Market promotion programs developed by ABIPECS include: trade servicing, participation in trade shows (principally FOODEX Japan, HOFEX Hong Kong, World Food Moscow, SIAL, and ANUGA Germany), display and sampling of products, sales catalogs in foreign languages, trade missions, reverse trade missions, and publicity.

Target overseas markets include: Asia, Eastern European countries, the European Union, and other countries in Latin America. Since Russia became the largest importer of Brazilian pork, ABIPECS is targeting Russian retailers in their promotional efforts to avoid the high cost of doing business in Russia through European trading companies.

Policy

There are no major changes in policies for pork production and exports. Brazilian packers remain eligible for all production and export financing programs listed in GAIN 5622.

Further Information

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