As China's wealth increases, so does its hunger for beef. A boon for meat-producing countries?
At a conference held by my colleagues of Agri Investor in Melbourne this week, Australian beef featured as the lunch centrepiece. It was also on the menu of many conversations that day – including a keynote address by Johannes Zhou, chief strategist of CIC, China's sovereign wealth fund.
Zhou appeared pretty bullish on the meat industry. While Chinese imports had dropped across the board, he said, demand for agricultural products was holding strong. King among them was red meat: disruption to beef supplies earlier in the year had caused social unrest in northern China, pushing protein security higher on Beijing's agenda.
That’s the kind of news Australia is currently hungry for – and it is not alone. Having seen their exports collapse after China's demand for commodities slumped, mining champions from Latin America to Central Asia are struggling to keep afloat. Their currencies have sagged; domestic consumption has dropped.
But there's a silver lining: with less of the foodstuff they produce consumed locally, the likes of Brazil and Argentina have more to export – at a time when greater wealth per capita is propping up China's appetite for meat. And not just any meat. While the country's total demand for edible flesh is rising about as fast as its population, red meat shipments are increasing "exponentially", an insider observes. Weak currencies are providing a further boost.
This view is echoed by Maersk, the world's largest shipping line. "If you would have told me this a year ago, I would have said: 'No you're crazy, it's not possible'," the company's head of Latin America told the Financial Times yesterday. He was referring to Brazil's recent conversion into a net exporter, thanks to stronger sales of animal foodstuff.
China is certainly growing more carnivore. A study by PwC reckons the country's annual demand for meat will rise from 57kg per person to 74kg over the next few years, requiring it to import the equivalent of nearly all of Brazil and Argentina's yearly production combined. Some 94 million tons of soybeans and corn – along with fresh arable land the size of England and Wales – will be needed to feed the stock.
But there are caveats. For one, as Zhou explained, "trying to predict China’s demand is very, very difficult; in particular those demands created by problems in China. Once those problems get corrected the market will slowly recover.” He was referring to China's 2008 baby milk scandal, which left six infants dead and thousands ailing. Less than a decade after being nearly wiped out by the episode, the milk industry is bouncing back into shape.
Besides, while China's underdeveloped cold chain is often seen as a limit to producing locally, much money is being invested in easing this bottleneck. A big push in automation is also making factories more efficient. That's not to say China will soon try to scrap all imports: Beijing is starting to see benefits in outsourcing the production of some of its staple crops, especially those with less value-added like soy. But it may retain a more chauvinistic approach for meat, a higher-margin product.
What's more, competition for Chinese palates is fierce. Australia may be China’s natural meat supplier due to its (relative) geographical proximity, but over recent years Beijing has cranked up imports from Brazil and Argentina. It is also keen to sponsor new entrants: last month it pledged to invest $1.9 billion in 19 agricultural projects in Kazakhstan, along with the infrastructure needed to bring their output to the Chinese market.
Exporters should therefore remain cool-headed. With the commodity debacle still fresh in everyone's mind, getting caught out by yet another Chinese bubble could be hard to stomach.