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Meat Products: Competition from Low Cost Countries

by 5m Editor
11 January 2008, at 12:00am

By Peter van Home and Robert Hoste for the FAO. The EU is a leading exporter of meat: net exporter for pork and poultry and net importer for beef.

Major flows are traded between EU countries. The trade balance in meat of the EU developed negatively: the surplus decreased.

It may be better for the the EU meat industry to focus on the production of fresh products for the demanding European customer. The local industry has an advantage over third countries ins this sector - and Euopean customers are very discerning.

The competitiveness of the EU meat industry is weak and third countries like Brazil and Argentina have competitive advantages in meat production becasue of thier relatively cheap inputs, such as feed (abundance land for forage and cereal production) and labour.

Large and reliable livestock supplies and low labour costs, combined with economies of scale are key factors contributing to the competitiveness of the meat industry. Due to higher labour costs, the US has these advantages to a limited extent.

Consolidation

The need for consolidation will be a key issue in the meat industry. Only large companies with an adequate scale can exploit the opportunity to supply the different preferences for particular meat cuts between countries.

The EU meat industry is currently protected by trade barriers, such as high import tariffs, quotas and sanitary protection. And, due to recurrent outbreaks of animal diseases, and the fact that outbreaks are difficult to foresee, global meat trade is and will remain restricted and less structured.

Competitive position of the ELI Food Industry sectors in the global and EU Market

Overall competitiveness of EU and major competitors

FAO

The competitors are not consistently strong in all competitiveness indicators. The Brazilian meat industry is growing in importance within their food industry and on the export market. The Brazilian growth of real value added and labour productivity is weak. The opposite applies to the US. On average all competitors are stronger than the EU-15.

World Market

Meat plays an important role in food consumption. Different types of meat are produced and consumed: pork, poultry, beef, sheep and goat and various other meat types. Beef and ovine meat production typically originate from grass-fed animals. Pigs and poultry are fed mainly with compound feed and, in general, are kept inside in a controlled environment.

The 2006 forecast for total meat production in the world amounts to 272.5 million tons (carcase weight equivalent). In the EU-25 it amounts to 41.3 million tons, 15.1 per cent of the world meat production (FAO, 2006). Delgadoetal. (1999) predict an increase in meat demand to 303 million tons in 2020.

China is a large meat producer with over 50 per cent of the pork production and one third of all meat production. Chinese exports amount to just three per cent, below the countries used in the benchmark. China however is expected to become a large net meat importer in the future, given an expected major increase in meat consumption caused by increasing income and wealth of the Chinese, in combination with a limited national feed/food supply which also competes with human food demand.

Table 1. Production of meat in the world in and some countries (mln. tons)



Source: FAOstat, 2006 forecast (FAO, 2006).

About half of the production and consumption of meat in the EU-25 is pork. The production of pig and poultry meat is growing and the production of beef and ovine meat is in decline.

The trend has been evident in the EU since 1995. The forecast of the FAO indicates a decrease in 2006 for poultry and beef in the EU. Pork production increased in all countries, quite strongly in the US and Canada. Brazil shows a strong increase in poultry and beef production.

Large importer and exporter

Sheep and goat meat is of less importance in the total meat production: EU-15 and Australia are the most important producers. Europe is the largest exporter of meat, but also the largest importer. If the intra trade within the EU member states is excluded, the EU-15 is the second largest exporter after the US. The figures in table 2 show that Australia, Brazil and Canada increased their share on the world export markets, which is in line with the production growth as mentioned in table 1. China, the world's largest pork producer, is the next biggest exporter after these countries. This country is not chosen as benchmark due to the lack of data.

Table 2 Major exporting and importing countries in meat.

FAO

Competitive position of the EU Food industry

Consumption per head

Consumption volume and pattern differ between countries. About 40 per cent of all meat consumed in the world is pork, followed by poultry meat at 30 per cent, and beef at 25 per cent.
EU-25 consumers are important meat consumers, with annually 89.0 kg per head, compared to 40.3 kg per head in the world in total. Pork and poultry meat consumption in the world is growing. Figure 2 shows the meat consumption per EU member state and per type of meat.

Figure 2 Meat consumption per member state and type of meat In 2003 (kg per head)

Based on FAO Stat data

Figure 3 Meat consumption trend per type of meat of EU-25. Years 1990 - 2003


European Food Industry - An economic and legal assessment 2007

The variation in meat consumption between countries is huge: from 52 kg per head in Latvia to 122 kg in Spain. Ovine meat consumption is also high in Cyprus and Greece, followed by moderate consumption in Ireland, UK and Spain.

The main type of meat is pork with Austria, Denmark and Spain consuming over 60 kg of pork compared with UK, Latvia and Greece with less than 30 kg. Poultry meat is preferred in Cyprus, Hungary, UK and Spain. Beef is less preferred in Hungary and Poland, whereas the Danish and the French consume more than 25kg of beef per head a year.

Figure 3 shows the development of meat consumption in the EU-25 since 1990. Meat consumption in the EU-25 increased slightly from 86.3 kg in 1990 to 89.0 kg per head in 2003.

A shift is found towards less beef and sheep and goat meat (-19 per cent and -21 per cent) and more pork (+6%) and particularly poultry (+28 per cent). Also other meat (game, rabbit, horse) increased by 20 per cent over this period.

Table 3 shows the highest Balassa index for Denmark, indicating that Denmark is very specialised in meat export, but of declining importance.

Meat export is relatively important for Brazil and Australia. Brazil shows the highest growth of the revealed comparative index. Meat export of the EU-15 (intra-trade excluded), is less than 1, which indicates relatively low importance. The trend is negative; it is becoming even less important.

Table 3. Revealed comparative advantage (Balassa index) and growth rate from '1996-1998'to '2002-2004'

The performance on the domestic market is compared to the food industry as a whole. Thus, if the share of real value added of the meat industry in the total food industry grows, the meat industry performs better than the whole.

Figure 4 shows that the major competitors of the EU have a fairly high annual growth of the share of the meat industry in the food industry, whereas the EU-15 and also EU-25 countries have a slightly negative annual growth. This shows a rather negative competitiveness of the EU compared to the competitors. Within the EU there is a variation in annual growth, with Poland as a very strong grower, followed by Spain and Italy. Ireland and Germany have negative growth figures.

Spain appears to be quite a strong grower. Currently (2006) however, the growth of meat production and export is expected to stagnate. The Netherlands, on the other hand, has had a cut in pig numbers forced by policy measures; growth of value added in the meat industry in 2006 is likely to growC

Figure 4 Annual growth of the real gross value added at factor costs: share meat industry in food industry


Further Reading

- You can view the full report in pdf format (23 pages ) by clicking here.


January 2008